Health insurance is complicated and confusing. It’s one of those things that you rarely think about until you need it. But when you need it…you had better be prepared. Best case scenario: you need it, you have it, and it covers everything flawlessly. Worst case scenario: you need it and you don’t have it, and you end up with a tremendous debt. Typical scenario: you need it, you have it, and you learn surprising lessons about how much you still need to pay out of pocket.
There are four basic ways that you have to pay when it comes to your healthcare:
- You pay the premium on your health insurance policy.
- You likely pay a co-payment (usually $10 or $20 on typical doctor’s office visits) on office visits and prescriptions.
- If you have to have medical procedures done you likely have to pay an annual deductible amount before your insurance starts covering things.
- After your deductible is met, your insurance likely still will not pay the full remaining bill. They will pay a certain percentage (80% is a good example) and you are responsible for the remainder. This remainder that you have to pay is called co-insurance.
Thankfully, there is one more health insurance term you should know about, which may be your saving grace in the case of a catastrophic illness. Once you have reached the annual maximum designated by your insurance policy (note: not all policies will offer an annual maximum), you will not have to pay any more out of pocket for co-insurance for the rest of that calendar year. (You will still need to continue to pay co-payments, however.)
So, for example, assume you have a surgery done that costs $50,000. You have a deductible of $500 and your co-insurance is 20% (the insurance pays the remaining 80%), and your annual maximum is $2,000. For this surgery, you will have to pay the first $500. The insurance will pay 80% of the remaining $49,500, or $39,600. At first glance it looks like you will need to pick up the remaining $9,900. Thankfully, your out-of-pocket annual maximum is $2,000, so you only need to pay a total of $2,500 ($500 deductible plus the $2,000 annual maximum on the co-insurance) for this adventure in medical care.
Have you looked at your health insurance policy? Do you know how much your co-payments, deductible, co-insurance, and annual out-of-pocket maximum are? If not, you should take a look. This is better to know in advance rather than scrambling to find out when you are face to face with a medical emergency.