What do I need to know when buying health insurance? Consumer Q&A
Recently on Yahoo Answers we took a question from someone who was enrolling in health insurance for the first time. In her particular case, she was enrolling through her husband’s employer-based health insurance plan.
She had a couple options to choose from. The first had an individual annual deductible of $250 ($500 for the family as a whole), and an annual individual out-of-pocket maximum of $1,000 ($2,000 for the family).
The other plan had a individual deductible of $1,000 ($2,000 for the family) and an annual out-of-pocket maximum of $4,000 ($8,000 for the family).
Since she was new to all this, she had some very understandable questions. Specifically: How does that deductible work? And what is an out-of-pocket maximum?
The eHealthInsurance reply was voted Best Answer:
Some basic definitions might help. Here are a few:
Premium: This is what your husband will pay from his paycheck month to month to help maintain your coverage. The employer pays a portion of the premium too.
Copayments: Most plans come with copayments (of $15 or $20, for example) when you visit the doctor’s office or pick up a prescription drug from the pharmacy.
Deductible: HMO plans don’t always have deductibles, but most others do. The deductible is a dollar amount you may have to pay out-of-pocket each year toward your covered medical care. Not everything applies toward the deductible (certain preventive medical care, for example), but the insurance company won’t typically start paying for most things until your deductible is met for the year.
The deductible is sometimes described in terms of “individual/family,” like you pointed out. Say you went with the $250 deductible plan, for example. After paying out $250 toward your own covered medical care in the year, the insurance company would start paying for your medical bills, but not for your husband’s or child’s; they would still need to meet their own deductibles. There is a maximum deductible amount for the family as a whole, however. So if you paid $250 toward your deductible, and you also paid $150 toward the deductible for your husband’s bills, and $100 more towards your child’s deductible, then you’ve hit that $500 limit and the insurance company considers the whole family’s deductible obligations to be met for the year.
A couple more things about the deductible: First, your monthly premiums and copayments DO NOT count toward it. They are separate forms of cost-sharing. Second, let me just say that a $250 deductible is quite low. Consider yourself lucky to have that option.
Out-of-pocket maximum: This is the final cap on all your out-of-pocket costs for the year, not counting your monthly premiums. So, say you had a plan with a $1000 out-of-pocket limit. Say you also had a lot of medical services rendered and paid $250 in deductible and another $750 in copayments or other fees (like coinsurance – another arcane form of cost-sharing). Once you hit that $1000 limit, your insurance company is going to pay for the rest of your covered medical services for the year, according to the benefits of your plan.
If you’re looking for some more help understanding health insurance, check out our “Individual Health Insurance For Dummies” book, which is available for free. It was written specifically for people buying coverage on their own (rather than getting it through an employer), but it still has lots of good basic info that might help you. You can download an electronic version or request a printed version and we’ll mail it to you for free here.
Image via Flickr user DorkyMum