The healthcare industry is a complicated machine requiring the coordination of multiple parties and countless behind-the-scenes operations. Something as simple as a primary care visit involves not just yourself and your doctor - but also your doctors’ administration and billing departments, your health insurance carrier company, and sometimes even your employer [who is usually the group insurance “policyholder”].
Coordinating lunch with just 3-4 friends can require a lot of work. Managing medical insurance feels more like trying to plan a local luncheon for 15 strangers, all living on different continents, and each speaking very limited English. But the reality is that you are not planning lunch; you are protecting the health of yourself and of the people you love - so the stakes are much, much higher.
I speak about these things not from my experience working as a health insurance agent, but from my experiences as a health insurance consumer; My many, many nightmarish experiences. I know firsthand how frustrating it is to feel confused by what is happening in an already stressful situation. Trying so hard to ask questions but either getting diverted elsewhere for answers or receiving answers that are unclear and unhelpful. All of this perplexity just to finally conclude by being held financially responsible for something you not only did not expect but still do not understand. It is frustrating and discouraging at best, but more often is just outright depressing. It can be an extremely isolating experience.
I want you to know that you are not alone in this. In fact, in my recent career, I’ve realized that more people have had these experiences than have not! Furthermore, I need you to know that you are not stupid, unintelligent, or in any way lacking by not understanding how or why you keep getting screwed by all this insurance stuff. Most people do not understand how health insurance works. I feel like I need to say this again for those in the back (or simultaneously streaming YouTube): Most people do not understand how health insurance works.
A nationwide study performed by United Healthcare in 2017 found that a mere 9% of the population could correctly define the 4 basic health insurance concepts: Deductible, Coinsurance, Copayment, and Out-of-Pocket-Maximum. While these results are slightly better than the study performed the year prior, where only 4% showed sufficient understanding of the same terms, it is glaringly obvious that we have a LOT to learn about the health insurance industry. These results should hopefully absolve any of the guilt or embarrassment you may have felt by having any of these conscious or unconscious knowledge gaps - I know it certainly did for me!
The fact of the matter is - we don’t know what we don’t know. But now that we do, I’m going to quickly and painlessly bridge some of this misinformation. The following health insurance breakdown will hopefully help you to secure a seat among our population's most knowledgable top 10%!
Deductible: A health insurance deductible refers to the amount of money you will be responsible for paying in medical expenses before your insurance carrier will begin contributing to your medical bills. For example, if you have a $3000 deductible, you should be prepared to spend about that much before you can expect much assistance from your health insurance.
Coinsurance: Now, coinsurance is the health insurance term that is the least talked about. If you are unaware of how coinsurance works it is easy to get confused about the other basic concepts. Coinsurance refers to the cost-sharing portion of your insurance policy; it kicks in after you have met your medical deductible, but have not yet reached your annual out-of-pocket maximum. Once your deductible is met, your insurance company will begin to pay for a portion of any medical bills that are accrued, though you will also still be responsible to pay for a smaller portion of these bills. The coinsurance rates vary by policy and can be anywhere from a 90/10 split (insurance paying 90% with you paying 10%), to 50/50.
Out-of-Pocket-Maximum: Your out-of-pocket maximum is the most money that you can be held responsible to pay in medical bills throughout the entire year. Another term for this is a “stop-loss”.
If your out-of-pocket maximum is $8550, and your deductible is $3000, you can expect to pay for 100% of your medical costs up to $3000, and then pay your share of the coinsurance rate on all medical bills until you have spent $8550.
People often confuse the deductible with the out-of-pocket maximum, which can lead to much frustration when you continue receiving medical bills after you know you’ve met your annual deductible.
While we all hope that we never have to meet our out-of-pocket maximum, if you do, your insurance will cover 100% of all medical bills accrued afterward.
Copay: The last of these 4 basic insurance concepts is one that is more generally understood than the above 3. A copayment (or copay) refers to a set agreed-upon price that you will pay for basic/routine medical services. Some plans will have copays outlined prior to the deductible, where others do not offer copay rates until after the deductible is met. Having outlined copays for basic services can offer peace of mind because you can know ahead of time exactly how much certain services will end up costing you.
Example: a common copay is around $40 for a primary care doctor's visit.
If your plan offers a copay prior to meeting the deductible, you would be able to visit your doctor for a $40 fee starting from day #1. If your doctor normally charges $200 for an office visit, the full fee will be billed to your insurance company, but you will only ever be responsible for paying the $40. If you meet the plan out-of-pocket maximum, those visits would be no charge.
If your plan offers a copay after the deductible, you would be responsible to pay 100% of the doctor's bill for each visit until you meet your medical deductible. After the deductible is met, you would be able to see your doctor for a flat $40 fee/visit. If you were to meet your out-of-pocket maximum, you would be able to visit your doctor for no charge.
If your plan does not offer copays, you would be responsible for 100% of the doctor's bill prior to meeting the deductible. If you have met your deductible, you would be responsible for up to 50% of your doctor's bill (dependent on your plan's coinsurance rate) until you hit the plan's out-of-pocket maximum.
I hope that these explanations have helped in making rhyme and reason out of some of your past experiences in managing your health insurance. When I was studying to become a health insurance agent and I finally connected all these puzzle pieces - my mind just about exploded. While it is complicated for sure, the foundation of it wasn’t nearly as difficult to understand as I’d always assumed it was. I, like many of you, simply had no one who could or would just sit down and help me with the puzzle.
This is just the very basic foundation of the health insurance design, but being able to understand even the base level was extremely profound for me.
I want to make it clear: grasping this information now means you are more knowledgeable than most others in regard to health insurance. Own this mind shift and allow it to empower you.