Health insurance is incredibly complicated for a reason. The less you know, the more you end up spending, and insurance companies prefer it that way. Let’s go over some basic terms that will help you understand how to utilize your health insurance effectively and hopefully save money.
The first term is “premium.” The premium is the amount of money you pay every month to buy the policy. This is similar to your car insurance; if you pay monthly, that is your premium for having your car covered by the insurance company.
Next is the “deductible.” The deductible varies between plans, just like the premium. It is the amount of money you, the policyholder, must pay out of pocket before your insurance begins to cover anything.
Then there is the “out of pocket max,” which is somewhat tied to the deductible. It is always higher than the deductible, as it represents your maximum financial obligation for the policy year. For example, if your deductible is $6,000 and your out of pocket max is $8,000, after you have paid your deductible, your insurance company starts to pay for things, and you share costs until you reach the $8,000 limit. After that, your insurance company will pay every claim at 100% for the remainder of the policy year, meaning it is no longer your responsibility.
During that explanation, I mentioned two different years: the plan year or policy year. Not all insurance policies run from January 1st to December 31st; some may run from September 30th to October 1st. It is important to understand this when determining when you have met your deductible and when it will reset for the next 12 months.
When you begin the process of choosing your insurance policy, that is when your plan year starts. It is crucial to know when your deductible resets to zero, as it is not always January 1st.
Another term I mentioned is “cost sharing,” which occurs between the deductible and the out of pocket max. With many insurance plans, you will have a copay or something called coinsurance. A copay is a set amount of money you pay every time you go to a specific type of service. For instance, if your copay to see your primary care doctor is $25 and your copay for a specialist is $50, you will pay that amount both before and after the deductible.
Coinsurance is a situation where, once your insurance company starts to pay after you have met your deductible, you will receive a bill that reflects the percentage of coinsurance your policy requires you to pay. For example, if you have met your deductible and receive a $400 bill from the cardiologist with a coinsurance of 25%, you will pay $100, and your insurance company will cover the remaining $300. This coinsurance amount is tracked by the insurance company and applies toward your out of pocket max.
If you reach your out of pocket max through coinsurance and copays, you will not pay anything further for the rest of the year. For example, if you go back to the cardiologist and receive another $400 bill, your insurance company will cover the entire amount since you have already met your out of pocket max.
There is often frustration when realizing how much money you pay for insurance each year. For instance, I shop around frequently and tend to buy one of the less expensive policies. For myself, my wife, and our two children, I pay approximately $800 a month in premiums. This amount may vary based on family size and age.
As a single person, you might have an insurance policy costing $300 a month, totaling $3,600 a year. In my case, $800 a month pushes my annual cost to nearly $10,000 just for insurance. Remember, my insurance does not cover anything until I meet my deductible, which is often high to allow for a health savings account (HSA). While I contribute to the HSA, it serves as a savings vehicle and provides some tax benefits.
However, if I am paying $10,000 a year in premiums and have a $6,000 deductible, I will essentially be out of pocket $16,000, and my health insurance company will not have paid anything for my medical care.
Insurance is meant to protect you from financial ruin. For example, if you are in a terrible car accident requiring extensive surgeries and rehabilitation, you may end up with a $2,000,000 medical bill. If your maximum out of pocket is $8,000, after paying that amount, the insurance company will cover the remaining $1,920,000.
However, it is important to note that healthcare providers often prefer to settle for a fraction of the total bill rather than sending you to collections. If you owe a medical office $1,000 and cannot pay, they may negotiate with you to settle for a lower amount, such as $500.
Negotiating your medical bills can be a cumbersome and time-consuming process, but it is possible. Medical practices need to collect money to cover their expenses, and they often collect only a fraction of what they charge.
In summary, premiums are the monthly payments for an insurance plan, and the deductible is the amount you must pay out of pocket before insurance coverage begins. Once you meet your deductible, you may have copays or coinsurance that apply toward your out of pocket max. When you reach your out of pocket max, you will not have any further out of pocket costs for medical care for the rest of the policy year. Additionally, you have the ability to negotiate how much you will pay to a medical office, which can help alleviate some financial burden.
Comparing health insurance plans is essential. If you receive your insurance from your employer, they typically present you with several different plans each time the health insurance policy is about to renew. Generally, there will be a more expensive plan that discusses premiums, which is the amount you pay per month. This plan usually has a lower deductible, lower out-of-pocket maximum, and possibly lower copays or coinsurance percentages.
Conversely, there will be a cheaper plan, but if you need to pay for services, it will have a higher deductible, higher copays, and higher coinsurance. So, how do you determine which plan to choose? Remember, insurance is fundamentally about risk analysis. If you pay less, you may face potentially higher costs if something catastrophic occurs. You need to assess your financial situation; for instance, if you cannot afford $500 a month but can manage a $300 a month plan, you may have to opt for the cheaper option. However, be aware that if a catastrophic event happens, you will be responsible for more money than you would have been if you had chosen the $500 plan. For a difference of $200 a month, you could receive “better coverage.”
Let’s unpack this further. If you have a preexisting condition, such as diabetes or a heart issue, and require expensive medication with frequent doctor visits, you should consider that you will likely incur significant medical bills throughout the year. In this case, you might want to find the plan with the lowest out-of-pocket maximum.
For example, my son was on growth hormone for six years. During that time, we changed insurance companies five times. Each year, as I selected a new policy, the critical question was how expensive his medication would be. This process involved numerous calls to the insurance company to gather information about which medications were covered and their costs. Manufacturers can assist in identifying cost savings, but you can also contact the insurance company to inquire about alternative medications that may be more affordable.
For instance, if my son was on Medication A, and the new insurance indicated that they did not cover it well, but they did cover Medication B, which was $1,000 a month cheaper, I would likely choose Medication B, hoping my son would tolerate it well. Additionally, you can reach out to the manufacturer to explore any support systems they may have in place, as many offer financial assistance.
We always aimed for the lowest out-of-pocket maximum. In one case, my son’s medication cost approximately $2,000 a month, and we secured a policy with an individual out-of-pocket maximum of $25,100. Typically, there is an individual deductible and a family deductible; for example, our family deductible was around $4,000, while the individual was $25,100.
We reached his out-of-pocket maximum within a month and a quarter. We paid $2,000 out of pocket in the first month and then $500 the following month, which hit his out-of-pocket maximum for the year. Consequently, for the remainder of the year, he received free medication. This situation resulted in over $20,000 worth of medication that we obtained for free because our insurance covered all costs.
Choosing a good insurance plan—one that makes mathematical sense—is crucial. It is not about whether it is the “Cadillac” of plans; it is about whether it is financially sensible for you. I consistently sought the lowest out-of-pocket maximum because I knew I would reach it quickly, allowing for free medical care for the rest of the year.
If you generally do not visit the doctor often and do not anticipate significant medical issues, you might consider opting for the less expensive plan. However, be aware that while the monthly premium is lower, your share of costs will be higher if you do require medical care.
There is a significant difference between a $250 deductible and a $2,500 deductible. With a $250 deductible, you will likely reach it within two or three doctor visits, at which point your insurance will start covering costs. This is what is meant by “good insurance”—having a low deductible. Many providers accept such plans because they are compensated well, but you should prioritize a lower deductible if you anticipate frequent medical visits.
You also have the ability to negotiate your medical bills. When you receive a bill, you can call the medical facility to discuss it. Sometimes, this requires multiple calls or speaking with the right person. If you receive a collection letter, your first step should be to contact the healthcare facility to initiate a conversation. You should also inform the collection agency that you are negotiating the bill with the healthcare provider. It is essential to respond to collection notices; you can explain that you are in the process of negotiating, which can halt the collection process before it escalates.
Let’s consider an example where I do not have dental insurance for myself or my children. When we visit the dentist, we receive a bill, which is typically quite high. The office may offer a 10% discount for non-insured patients, but this is often inadequate, as no insurance will cover the rates they charge. Instead of accepting that 10% discount, it is advisable to speak with the billing supervisor to begin the negotiation process.
For instance, if my son has a $400 bill for his pediatric dentist visit, which includes x-rays that are usually reimbursed at a very low rate, we should aim to reduce that cost by at least 70%. The actual procedures performed by the staff, such as prophylaxis and other services listed on the bill, can also be negotiated. Generally, one should seek a minimum 40% discount on the gross charges before settling the bill.
At times, it may be necessary to be firm in negotiations, even bordering on less than pleasant. However, it is essential to remain as respectful and courteous as possible, as this approach typically yields better results. If you come across as confrontational, it may put the person you are negotiating with on the defensive, which is counterproductive.
The office wants to receive payment, and you want to pay the least amount possible while still being able to return for future visits if you are satisfied with the experience. The goal is to reach a mutually beneficial arrangement where the office receives no less than what they would get from an insurance company, and you pay significantly less than the gross charge.
For example, if you have a $400 charge and manage to pay $250 or less, you save $150 or more. This outcome is advantageous for both you and the medical office, as they do not have to pursue you for payment. Even with insurance claims, they do not receive payment immediately; they must submit the claim, hope it is processed correctly, and typically wait about 45 days for a check. Therefore, the ability to receive payment immediately is a significant convenience for medical offices, allowing them to say, “We will accept whatever you can pay right now,” which benefits them in both the short and long term.
What do people mean when they say “good insurance”? Typically, there are two parts to this. The first part of what constitutes good insurance is whether everyone accepts it. This means you can choose whichever doctor you want to see at any point for any reason. Good insurance is beneficial for the provider, the doctor, the office, and the hospital because it pays them well. This is what people refer to when discussing good insurance.
The second aspect of good insurance is how much it actually pays versus what you have to pay. If you work for a large company with significant negotiating power with the insurance company, you might receive excellent insurance for a lower premium. In this context, good insurance means low deductibles, low out-of-pocket maximums, and low premiums, which are your monthly payments.
Good insurance for the consumer is not always good for the provider, and vice versa. For example, some insurance companies reimburse providers poorly. In such cases, if you can find healthcare offices that still accept that insurance, your out-of-pocket costs will be substantially less. However, the drawback is that not many medical offices accept that insurance due to poor reimbursement rates.
Sometimes, it is challenging to find a medical office that will accept a particular insurance because it does not pay well. While this may mean lower expenses for you as the consumer, it also indicates that many medical practices avoid accepting that insurance because they do not receive adequate payment.
There are situations where you can obtain a very low deductible, low premium, and low out-of-pocket maximum for a reasonable premium, typically because you work for a large company that can negotiate lower rates with the insurance company due to volume.
Another aspect of good insurance is that, as insurance companies try to save money, they often provide free services such as telehealth and mental health services. These services can be substantially less expensive, if not free, allowing you to manage illness without incurring extra costs from visiting your doctor.
Telehealth visits can also make scheduling appointments much easier. A 10 or 15-minute telehealth visit is significantly less intrusive to your schedule than leaving work early or arriving late for an appointment at a physical doctor’s office that may not be conveniently located. If your insurance company offers these services, it can be a significant cost-saving and convenience option.
Some insurance companies also provide incentive programs that may require you to complete certain tasks, such as downloading their app or sharing personal information like height and weight. If you consistently engage in a certain number of exercises or track your steps, they may reduce your premium or offer a credit against it. Discounts of $25 or more off your monthly premium are possible if you meet the insurance company’s requirements.
These incentives usually promote healthy behaviors, encouraging you to exercise, eat better, and sleep well, all of which contribute to a healthier lifestyle. It is in the insurance company’s best interest for you to stay healthy, as it reduces their costs in paying providers. At the same time, these practices benefit you by keeping you healthier and better able to pursue the activities you enjoy while maintaining your well-being.
