Whether you are going to the doctor for the first time on a new health insurance plan, or going because you have caught the flu, you don’t want to be dissecting the details of your plan in the doctor’s office last minute or receive a large bill later. To help you comprehend your health insurance plan to make smarter financial decisions, we have a 4-part blog series on the basics of health insurance. In this first post, we will discuss understanding your health coverage.
Components of a Health Plan
To better project your out of pocket health expenses, you need to know how your health insurance plan works and what it pays for. Whether you have individual coverage through the marketplace or group coverage through your employer, all plans are made up of the same components. Your plan might have all or only some of the below:
- Premium: The amount you pay to have health coverage. Most people pay monthly, have it automatically deducted from their payroll, or their workplace pays it for them.
- Deductible: The amount of money you pay before your insurance begins paying. Deductibles are usually round amounts like $1,000 or $2,000 per year. Generally, the lower your deductible, the higher your premium.
- Co-insurance: The amount of money you still owe once you have reached your deductible. Co-insurance is usually a percentage of the total bill. If your co-insurance is set at 20% and the bill comes to $100, you still owe $20. With co-insurance, even if you have hit your deductible for the year you are still responsible to pay the co-insurance percentage.
- Co-pay: The amount you pay at the time of a service. Most often, co-payments are standardized by your plan. For example, your co-pay might be $25 each time you see a physician or $50 each time you see a specialist.
- Out-of-pocket maximum: The maximum amount of money you pay for deductibles and co-insurance charges in a given year before your insurance company starts paying for all covered expenses. If your out-of-pocket maximum is $3,000, the MOST you will pay in a given year, including co-insurance, is $3,000.
Take a look at your personal policy to see which components you have and the amounts you are responsible for paying in the event of a medical service. Knowing this will allow you to boost your emergency fund to cover your out-of-pocket maximum, keep track of your receipts for a potential tax deduction, or pay for your expenses with a pre-tax savings plan option like an HSA or FSA.
This post is part of our Adulting blog series. Contact your employer for questions specific to your health insurance coverage.
