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Health insurance can be a complex topic to navigate with seemingly endless terminologies. However, once you learn the health insurance basics, you will be able to cut through the complex terminologies and focus on finding the best coverage for you.
So, let’s learn the basics of health insurance!
What Is Health Insurance?
So, let’s start with the basic question, “What is health insurance?” It’s a type of insurance that covers or reduces your medical costs that arise due to an ailment. These expenses can range from the cost of medicine to hospitalization costs to doctor consultation fees and more. You pay a monthly premium or fee, and your insurance covers or reduces the costs associated with your medical bills.
Health Insurance Premiums
Unlike other types of insurance, premiums related to health insurance are unique. They are based on certain factors, such as your age and location. However, they are not based on your health status. For instance, if you have a preexisting health condition, such as asthma, your insurer can’t deny you coverage or raise your premium rates.
Health Insurance Basics – a Break Down of Confusing Terms
For a beginner, terms such as deductible, coinsurance, and out-of-pocket maximum can be a bit complicated. However, with the right explanation, you can learn the difference between them quickly. Let’s take a look at an example to understand these terms!
Suppose an individual has a $200 monthly premium with a $1000 deductible, 20% coinsurance, and a $5000 out-of-pocket maximum. Now, imagine that this person got in an accident, suffered a broken leg, and is now left with a $100,000 medical bill. How much will they have to pay?
Let’s take a look at the deductible. It’s the amount that you have to pay every year for the insurer to start paying their share. So, in this instance, before the insurance company can foot the bill, the injured individual has to pay $1000.
After settling the deductible, the remaining amount is split between the insurer and the individual, based on their coinsurance, which is the percentage the individual must pay. Since the coinsurance is 20% in this case, the injured individual will have to pay $1000 for every $4000 paid by the insurer.
The Out-of-Pocket Maximum
However, this is where the out-of-pocket maximum enters the picture. It represents the maximum sum a person has to pay each year before their insurer has to pay the rest. In this instance, since the out-of-pocket maximum is $5000, the injured individual will only have to pay a $1000 deductible and $4000 coinsurance while the insurance company will have to foot the remaining bill.
A Copay for Regular Checkups
Now you know the health insurance basics for emergencies. But what about routine checkups? These are typically paid with copay, which is essentially a flat fee associated with routine events, such as a $25 doctor’s visit. You pay this amount upfront or after getting the bill, and the insurance company compensates you for the money you spent.
Health Insurance Metal Levels
All health insurance plans are categorized by these coverage metal levels:
- Bronze: These plans have the lowest premiums and the highest out-of-pocket costs. You will have to pay 40% of the cost, while the insurer will pay 60%.
- Silver: With this plan, you will have to pay 30% of the costs while the insurer will pay 70%.
- Gold: You will have to pay 20% of the covered care costs while the insurance company will pay 80%.
- Platinum: These plans have the highest premiums and the lowest out-of-pocket costs. The insurer will cover 90% of the cost while you will have to pay the remaining 10%.
Apart from the four metallic levels of coverage, you might have the option to avail the catastrophic coverage. It’s available to people under 30 or anyone who qualifies for a “hardship exemption.” These plans have exceptionally high deductibles and low premiums, hence the name.
Healthcare and health insurance will never be a simple topic. However, once you understand its basics, you will be able to find a plan that works for you.