The ins and outs of health insurance

Turn on the news and you’ll undoubtedly hear about health insurance. Right or left, we all can agree that health insurance is a good thing. We’re all going to get sick sometime in our lifetime and will need to go to the hospital. Hospitals are a great thing but there’s no such thing as a free lunch and no such thing as free healthcare. (Looking at you, Canada, you just pay more in taxes). Unfortunately most of us won’t learn about healthcare until it’s too late. We’re coming out of an emergency surgery to remove our appendix and get hit with a bill. Hopefully you’ve got health insurance to cover some of it but depending on your plan you’ll still owe some of money.hospital

Here’s how health insurance works:

  • An insurance company negotiates with a hospital to get fair prices on the services that they provide. In turn they tell the hospital they’ll send patients (aka customers) their way.
  • The insurance company pulls together a lot of people who pay them premiums. Often your employer will pay part of the premium and you’ll pay part. They pool all this money together and use it to pay the hospital when some of their members go to the hospital. They bank on the fact that not all of their members will need to go to the hospital.
  • When you do go to the hospital, they’ll get you all squared away and send you on your way. Let’s say you racked up a $10,000 hospital bill. The hospital will send that bill to the insurance company who will then remember that they negotiated a better rate. They’ll pay (for example) $2,500, tell you that you owe $500 and then call it even. The hospital is happy, the insurance company is happy, you’re out $500 but you feel better.

As Obamacare takes effect, please pay attention to the insurance that you get or purchase. A lot of employers are attempting to find the cheapest way to ensure that they are following the letter of the healthcare law; offering the minimum amount of coverage that they can. These limited benefit plans sound good because they are cheap. Quickly go to the hospital and you’ll figure out why. Some of these plans only cover certain basic services or only cover a small daily per-diem to pay the hospital. Your limited benefit plan will pay the insurance company their small part and you’ll get hit with the rest. I’ve seen too many instances where the insurance company pays $100 per day and you’re left with the rest.

Now that you’ve got a plan, how does health insurance affect you when you go to the hospital? What kind of costs are you looking at paying yourself?

  1. Deductible. Similar to car insurance, you’ll have to pay up to your deductible before the health insurance will pay anything. It’s often limited annually, perhaps like $2,500. That means that you’ll have to pay $2,500 each year before your insurance pays their part.
  2. Coinsurance. Often a percent amount that the insurance will pay and that you’ll pay (after the deductible is met). Say it’s a 30% coinsurance. Your health insurance will pay 70% of the negotiated rate, and you’ll be responsible for the remaining 30%.
  3. Copay. Often for prescription drugs or simple doctor’s visits, you’ll have to pay a small dollar fee each time you use the doctor’s services.

It is hard to say what healthcare will look like in 5 years, much less next year. Your health is one of your most valuable assets and just because you are young doesn’t mean you are immune from getting sick or avoiding accidents. If you don’t have insurance, you will be mandated to get it. Carefully weigh the costs and benefits that a potential health insurance plans offers. If you already have insurance through your employer, take some time and familiarize yourself with your insurance. Learning about your benefits could end up saving you money in the long run!

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5 Responses

  1. Health insurance is a must if you want to insure against losing everything you have saved up to this point in your life. The high deductible plans that are now offered are a reasonable step forward maintain reasonable premiums while still covering you from major financial damage if you were to get really sick. The next thing we need is a menu of services and prices from hospitals and doctors to level the playing field. Who knows what 5 years will bring on this topic.

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