Health insurance is a big deal. In fact, it’s such a big deal that there are laws written specifically to address the topic, both at the state level and the federal level. After all, your health and the protection of it is literally a life-and-death issue, so it makes sense to take health insurance seriously.
As important as this issue is, you may still have questions about how health insurance works and what exactly it does. With terms like deductible, premium and policy floating about, the world of health insurance can seem a bit confusing. On top of that, there are many different companies that provide health insurance, and it can be hard to tell them apart or figure out what type of insurance you need.
Making Sense of Health Insurance
In a nutshell, health insurance provides payment for medical costs as long as those costs are covered by your policy. A health insurance policy is the document that lists what your insurer agrees to pay for when it comes to your healthcare costs.
Most of the time, having a health insurance policy will mean that you pay a monthly fee, called a premium, in order to maintain the policy. Your employer may split this cost with you and pay some of the premium costs each month. So, you basically pay a subscription fee each month to take part in a health insurance plan. If payment is not kept up to date, the insurance policy lapses and you no longer have coverage. This means you pay for all healthcare expenses 100% out of your own pocket.
If your policy is in effect and your premium has been paid, you have health insurance. If you need medical care, your insurance provider will pay for the care according to your policy. Some costs may be covered completely, meaning you pay nothing at all. Some costs may be split between you and your provider. Your policy is what determines what medical costs are covered and at what amount.
What Does Insurance Cover?
Insurance coverage depends on your policy and provider. Most health insurance policies cover basic medical care needs like doctor visits, hospitalization costs, surgery, prescription medications and emergency care. Others may include benefits for things like specialist care, wellness programs, gym memberships, nutrition programs and more.
A Note on Deductibles, Copayments and Coinsurance
Aside from premium costs, most health insurance policies carry a deductible. This is an amount that you agree to pay before your benefits begin to apply toward your medical care. For example, if you have a deductible of $4,000 and end up with a hospital bill for $3,000, you will need to not only pay the $3,000, but you will also have to pay another $1,000 in medical bills you incur during that benefit period before your coverage kicks in. If you do not experience at least $4,000 in healthcare costs for the benefit period, your benefits do not get applied. A benefit period usually runs annually.
Copayments are amounts that are paid by you at the time of service, although you may be billed by your care provider at a later date for these fees. Copayments are typically set by your insurance provider, so they will generally be the same each time you access medical care. For example, if you have a copay of $50 to see a specialist, you will need to pay $50 for each visit.
Coinsurance is similar to a copayment, but the difference is that a coinsurance payment is generally a predetermined split of the cost of visiting a healthcare provider. For example, your coinsurance may be 80/20, so your insurance provider would cover 80% of the cost of visiting your doctor while you would be responsible for the remaining 20%, regardless of what the total cost of the visit reaches.