The Basics of Health Insurance
Welcome to our new blog!
Doctors Orders
Let’s start with a test.
Pam has health insurance that has NO co-pay, but has
a $500 deductible and 20% co-insurance after that.
How much does Pam pay for a $10,000 surgery?
Well, I suspect you were hoping there would be no math here, but we’re here to help people learn how healthcare really works--the good and the bad and the down right stupid. We also want to share how we can make it better together.
Never fear, we’ll share the answer to the test later.
For now, let's talk insurance!
A 2013 Carnegie Mellon University study found only 14% of participants could answer correctly four basic multiple-choice questions about deductibles, co-pays, co-insurance, and maximum out of pocket costs. Right now, you’re probably wondering what those terms mean. Don’t fret, we will define each term shortly.
This is our mission: improve your basic knowledge of health insurance and how it works. Let’s go!
In general, insurance is a contract between an individual and an insurance company. The contract is called a policy and describes all the benefits or payments the company agrees to pay the individual or policyholder. The policyholder pays a monthly premium (or fee paid to the insurance company) for a set of benefits that the insurance company agrees to pay out.
Still with me?
Let’s keep going to clear it up some more.
A health insurance policy not only spells out in great detail all the included or covered benefits that a claim (request for payment) may be submitted for but also the portion the insurance company is responsible for paying. Oh no, they are not paying for everything nor paying the full amount for anything. Most policies will cover doctor’s visit or trips to the emergency department but you may have a co-pay, which is the amount due from the patient or policyholder at time of service. On top of that co-payment, most policies have deductibles or out of pocket amounts that the patients must pay before any claim is paid out from the insurance company. These deductibles can range from $500 to $10,000 or more. That means even though your policy may state you have a $20 co-pay due to the clinic for care, if you have a $3000 deductible the insurance will not make any payments for care until you pay all your deductible first, called meeting the deductible.
Once you have met the deductible, many plans still have a co-insurance or amount the patient is responsible for paying—30%, 20% or 10%. This is where the term 80-20 plan comes from. In this type of plan, once all deductibles are met the patient pays 20% of the bill while the insurance company pays 80%. Some plans may not have a co-pay but only have a co-insurance. Some plans may cover 100% after the deductible is met. All the co-pay, co-insurance and deductible costs add up to the maximum out of pocket amount. Once you reach that maximum amount, the patient should not be responsible for any more payments.
Easy right? Well, here are some simple definitions to study.
Premium: regular fee paid to the insurance company for a insurance policy
Co-pay: amount due by patient at the time of medical care
Deductible: amount paid first by the patient before any insurance payment made
Co-insurance: amount of the bill a patient pays after deductible met, like 20%
Maximum out-of-pocket costs: the limit of out of pocket cost paid by patient with co-pays, deductibles and co-insurance in a given year
Learn these few health insurance terms, and you’ll know more than 80% of the folks on the street.
In our test above, the answer is.....
Pam pays $2,400
$10,000 surgery minus a $500 deductible leaves $9,500 of which she pays 20%, which is $1,900.
So, $1,900 plus $500 deductible she paid is $2,400.
For those of you who like to show your work
10,000 - 500 = 9,500
9,500 x .20 = 1,900
1,900 + 500 = 2,400