2016 – A Guide to Insurance 101
If you're new to the world of health insurance, then you might be overwhelmed thinking about enrollment. Choosing health insurance can be time-consuming and frustrating if you don't know where to begin or what you're really getting. Below, we break down health insurance for you so that you can sign up with confidence.
When to Use Insurance
Like all forms of insurance, health care coverage is designed to save you money based on the idea that accidents happen. Insurance helps to offset the high price tag of medical care. Health plans also cover services that can prevent you from developing serious health problems or suffering long-term consequences. Here are some times when it would be appropriate to use your health insurance:
- For routine physicals or checkups to make sure everything's in working order
- To get yourself or your kids vaccinated against life-threatening diseases
- When you develop a cold, the flu, a suspicious rash or other medical symptoms
Establishing a good relationship with a primary care doctor can keep you healthier because one person or practice will be monitoring your health on a consistent basis. While some doctors accept patients without insurance, most require that you have coverage. Otherwise, you'll pay substantial fees for your medical care.
Know the Types: HMOs vs. PPOs
There are several types of health insurance, including health maintenance organizations or HMOs, preferred provider organizations or PPOs, and point of service plans or POS. Among the major types, HMOs and PPOs are the most common. Let's look at some of the features of each.
Health Maintenance Organizations
Under an HMO plan, you'll pick one doctor as your primary care physician. In order to see specialists, your primary care doctor has to give you a referral. HMOs typically don't require coinsurance, but you would most likely have to pay co-payments at each visit. We'll discuss coinsurance and co-payments in a later section. While HMOs are considered more affordable than other plan types, there are restrictions that make these plans less attractive to some people.
Preferred Provider Organizations
With PPO plans, you have greater choice for medical care. For example, you don't have to get a referral to see a specialist. However, there are some limitations in terms of cost. Most health insurance plans operate within a set network of providers. Your insurance company contracts with certain providers to offer reduced rates on medical care. If you seek care outside of that network of contracted providers, then you'll pay higher fees. PPOs require co-payments for in-network providers and coinsurance for out-of-network providers, but exact rates vary based on your plan. To make the most of your insurance in a PPO plan, consult with in-network providers.
You may also see a plan labeled as a point of service plan or POS. These plans combine elements of HMOs and PPOs, but they aren't as common. With a POS plan, you can go outside of your network for care, but getting a referral will save money since out-of-network providers can charge more.
What's a Premium?
If you're familiar with auto insurance or property insurance of any kind, then you know that a premium is the amount that you pay each month for your coverage. How do premiums work with health insurance?
- If you sign up for insurance through work, then your employer will contribute to the premium; the rest of the cost comes out of your paycheck each pay period.
- If you buy a plan through a broker, directly from an insurance company or via the Obamacare marketplace, then you'll pay the premium directly to the insurance company each month.
Premium rates vary based on a lot of different factors. On the marketplace, for example, you have tiers of premiums as well as cost assistance if you qualify based on income. You can read more about premiums and subsidies on the HealthCare.gov website. Premiums do not count toward your deductible, co-payments or coinsurance, discussed below.
Co-pays, Coinsurance and Deductibles
Figuring out how much you'll pay for medical care is one of the most common concerns among the newly insured. Here's what you need to know about co-payments and coinsurance:
- A co-payment is a set dollar amount that you pay up front for medical services. For example, if you have to pay $20 per visit at a physical therapist's office, then that payment is considered your co-payment for care.
- Coinsurance refers to a percentage of the total cost of your medical service. If you have a coinsurance rate of 20 percent, then you'll pay 20 percent of the bill after meeting your deductible; the insurance company pays the rest.
Like with other forms of insurance, you also need to meet a deductible in order for the insurance company to cover its share of the cost. Routine visits, including annual checkups, usually don't count against your deductible, but most medical services do require you to meet a deductible before your insurer will pay benefits. Here's an example of how the payments work:
- You receive a hospital bill for $1,000, and your deductible is $300.
- Once you pay the deductible, the bill becomes $700.
- Because you have a 20 percent coinsurance rate after meeting the deductible, you'll pay an additional $140 of the bill.
- The insurance company picks up the remaining $560 tab.
When you're buying insurance, consider purchasing a plan with a higher premium since the deductible will be lower. You'll pay less out of pocket if you enroll in a plan with a higher premium because higher-premium plans cover a greater percentage of care once you meet the deductible. Low-premium plans come with higher deductibles, and they typically cover a smaller percentage.
Free and Covered Services
Before the ACA became law, you might have had a hard time getting covered if you had a pre-existing condition. This is just one improvement to the new health care system made possible by Obamacare. All qualified health plans now include the following covered services:
- Emergency services
- Hospital services
- Lab testing
- Maternity care
- Mental health services
- Outpatient care
- Pediatric care
- Prescription drugs
- Preventive services
- Rehabilitative care and equipment
Preventive services include routine checkups and screenings such as mammograms or colonoscopies. Routine preventive services are considered "free" because when you use them, your deductible won't be charged, and you won't have to worry about co-payments or coinsurance. Other covered services may require coinsurance or co-payments. Hospitalization, for example, typically does require coinsurance and does count toward your deductible. Under the new law, you should be given a clear and concise breakdown of what your plan covers and the costs involved for each type of service.