Share the Costs

Insurance is designed to share medical costs, between you and an insurer, based on a predetermined structure. The details below will help you understand the basics for evaluating the financial implications of your health insurance choices.

Key Health Insurance Terms

Below are the most important terms to understand for health insurance. When you evaluate your plan choices, if you come across other terms you need to understand, we recommend using the HealthCare.gov glossary.

• Premium: This is the amount you pay at regular intervals for your insurance. If purchasing privately, you typically pay every month. If purchasing through an employer, a portion is taken out with each paycheck.
  
  Premiums differ significantly between different plan types and you can’t evaluate an insurance plan based on premiums alone. But as a general rule, the higher the premium, the lower your costs when you use medical services. Conversely, the lower your premium, the more you’ll pay for medical services.
  
  Therefore, if you anticipate needing a lot of medical services, it may make sense to pay a higher premium in exchange for lower medical costs. If you don’t anticipate needing a lot of medical services, you may save money by finding a plan with lower premiums.
  

• Deductible: This is the annual amount you will have to pay for medical services before your insurance kicks in. For example, if you have a $1,000 deductible, you have to pay $1,000 before your insurance will cover any portion of your medical costs.Imagine you have a doctor’s appointment and get some tests done. The total cost is $500. Assuming you haven’t previously paid toward your deductible, you will owe $500. Then imagine you have another appointment and more tests for a total cost of $750. You would owe a further $500. But because you’ve now paid your $1,000 deductible, for the remaining $250, your insurance kicks in. It doesn’t mean insurance will pay the full $250. Instead, your insurance would pay based on the predetermined percentage agreed upon. For example, your plan may pay for 90% of covered services. This would mean insurance would pay 90% of $250 which is $225. You would therefore owe an additional $25 (on top of the $500 you already paid).
  
  Special Note: Plans that qualify as a “High Deductible Health Plan” – $1,350 for an individual or $2,700 for a family plan – allow you to qualify for a Health Savings Account (HSA). HSAs can be a great way to pay for medical expenses with pre-tax dollars but their funds can also be invested and allow for potential tax-free growth. In short, if you can afford to pay for a high deductible out of pocket, HSAs can be a great part of your long-term savings strategy.

• Coinsurance: This is a predetermined percentage amount you pay for a specific service. For example a plan is set to pay for 80% of a covered service – like a doctor’s visit – the amount you owe for your “coinsurance” is the remaining 20%.
  

• Copayment: Also known as “copay,” is a predetermined dollar amount you pay for a specific service or prescription medication. For example a visit to a doctor’s office may always require a copay, maybe $10 or $20. Similarly, picking up a prescription from the pharmacy may require a copay.
  
  Putting coinsurance and copays together: After you’ve paid your annual deductible a plan may agree to pay 80% of costs (meaning your coinsurance is the remaining 20%) and require a $10 copay for doctor’s visits. So if you’ve met your deductible for the year, and have a doctor’s visit that costs $100, you would owe: $10 (your copay) + $20 (which is 20% of the $100 doctor’s bill) = $30. Your insurance would pay $80 which is 80% of the doctor’s bill.
  
  Copays generally do not count toward your annual deductible but coinsurance payments do. Both copays and coinsurance payments count toward your annual out-of-pocket maximum.
  

  Your out of pocket maximum represents the MOST you would have to pay for covered services in a single year.

• Out-of-pocket Maximum: This is the maximum amount you would ever have to pay for covered health care services or prescriptions in a single year. Once you’ve hit this number, for the remainder of the year you would not owe any additional costs.For example if your annual out-of-pocket max is $8,000 and you’ve spent $7,000 that year and then have a need for a surgery that costs $50,000, you would only have to pay $1,000. By that point you would have reached your out-of-pocket maximum and the remaining $49,000 of surgery-related expenses would be covered by insurance.

Consider Who the Insurance is For

Depending on who is going to use the insurance, different plan types may be available. When you’re shopping for different plans, search in all applicable categories so you can find one with the best balance between cost and benefits. If you have health insurance through your employer, they typically pay some of those costs and it’s likely to be your cheapest and best health insurance option.

• Active Military – Your insurance is covered by TRICARE and you do not need to purchase any additional health insurance.

• Family – These plans cover you, your partner, and dependents. If you get health insurance through an employer you can almost always add family members for additional cost.

• Individual – These are plans that cover just one person.

• Low income – The government offers two primary low-income options: Medicaid and Children’s Health Insurance Protection (CHIP). To see if you qualify you can check healthcare.gov or your state government’s healthcare website.

• Married but No Kids – You have the option of purchasing an individual plan or a plan that covers you and your partner.

• Self-employed – You can search for plans on healthcare.gov or your state’s exchange. Note that you may qualify for some sort of subsidy or credit as well which can make coverage more affordable.

• Senior – Individuals over the age of 65 (sometimes even 62) qualify for Medicare. There are multiple different “parts” (essentially plan types) available at varying cost levels so make sure to do some research and find what works for you.

• Student – Students can be on their parent’s plan up to age 26 and many colleges and universities also offer plans for their students as well.
  

• Veteran – You are covered under the U.S. Department of Veterans Affairs (VA) insurance. However you can also get additional or separate health insurance through another private option (e.g. a private employer-based plan) if you like.

Consider What Type of Coverage is Needed

There are several different ways to sign up for and purchase health insurance (see the next task). Some plans will cover more than others or with different pricing structures (this is your mix of premiums, deductibles, coinsurance, copays, out-of-pocket max). But whether the plan is a public one (e.g. Medicaid, Medicare, CHIP) or private (any plan sold through a private insurance company like United Healthcare, Aetna etc. – and many of which can be found via the healthcare.gov exchange), at a minimum they will cover these 10 essential benefits (as described on healthcare.gov)

1. Ambulatory patient services (outpatient care you get without being admitted to a hospital)
2. Emergency services
3. Hospitalization (like surgery and overnight stays)
4. Pregnancy, maternity, and newborn care (both before and after birth)
5. Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy)
6. Prescription drugs
7. Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
8. Laboratory services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits)

When is coverage needed and for how long?

Short-term health insurance can cover you for up to 1 year but it does not cover the same essential benefits listed above. These plans generally have high deductibles and vary greatly in other respects as well, including coverage. But they are often more affordable than traditional health insurance plans so they may be a suitable solution for short-term coverage gaps or healthier individuals who don’t expect to need regular medical care in the short-term.

If you’ve recently left a job you are eligible to continue your previous employer-based coverage for several months (through COBRA). However, you will have to pay for the full cost of this coverage and often there are cheaper options.

For traditional health insurance, you can only purchase it during set times, either during an open enrollment period (usually November – mid December), or within a specified window (usually 30 or 60 days) after a qualifying life event (e.g. moving, changing jobs, having a child etc.). The reason for these set purchase times is that insurance is something you pay for before you need it. Without this, people could just wait until they needed coverage and sign up – but this wouldn’t create a viable revenue stream for insurers from which they would pay these claims.