Why Knowing the Language Matters:
When I was in college, I was lucky enough to study abroad in Italy. In preparation for the trip, my college offered an optional "Italian 101" class, and I opted not to take it. A few days into our trip, I was shopping in an open-air market when "nature called." I won't tell you what happened next, but I will say that I sorely regretted not knowing the Italian word for bathroom. I didn't need to be fluent in Italian but knowing a few basics certainly would have improved my trip!
Health Insurance Terms You Need to Know:
When shopping for a health plan, we encounter terms that we rarely hear in our daily lives: "out-of-pocket maximums," "coinsurance," "deductibles." What do they all mean? And how do they affect our pocket books? The good news is you don't have to be an expert in the language of health insurance to figure that out. However, understanding a few basics terms will certainly improve your experience and could save you some money:
- Premium: What you pay your insurance company in order to maintain your plan. Your premium is paid monthly and is a fixed cost regardless of whether you have a major medical procedure or you have no medical costs at all.
- Deductible: How much you spend before your insurance company will pay for your medical services.* For example, John and Margaret had their first baby in February. The hospital charged $7,000 for the medical services associated with the delivery. John and Margaret's deductible was $5,000, so they owe the hospital $5,000. For any amount above $5,000, the insurance company will pay a portion, and John and Margaret will pay their coinsurance portion (see below).
- Coinsurance: Once you have met your deductible, you are responsible for a portion of the cost of the covered medical services you receive. The exact amount varies by plan but typically ranges from 10%-40%. Going back to John and Margaret, the total cost of their delivery was $7,000, and their co-insurance requirement is 20%. John and Margaret paid the first $5,000 and satisfied their deductible. For the remaining $2,000, John and Margaret will pay $400 (their co-insurance obligation), and their insurance company pays $1600.
- Co-payment (copay): A copay is a fixed amount you pay for certain medical services. For example, when you visit your primary care doctor you may have a $25 co-pay. Your co-pay does not count towards your deductible, but it does count towards your out-of-pocket max.
- Out-of-pocket maximums: An out-of-pocket maximum is the total amount you are required to pay during a policy period (usually a year). Once you have met your out-of-pocket max, your insurance company is responsible paying for 100% of all covered procedures. Deductibles, coinsurance, and copays all contribute to your out-of-pocket maximum. However, premiums are not included in your out-of-pocket max.
Returning to John and Margaret: In November of the same year, John and Margaret invited their family over for Thanksgiving dinner. John, a novice turkey carver, badly sliced his thumb while carving the Thanksgiving turkey and had to have surgery to repair it. John and Margaret met their $5,000 deductible when they had their baby. In addition to the baby, they have paid $200 in miscellaneous copays and $400 in co-insurance, for a grand total of $5,600. John's surgery costs $25,000, and their out-of-pocket max with their health plan is $10,000. Therefore, John and Margaret will pay $4,400 dollars for this surgery (out-of-pocket-max minus previously paid co-pays, co-insurance, deductible), and the hospital will pay the remaining surgery costs of $20,600.