When purchasing health insurance you need to understand a couple terms that will help with the decision process. I’ve included a brief explanation of these key terms to help you search for a health plan that will fit your specific needs and budget. Please remember the cost for medical exams, procedures, and hospitalization are extremely high so you need to have health insurance to limit the amount you will pay in the event of a serious illness or injury. It is also important to note that health insurance is not designed to pay all of your medical costs; insurance is simply designed to limit your exposure and assign the risk of paying high medical costs to the insurer.
So let begin with your monthly bill or the monthly premium. This is the amount you pay on a scheduled basis. For instance, if you get insurance through your employer, you would pay your part of the premium each payday. If however you have an individual or family plan outside of work, you would pay the full premium cost on a monthly, quarterly, semi-annual, or annual basis. You will need to pay your premiums on time or the plan can lapse or be cancelled, then you risk exposure to those high medical costs.
What is a negotiated rate or discount?
The greatest benefit in having health insurance is that the insurance company actually negotiates with doctors and hospitals for the best rates. These rates are then passed on as a discount that you pay, up to your deductible and according the plan co-insurance. You may feel that you are paying all the bills but the insurance is already at work providing cost discounts and coverage according to your plan benefits.
What is a deductible? The deductible is an amount of money you spend annually before the insurance starts paying. A typical deductible may be $1000 for the policyholder (Individual) and $3000 for the family. For example, you may have an MRI scheduled, which can cost as much as $3000. If you have a $1000 deductible you would pay the first $1000 of the bill. You have now met your annual deductible and the insurer will begin to pay part or all of the remaining $2000 based upon your co-insurance.
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You may have heard of an 80/20 plan in the past? Basically this means that once you have met your deductible the co-insurance kicks in. This is a way the insurer helps with expenses and protects you from paying a large portion of medical costs up front. With the MRI example you have now met the $1000 deductible the co-insurance begins. If you have an 80/20 plan that simply means the insurer pays 80% and you pay 20% until your out-of-pocket maximum is met. So, with the $3000 MRI bill you pay the deductible ($1000 in the example) and now the insurer pays 80%, or $1600, of the remaining $2000 bill. Your responsibility would be 20% of the $2000 bill or the remaining $400. So with the MRI example of a $3000 in costs, and considering you have a $1000 deductible 80/20 plan, your total expenses would be $1400 and the insurer pays $1600. Of course this example is considering you have not had any medical expenses previously applied toward the deductible and it is also important to note that co-insurance can and will vary from 100% to 50% based upon the plan design.
Out of Pocket Maximum
The out-of-pocket maximum is the maximum expense you will have any given year for your medical costs. In other words, you pay the deductible and a portion of co-insurance to a limit on an annual basis. This is the out-of-pocket maximum and limits your exposure in the event of a serious illness or injury. All health insurance plans have an out-of-pocket maximum and this information can be found in the benefit brochure or simply ask your Agent.
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