If you’re new to health insurance there are seven basic concepts you must understand to avoid nasty financial surprises. If you don’t understand these key concepts, you won’t be able to choose a health plan wisely or use your health insurance effectively.
Your health insurance company won’t pay all of your covered health care expenses. You’re responsible for paying part of your health care bills even when you have health insurance. This is known as cost sharing because you share the cost of your health care with your health insurance company.
The three most common cost-sharing mechanisms are deductibles, copayments, and coinsurance. Some health plans use all three techniques, while others may only use one or two. If you don’t understand your health plan’s cost-sharing requirements, you can’t possibly know how much you’ll have to pay for any given health care service.
The deductible is what you have to pay each year before your health insurance coverage kicks in fully and begins to pay its share. For example, if you have a $1,000 deductible, you have to pay the first $1,000 of your health care bills before your health insurance company starts paying. Once you’ve paid $1,000 toward your health care expenses, you’ve “met the deductible” that year and you won’t have to pay any more deductible until next year.
Thanks to the Affordable Care Act, your health insurance company now has to pay for your preventive health care without requiring you to pay the deductible first. This means it will pay for things like your yearly physical exam and screening mammogram even if you haven’t met your deductible yet. However, sprain your ankle or get the flu and you’ll have to meet your deductible before your insurer will pay.
Copayments are a small, fixed amount you pay each time you get a particular type of health care service. For example, you might have a $40 copayment to see a doctor. This means each time you see the doctor, you pay $40 whether the doctor’s bill is $60 or $600. Your insurance company pays the rest.
Coinsurance is a percentage of the bill you pay each time you get a particular type of health care service. For example, if you have 30% coinsurance for inpatient hospitalization and your hospital bill is $10,000, you’ll pay $3,000; your insurance company will pay $7,000.
The out-of-pocket maximum is the point at which you can stop taking money out of your own pocket to pay for deductibles, copayments, and coinsurance. Once you’ve paid enough toward deductibles, copays and coinsurance to equal your health plan’s out-of-pocket maximum, your health insurer will begin to pay 100% of your covered health care expenses for the rest of the year. Like the deductible, the money you’ve paid toward the out-of-pocket maximum resets at the beginning of each year.
Most health plans have health care service providers that have made a deal with the health plan to provide services at discounted rates. Together, these health care service providers are known as the health plan’s provider network. A provider network includes not just doctors, but also hospitals, laboratories, physical therapy centers, X-ray and imaging facilities, home health companies, hospices, medical equipment companies, outpatient surgery centers, urgent care centers, pharmacies, and a myriad of other types of health care service providers. Health care providers are called “in-network” if they’re part of your health plan’s provider network, and “out-of-network” if they’re not part of your plan’s provider network.
Your health plan wants you to use in-network providers and provides incentives for you to do so. Some health plans, usually HMOs and EPOs, won’t pay anything for care you get from out-of-network health care providers. You pay the entire bill yourself if you go out-of-network.
Other health plans, usually PPOs and POS plans, pay a portion of the cost of care you get from out-of-network providers, but less than they pay if you use an in-network provider. For example, my PPO requires a $45 copay to see an in-network specialty physician, but 50% coinsurance if I see an out-of-network specialist instead. Instead of paying $45 to see an in-network cardiologist, I could end up paying $200-$300 to see an out-of-network cardiologist, depending on the amount of the bill.
Most health plans won’t allow you to get whatever health care services you wish, whenever and wherever you wish. Since your health plan is footing at least part of the bill, it will want to make sure you actually need the health care you’re getting, and that you’re getting it in a reasonably economic manner.
One of the mechanisms health insurers use to accomplish this is a pre-authorization requirement. If your health plan has one, it means you must get the health plan’s permission before you get a particular type of health care service. If you don’t get permission first, the health plan will refuse to pay and you’ll be stuck with the bill.
Although frequently health care providers will get services pre-authorized for you automatically, it’s ultimately your responsibility to make sure anything that needs to be pre-authorized has been pre-authorized. After all, you’re the one who ends up paying if this step is skipped, so the buck quite literally stops with you.
Your health insurance company can’t pay bills it doesn’t know about. A health insurance claim is the way many health plans are notified about a health care bill. In most health plans, if you use an in-network provider, that provider will automatically send the claim to your health insurer. However, if you use an out-of-network provider, you may be the one responsible for filing the claim.
Even if you don’t think your health plan will pay anything toward a claim, you should file it anyway. For example, if you don’t think your health plan will pay because you haven’t met your deductible yet, you should file the claim so the money you’re paying gets credited toward your deductible. If your health plan doesn’t know you’ve spent $300 on treatment for a sprained ankle, it can’t credit that $300 toward your deductible.
Additionally, if you have a flexible spending account that reimburses you for health care expenses not paid by your health insurance, the FSA won’t reimburse you until you can show that your health insurer didn’t pay. The only way you can show this is to file the claim with your insurer.
The money you pay to buy health insurance is called the health insurance premium. Generally, you have to pay health insurance premiums every month. If you don’t pay that month, you’re likely to have your health insurance coverage cancelled.
Sometimes you don’t pay the entire monthly premium yourself. This is common when you get your health insurance through your job. A portion of the monthly premium is taken out of each of your paychecks, but your employer also pays a portion of the monthly premium. This is helpful since you’re not shouldering the entire burden yourself, but it makes it more difficult to understand the true cost and value of your health insurance.
If you buy your health insurance on your state’s Affordable Care Act health insurance exchange, you can apply for a government subsidy to help your pay your monthly premiums. Subsidies are based on your income and are paid directly to your health insurance company to make your share of the monthly premium more affordable.
Open Enrollment and Special Enrollment
You can’t sign up for health insurance whenever you want; you’re only allowed to sign up for health insurance at certain times. This is to prevent people from trying to save money by waiting until they’re sick to buy health insurance.
You can sign up for health insurance during the open enrollment period. Most employers have an open enrollment period once each year, commonly in the autumn. Medicare has an open enrollment period every autumn. Affordable Care Act health insurance exchanges also have an open enrollment period once each year. If you don’t sign up for health insurance during the open enrollment period, you’ll have to wait until the next open enrollment period, usually a year later, for your next opportunity.
An exception to this rule, triggered by certain events, is a special enrollment period. A special enrollment period is a brief time when you’re allowed to sign up for health insurance even if it’s not open enrollment. Special enrollment periods are usually triggered when you lose your existing health insurance or have a change in family size. For example, if you lose your job and thus your job-based health insurance, that would trigger a special enrollment period on your state’s health insurance exchange giving you 30-60 days to sign up for an exchange-based health plan even though it’s not open enrollment.
Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.
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