Guide: How the Health Insurance Plan You Choose Impacts Your Finances
Nov 18, 2021
Knowing how health insurance works is important to being able to effectively manage your finances.
Your health insurance pays a portion of your medical bills in case you get sick or injured. It’s the details of your plan -- or in other words, your co-pay, co-insurance, deductible amount, and out-of-pocket maximum – that determines how much your insurance covers. This guide will walk you through what the key things that you need to know, so you’re able to understand how your health insurance can impact your finances.
1. The Basics: What is health insurance?
Health insurance is a payment system where individuals pay a monthly payment (a ‘premium’) to an organization which pools the money. In turn, the organization uses the money in the pool to cover a portion of these individuals’ medical bills.
How does it work?
Every month, you pay a monthly premium to your health insurance provider. Think of this as the monthly membership fee. This money is then placed in a pool with other individuals’ health insurance premiums. In exchange, your provider agrees to cover a portion of your medical bills after you have hit your deductible, or the amount of money you need to spend in a year before your insurance kicks in.
2. A Few Key Terms to Know
On nearly every health plan, you’ll see words like deductible, co-pay, co-insurance, and out-of-pocket (OOP) maximum. Pay close attention. These terms have a huge impact on your finances.
Let’s walk you through a few examples.
Let’s say your insurance plan has a $200/month premium, a $1,000 deductible, and 30% co-insurance.
Every month, you can expect to pay $200 – regardless of whether you see a doctor or not. Certain essential benefits are included for free as part of these costs – like getting your annual physical.
Now, let’s suppose you need have your tonsils removed, and this is expected to cost a total of $2,000. Assuming you haven’t made any healthcare payments this year, you will need to pay the first $1,000 (your deductible). At this point, your insurance kicks in. Because you have a 30% co-insurance requirement, you need to cover 30% of the remaining $1,000. This means your portion of the cost of getting your tonsils removed is now $1,300 instead of the full $2,000.
Now let’s suppose that you have a follow-up visit later that month which would cost $100. Because you have already met your deductible, the health insurance will pay $70, and you will pay $30 (your co-insurance amount).
What if instead of having a co-insurance requirement, your plan has a co-pay?
Whereas co-insurance is the percentage of your total medical costs that you’re on the hook for, co-pay is a flat fee. Let’s go back that example where you’re getting your tonsils removed, and the this is expected to cost a total of $2,000.
Assuming you haven’t made any healthcare payments this year, you will need to pay the first $1,000 (your deductible). At this point, your insurance kicks in – same as before. Instead of paying a percentage of the remaining cost, you will pay a fixed co-pay. The specific amount will depend on your specific health plan. Your co-pay could be $50, or it could $500 -- meaning your portion of the cost of getting your tonsils removed could be now $1,005 or $1,500.
Now let’s suppose that you have a follow-up visit later that month and there is a $50 for each office visit. You will pay $50 for each follow up checkup you have.
Which is better: co-pays or co-insurance?
The answer is that it depends. Co-insurance sets a percentage of the costs that you will share regardless of the total cost, whereas co-pays are a fixed cost. If the co-insurance is on higher cost services like hospital stays, outpatient procedures, or specialist treatments, then you may expose yourself to increased costs and financial risks. But there could also be scenarios where the co-pay fee could be more expensive.
Here’s another way to think about:
Want to certainty about what you’re paying à co-pay
You’re okay with less certainty about what your costs could be à co-insurance
What are Out-of-Pocket (OOP) Maximums?
Your “OOP” is the maximum amount that you must pay for covered services in a plan year. For example, your health plan’s OOP might be $16,000 per year. What this means is that your health plan will pay 100% of the costs for covered benefits after you’ve reached $16,000 in expenditures. What you spend on your deductible, co-payments or co-insurance all count toward this amount. For all health plans sold via a public exchange, the OOP cannot be more than $8,700 for an individual and $17,400 for a family.
3. What are the different types of healthcare plans?
All qualified health plans (or in other words plans that meet the requirements set out by the Affordable Care Act) are presented in one of four categories: bronze, silver, gold, and platinum tiers. Here’s what you need to know:
Your access to health care and services is the same regardless of tier of plan you have.
But, how much you’ll pay to access these services will differ depending on what metal tier you’ve selected.
Bronze plans tend to have lower monthly premiums but cover less of your health care costs (aka you’ll see higher deductibles, co-insurance rates and co-pays). Platinum plans have higher monthly premiums but cover more of your health care costs (aka you’ll see no deductible and lower co-insurance rates and co-pay amounts). The table below breaks down the typical breakdown for how you and your insurance company split your medical costs.
How do I choose between a bronze, silver, gold, and platinum plan?
It comes down to a few big things:
Your risk tolerance. Do you prefer to pay up front for health care costs or later? If you’re in good health, you probably can get away with buying a bronze plan. But, if you have a bigger medical event, you’ll pay more in costs than you would if you were on a silver, gold, or platinum plan.
Your health. Do you have a specific condition that requires regular medical attention? If you need to regularly visit the doctor, paying for a silver, gold, or platinum plan may actually save you money.
Your behaviors. Bronze and silver plans have higher deductibles, meaning that you’re likely to pay out of pocket for most primary care. Will this deter you from going the doctor? Many individuals on high-deductible health plans delay care – which leads to treatable conditions going undetected, becoming more serious, and ultimately costing the individual more.
4. Access to Health Care Providers
Health plans are also described as Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs), or Exclusive Provider Organizations (EPO). This impacts what health care providers you can see.
Each health plan has its own network or set of healthcare providers who agree to accept the health insurance plan. Insurance companies negotiate preferred rates with these providers. What this means that the healthcare provider (say a doctor or hospital) agrees to bill to a health insurance provider for services they provide to you at these rates.
In a PPO, your health plan allows you to see in-network providers AND out-of-network providers. You’ll likely pay more to see an out-of-network provider, but your health insurance plan will still cover some of the costs. PPOs are nearly always more expensive than HMO and EPO health plans.
In an EPO, your health plan will only pay if see an in-network provider. You can still decide to use an out-of-network provider, but you will have to pay 100% of the cost.
Finally, a HMOs is like an EPO in that your health plan will only pay for you to see in-network providers. You can still decide to use an out-of-network provider, but you will have to pay 100% of the cost. In addition, you need to get a referral from your primary care provider in order to seek specialist care. For example, let’s say you’re feeling chest pain. Rightfully concerned, you decide that you need to see a cardiologist. You would need to get a referral from your primary care provider first. These days, you can often get a referral through a quick virtual telehealth visit. Without the referral, you might have to pay 100% of the cost of care.
An EPO is similar to an HMO in that your health plan will only pay for you to see in-network providers. You can still decide to use an out-of-network provider, but you will have to pay 100% of the cost. Unlike an HMO, you don’t need a referral to see a specialist.
Here’s the bottom line: You pay a premium for flexibility and being able to go to any doctor or health facility.
5. How do I select the right plan?
Let us start out by saying, “there is no right answer.” It’s really up to you and your personal preferences. Here’s a few questions to help guide you:
How do you feel about your health? If you’re regularly getting your annual physicals and feel like you’re in good shape, a bronze or silver plan is probably a great choice.
Are you a risk taker? Even the healthiest individuals have unexpected events come up. How much do you want to financially insulate yourself against the unexpected? Gold and platinum plans may cost more up front, but they offer more protection against big, unplanned medical events.
Is there a specific doctor or health facility that you want access to? Not every doctor is covered by every plan. If you have a pre-existing relationship with a doctor or very specific healthcare needs, check to make sure that your health providers are in-network.
What’s your monthly budget look like? As with any other product, it’s up to you to decide how much you are willing to pay for health insurance and whether it fits your budget.
Interested in a personalized benefits report?
Reach out to us at http://www.venteur.com to take our benefits assessment. We’ll create a personalized benefits set of recommendations for you and your family.
This website is operated by Venteur, Inc. and Venteur Insurance Services LLC and is not the Health Insurance Marketplace® website. In offering this website, Venteur Inc. is required to comply with all applicable federal law, including the standards established under 45 CFR §155.220(c) and (d) and standards established under 45 CFR §155.260 to protect the privacy and security of personally identifiable information. This website may not display all data on Qualified Health Plans being offered in your state through the Health Insurance Marketplace® website. To see all available data on Qualified Health Plan options in your state, go to the Health Insurance Marketplace® website at HealthCare.gov.