Health Insurance: A Brief Overview

Following is a brief overview health insurance

Health insurance is made up of the following parts:

Health Insurance Deductibles

A deductible is the part you pay, before the insurance company will pay anything. For example, if you had a hospital plan and you had a $1000 deductible per incident, you would pay the first $1000 of your hospital bill.

With most plans, you have some freedom to choose your deductible. If you choose a higher deductible, your premiums may be lower. If you choose a lower deductible, your premiums may be higher. In other words, the more you “share” your health care costs, the less you will have to pay for your insurance.

Medicare Parts A, B & D all include deductibles.

Health Insurance Co-Insurance

Co-insurance is the amount that you share of your costs after you pay your deductible. Many health insurance plans are 80/20 plans. What that means is that after you pay your deductible, the plan pays for 80% of your health care costs, and you pay 20%

For example, Jennifer had a health insurance plan with a $500 deductible. Jennifer got sick and had to go into the hospital. After paying the first $500 of the bill, she had to also pay 20% of the total bill, up to a certain amount (see: Stop-Loss).

Health Insurance Stop-Loss

A stop-loss is an amount, determined by the insurance company that “stops your loss,” or stops your part of cost sharing.

In the example above, Jennifer’s stop-loss was $5,000. After Jennifer had paid a total of $5,000 out of her own pocket, including both her deductibles and her co-insurance, she didn’t have to pay any more for that year.

Health Insurance Co-Pays

With some types of health insurance plans, you have to pay small co-pays, which is another form of cost sharing. For example, John went to the doctor 5 times last year. After paying his annual deductible of $135, John had to also pay $20 every time he went to the doctor. These co-pays reduced the amount the insurance company had to pay, which allowed them to offer him an insurance plan with very low premiums.

An example of this with Medicare is Medicare Advantage Plans. Many Medicare Advantage Plans have very low, or even zero plan premiums. The reason they can offer such low-cost plans is because you share in paying for your health care costs as you use the services. When you go to the doctor, you will most likely pay co-pays. When you go into the hospital, you may pay a higher deductible than with Original Medicare.