Open enrollment for health insurance is now underway, and the key to getting coverage is understanding the terms of your plan. You’ll want to know what a deductible is and how it affects your healthcare costs.
Understanding co-pays, coinsurance, and out-of-pocket maximums is also essential—not only because they’re crucial to managing medical costs but because some plans might include them.
Here are six insurance terms you should know and understand so you can make informed decisions about your health care and finances this open enrollment season.
Premium
The amount you pay each month for your health insurance policy is called a premium. Premiums are typically paid monthly but can be paid annually or in smaller amounts. The amount you pay depends on several factors, including your chosen plan and age.
A report on employee coverage by the Kaiser foundation places the average premium for an individual in 2022 to be $7,911 per year ($659 monthly). Under a family plan, workers with employer-subsidized coverage pay about $22,463 per year (or about $1 872 each month), on average. Though these premiums can be expensive—and the price may go up more than expected—employers often pay a portion of their employees’ share of the cost.
For example, by 2022, employees will pay out-of-pocket $1,327 for individual coverage and $6 106—$509 per month—for family coverage. Monthly payments depend on the type of plan you choose, how many people are covered by the policy, and whether it’s an individual or family policy. The employer size and the number of employees they cover also affect how much you pay out of pocket.
When choosing a health insurance plan, avoid basing your decision solely on the cost of premiums. Low-premium policies may provide inadequate coverage for medical expenses and leave policyholders vulnerable to financial hardship if they get sick or injured. The best health insurance plans offer a wide range of coverage at an affordable price. Every policy is different, so it’s important to compare your options carefully. If you have a specific need—such as prescription drugs, dental care, or mental health coverage—make sure your plan covers it.
Deductible
The deductible is the amount you must pay out of pocket before your health insurance company will start paying for covered services. It’s usually a specific amount, like $500 or $1,000. The higher your deductible, the lower your monthly premiums will be—but you’ll have to pay more out of pocket when you need medical care.
According to the Kaiser Family Foundation, in 2022, 88 percent of workers with health insurance will face a deductible when they seek medical treatment. The average person in this group has to pay $1,763 before their insurance kicks in for single coverage.
But how do you get to this figure?
The size of your deductible will depend on the following:
- How much coverage do you want
- How much it costs to buy that coverage
- Whether or not you qualify for any assistance in paying for it (such as tax credits).
The more comprehensive coverage you want and can afford to purchase with tax credits or other financial assistance may mean higher deductibles or out-of-pocket maximums. However, choose lower-cost plans with higher deductibles or out-of-pocket maximums. You may still be eligible for tax credits that effectively reduce out-of-pocket costs.
Deductibles can vary by plan and by company. You’ll want to ensure that the deductible fits with how much health care you need and how much money you have available to pay out-of-pocket costs. If it doesn’t fit your needs, then consider looking for another option with a different deductible amount or no deductible at all.
Copayment
The copayment is the amount you pay for each visit to the doctor or other health care provider. The copayment may be a percentage of the cost of the visit or a flat fee, like $20 per visit. If you have high medical bills, this will be a significant number to consider when choosing which plan works best for your needs.
You can pay the copayment at the time of the visit, or it may be built into your monthly premium. For example, if you have a plan that has a $20 copayment for all visits to doctors and other health care providers, you would pay this amount when you see them. If, however, the plan has a $20 copayment but a $20 per month premium, it will be built into your monthly payment. As with deductibles, some plans will have higher or lower copayments. This can significantly affect how much it costs to see your doctor each month.
- $27 for primary care services
- $44 for visits to specialists
These numbers can vary widely depending on where you live and other factors, but they are a good starting point for understanding how much health care costs.
Coinsurance
Coinsurance is another way health insurance companies try to keep costs down. Instead of paying a flat fee for each visit, you pay a percentage. For example, if there is a 20% coinsurance requirement on your plan and you see your doctor once a month for $100, then you’ll have to pay $20 out-of-pocket. Your insurance company will pay the remaining $80. If you have a flat copayment instead of coinsurance, you’ll pay $20 per visit without further coverage.
If you have a plan with both deductibles and coinsurance, you’ll pay your deductible before your insurance begins paying for anything. Then, once you reach your out-of-pocket maximum (the most money you can spend on health care in one year before the insurance covers additional expenses), coinsurance kicks in.
Out-of-pocket Maximum
As noted above, the out-of-pocket maximum is the most you’ll have to pay for health care services during the year. It’s calculated by adding up all of the services you use throughout the year, including deductibles and copayments, then subtracting them from your total out-of-pocket spending limit (usually set by your plan).
The out-of-pocket maximum is different from the deductible. The deductible is what you’re responsible for paying before the insurance covers any costs associated with seeing a doctor or getting medical treatment; it often applies only to certain types of visits or prescriptions. If you’ve got a high deductible, you must keep track of how much money you’re spending on medical bills so that you don’t go over the out-of-pocket maximum.
In 2023, the maximum amount you may pay out of pocket for a health plan purchased through your state’s Affordable Care Act marketplace is $9,100 for individuals or $18,200 for families.
The good news is that many people will only have to pay a part of the total amount out of pocket. Insurance companies often offer discounts on their premiums for individuals who don’t use much medical care or have certain health conditions that make it difficult for them to get insurance coverage.
In Network vs. Out of Network
In-network providers have negotiated with your insurance company to provide discounted rates for services. You’ll pay less when you see an in-network doctor or hospital, but only if you receive care from one of these providers. Out-of-network doctors and hospitals don’t belong to your insurer’s network and can charge more than what they charge other customers who use the same health plan.
The network is key to having good health insurance. Before committing to it, you’ll want to ensure that you have access to doctors, hospitals, and other healthcare providers in your plan’s network. If you don’t, then what good is having insurance?
If you’re looking for health insurance, make sure that your plan has a network of doctors and hospitals. Ask your insurer which providers are part of their network and how much they’ll charge you for seeing them.
Some types of insurance plans do not cover services provided by doctors or hospitals that aren’t in the same network. For example, Aetna—one of the nation’s leading health insurance providers—says that HMO plans are among the most affordable but they don’t cover out-of-network doctors or hospitals.
If you have an HMO plan and need to see a specialist who’s not part of your health network, you’ll have to pay for the visit unless your insurer allows “limited” out-of-network coverage in certain situations.
In a preferred provider organization (PPO) plan, you can visit specialists without a referral and still have some coverage for out-of-network care; however, this means that your premiums are higher than in plans with other types of network structures. With a POS plan, you need a referral to see specialists but have some coverage if you go outside the network.
Conclusion
As open enrollment begins, it’s time to consider your health insurance options. After all, you can’t just walk into the doctor’s office without a plan. So how do you know if you’ve got the right plan?
The first thing to remember is that it’s essential to understand the details of your coverage before making any decisions. You want to know exactly how much money you’ll be paying at the beginning of the year and how much your policy will cover later.
To help consumers understand their health plan, a summary of benefits and coverage (SBC) is available in all health plans. It lists critical information about the plan in an easy-to-understand format. Think of it as a kind of cheat sheet for your insurance policy.
To help you select a plan that meets your needs, take some time now to learn about the SBC rather than putting it off until next year. Missed deadlines are costly—you can’t afford to get this wrong!
Hopefully, this article gives you enough knowledge to make an informed decision about your open enrollment. We know it can be overwhelming, but if we could give you one piece of advice, it would be this: don’t let the complex terminology throw you off track.
Instead, focus on what matters most to you—whether your plan covers prescription drugs and how much out-of-pocket costs will impact your budget—and use that as a starting point for exploring plans further.
Healthcare Solutions is a wholly-owned subsidiary of the National General Insurance Group, so rest assured you’re getting quality service. For more information, contact us today, and our teams will be more than willing to help.