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Health Insurance Explained - Demystifying the Confusing Components of Healthcare Coverage

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Health Insurance Explained - Demystifying the Confusing Components of Healthcare Coverage

Health insurance, in general terms, is very straightforward: You pay an insurance provider a set amount each month, and your insurance provider helps pay for your medical costs during the year.

If only its specifics were that easy to understand! First, there's the bewildering lingo of the healthcare industry, like deductible, co-pay, out-of-pocket limit, coinsurance, and premium. And then there are the perplexing comparisons, like HMO vs. PPO, qualified vs. non-qualified, platinum vs. silver, on-exchange vs. off-exchange, and in-network vs. out of network. After some initial research, you start to think, What does any of this have to do with health insurance?

Healthcare is complex! But thankfully, you don't have to be an industry expert to find a great plan. You just have to know the basics. To get you started, here's an overview of the most important things to know about health insurance.

The Fundamentals Of Health Insurance

Before you look for a plan, consider the four major components of health insurance:

  1. Covered services and medications
  2. Overall costs
  3. Healthcare provider networks
  4. Types of plans

These factors will help you decide what services you want covered, and what portion of healthcare costs you want your insurance provider to pay.

1) Services and Medications Covered By A Health Insurance Plan

The Affordable Care Act (ACA) is the healthcare reform law that requires every U.S. citizen to have basic healthcare coverage. Because of ACA standards, any plan you buy must offer 10 essential health benefits:

  1. Emergency services: Trips to the emergency room in case of accident or sudden illness
  2. Inpatient care: Treatment you receive if you're admitted to the hospital
  3. Outpatient care: Treatment you receive without being admitted to a hospital
  4. Care during and after a pregnancy
  5. Treatment for mental health and substance use disorders
  6. Prescription medications
  7. Rehabilitation services from injury, disability, or a chronic condition
  8. Lab tests to diagnose or monitor an injury, illness, or condition
  9. Preventive services and management of chronic diseases
  10. Pediatric services for children under 18, including wellness visits, dental care, and vision care

In addition to coverage of the 10 core benefits, plans can offer coverage for extra services you may need. The availability and cost of these services will depend on how much you're willing to pay for your plan.

2) Overall Costs Of A Health Insurance Plan

The total price you pay for a plan is determined by your monthly rate, and what you have to pay to receive medical care. Before you compare plan prices, learn more about the differences between these cost-related health insurance terms:

  • Premium:

The premium is the amount you agree to pay each month to maintain coverage by your insurance provider. Plans with higher premiums generally have lower deductibles and out-of-pocket costs.

  • Out-Of-Pocket Costs:

Even though your essential health benefits are covered by any ACA-compliant plan, you still have to pay for part of the cost of these services. These out-of-pocket costs are classified as copayments, deductibles, and coinsurance.

  • Copayment:

Typically called a copay, the copayment is a fixed dollar amount you pay when you visit a healthcare provider or receive any medical service. The specific copay amount depends on your plan. If you regularly visit any healthcare provider, or if you need prescription medication, pick a plan with a low copay.

  • Deductible:

You will have to pay a certain dollar amount over a benefit year before your insurance provider pays any part of your medical bill. That amount is called your deductible. The higher your deductible, the higher your total out-of-pocket costs. Copays do not typically count toward your deductible.

  • Coinsurance:

Once you've met your deductible, you'll share the cost of any future medical expenses with your insurance provider. Your coinsurance determines what percentage of your bill will be paid by you, and what will be paid by your insurance provider.

Say you have an 80-20 coinsurance plan, and you had an MRI that cost $2,000. You will pay 20% of the covered costs (after the deductible has been paid), and your insurance company will pay 80% of the covered costs.

Depending on your zip code, family size, and household income, you may be eligible for a government subsidy. To see if you qualify, ask an agent.

  • Out-of-Pocket Limit:

As the name implies, the out-of-pocket limit is the maximum amount you have to pay over a benefit year. If you hit this limit, your insurance provider will pay 100% of remaining healthcare costs for the year. The out-of-pocket limit includes the copayment, deductible, coinsurance, and other charges related to an essential health benefit. It does not include what you pay for monthly premiums or spending on non-essential health benefits.

The out-of-pocket limit is capped at $6,350 for any ACA-compliant individual plan, and $12,700 for any ACA-compliant family plan. Hopefully your healthcare bills won’t hit that limit, but the coinsurance maximum can help you in case you have a major accident or illness.

3) Healthcare Providers Included In A Plan's Network

Every health insurance plan includes a network of healthcare providers (doctors, hospitals, labs, clinics, and healthcare facilities) that are approved by your health insurance company. When you decide on a plan, you can visit any provider within that network. If you go to a provider outside your plan’s network, the service may not be covered by your plan. If that’s the case, you might have to pay the total amount of the bill.

4) Plan Types For Easy Comparison

Most people choose an HMO or PPO plan. These plan types have varied premium rates, out-of-pocket costs, healthcare provider networks, and processes for receiving and paying for approved care by providers.

To make these types of health insurance plans easier to compare, the ACA has categorized them into five "metal" tiers: Bronze, Silver, Gold, Platinum, and Catastrophic. These metal tiers are ranked according to what share of your medical costs you and your plan’s insurance provider would pay.

  • For the Bronze plan, you pay 40% of out-of-pocket costs, while your insurance provider pays 60%. Your monthly premiums will be the lowest of the metal plans, but you will have only basic coverage and high out-of-pocket costs.
  • For the Silver plan, you pay 30% of out-of-pocket costs, while your insurance provider pays 70%. You will have higher monthly premiums than the Bronze plan, but lower deductibles and lower out-of-pocket maximums than the Gold and Platinum plans.
  • For the Gold plan, you pay 20% of out-of-pocket costs, while your insurance provider pays 80%. Your monthly premiums will be higher than the Bronze and Silver plans, but your out-of-pocket costs will be much lower.
  • For the Platinum plan, you pay only 10% of out-of-pocket costs, while your insurance provider pays 90%. Your monthly premiums will be the highest of the metal plans, but your out-of-pocket costs will be the lowest.
  • The Catastrophic plan is only available to people under age 30, or to qualified, low-income individuals. It offers low premiums but very minimal coverage. It also has a high deductible and out-of-pocket costs.

Generally, plans with higher premiums, like Platinum and Gold plans, will have a larger network of healthcare providers. Since plans vary by state and insurance provider, talk to an agent to verify which plans are available in your area.

Other Types Of Insurance

If you're not sure you want to commit to a long-term insurance plan, you can opt for short-term or indemnity insurance. These insurance plans aren't ACA-compliant, so you aren't guaranteed coverage of essential health benefits, and you'll have to pay a tax penalty. However, short-term insurance can cover you immediately for a limited period of time. Indemnity insurance can be added on to a regular insurance plan to help cover additional out-of-pocket costs for medical care.

It's Time To Look For A Plan!

Now that you're familiar with the fundamental components of health insurance, you’ve got what you need to take the next step: picking a plan. And since you'll probably have questions along the way, look to the experts for advice. out-of-pocket limit will direct you to licensed agents who can answer your questions and sort out the confusing details of picking a plan.

Health insurance is much easier to understand when get support from the experts. Let First Quote Health connect you to a licensed agent who can help you find the best plan!

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Wednesday, March 11, 2015