Insurance can be confusing and overwhelming, so we thought it might help to share some information to try and help you understand how your insurance works.
Most working people get benefits through their employer. In this case, the employer negotiates with the insurance company for the coverage they want to offer. Usually the employer will pay part of the premium and the employee picks up the rest of the cost. They usually deduct your part of the monthly premium from your paycheck. The premium is simply the cost of paying the insurance company to give you coverage.
In addition to the monthly premium, you may have a deductible. That is the amount you must pay before the insurance policy pays anything for your care.
Say the deductible is $1,000. Each time you go to the doctor or use a medical service, you will pay for that visit out of pocket.
The cost is determined by how much the insurance company has contracted with the provider (doctor) for that particular service. That is called the “allowable.” In other words, that’s how much the insurance company allows the provider to charge you.
When the claim is submitted, the insurance company will apply that payment towards your deductible until the $1,000 is paid. To make it easy, let’s say the allowable is $100. You pay $100 each visit until the $1,000 deductible is met.
The allowable may be different for different providers. For example, you would pay a different allowable for a neurosurgeon than for a primary care doctor. And the allowable is likely different for a therapist with a Ph.D. than for one with a Master’s degree.
When the deductible is met, the insurance may pick up 100% of the cost thereafter, or you may pay a percentage of the fees. That percentage is called the co-insurance.
Say your co-insurance is 20%. You go to a specialist whose allowable is $100 for a particular service. You would pay $20 and the insurance would pay $80.
Your insurance contract will also have an out of pocket maximum, or stop loss. Say your OOP max is $5,000. Once you have paid $5,000 out of pocket ($1,000 + co-insurance that adds up to $5,000), you will pay no more for the rest of the year and the insurance will pay 100%.
Now it gets a little complicated: There is usually an individual deductible and a family deductible. For example, the individual may be $1,000 and the family may be $2,500. So, how do you know when it’s met and the coinsurance kicks in? It is met by whichever one comes first.
Let me explain with an example: Let’s say one person has a big medical issue and ends up with medical expenses totaling $1,500 early in the year. Boom, deductible met, because you have already paid the $1,000 for one individual. That being the case, you then begin paying the 20% coinsurance for any further medical costs for anyone in the family for the rest of the year.
However, let’s say that over several months, one person has medical expenses of $500, one has $700 and one has $200. No one person has added up to $1,000, so you would have to keep paying until one person gets to $1,000 OR the entire family gets to a total of $2,500. (Kinda stinks, but that’s the way it is.)
Please note that deductibles, allowables, co-insurance and out-of-pocket max all reset each year. Some insurance policies go by calendar year, some by plan/contract year. It’s good to know which yours is. I would say that most policies reset on January 1. However, some reset in the middle of the year. For example, State of Delaware employees have a plan year that resets on July 1. (Some rare plans even reset on other odd dates; for example, September 1.)
Instead of a deductible and coinsurance, some policies will simply have a co-pay. That is just the amount you pay for each doctor’s visit. For example, your copay may be $25. You would pay that for every doctor’s visit. However, the copay might be different for a specialist. And of course, it would be higher for a hospital stay.
Please note that many people think of therapists as specialists, but often the insurance companies see it differently. Therapy is often in its own category of mental health or psychotherapy.
After the insurance gets the claim from the provider, they send you an EOB (Explanation of Benefits) and a payment to the provider. (If you see the term EFT, it means Electronic Funds Transfer, which is how most providers get paid these days.) The EOB tells you how much was paid, how much was applied to your deductible, and how much you may owe the doctor.
You may also want to learn about flexible spending accounts, health savings accounts, etc. (Especially if your employer offers one.)
If you don’t have insurance through an employer, or Medicaid or Medicare, you get it on your own through the marketplace, in which case you comparison shop and find the policy that gives the best coverage for the best price.
If you are shopping for your own coverage, the company will probably do what is called “underwriting,” which means they evaluate your risk factors and determine how much they will likely have to pay out. If you’re young and healthy, you should be a pretty good risk. Someone who has a chronic or serious health problem makes them a higher risk.
Insurance is complicated. Many, many people do not know their own benefits and don’t understand how insurance works. It is good to know the insurance your employer provides to you, and how it works. This is your coverage that you work for. You should not allow the complicated nature of insurance to intimidate you.
The insurance company should have a phone number on the back of your insurance card that you can call to get information or clarification. Always ask questions until you get answers that you can understand. That way you can speak intelligently when questions or issues come up, and you can be sure that you are getting the coverage you are paying for. It also helps you calculate how to budget your health care expenses.
We hope this article helps you better understand how insurance works and what you can do to get further information or advocate for yourself when you need to.
** Please note that the examples given in this article are for illustration only. You would have to check with your own insurance company to learn specifics of your own coverage.
