Save Money Understanding Medical Insurance
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Medical insurance is something everyone is concerned about, and something we all can benefit from at some point in our lives. Medical insurance is also something the general public does not know well enough, often relying on their employer to choose a suitable plan for them. This assumption could be costing you a lot of money. My goal with this hub is to explain the basics of Medical insurance, and how you can choose and utilize your plan correctly to get the most out of it, and save the most money.
First, I want to make sure two items are discussed, as they are often assumed and overlooked. The first clarification is making sure insurance is defined. Insurance is is the transfer of risk from one entity to another. Insurance is the pooling of many peoples resources to spread the level of risk. This is why you make small monthly payments, and when something happens, you do not suffer a huge financial loss. You pay a small amount to an insurance company to take a lot of your risk from you.
Second, Insurance is a product. Keep this in mind as you evaluate plans. You are Purchasing a plan, making monthly payments to utilize it.
Aspects of Medical Insurance
In network and out of network- Your plan will have specific areas, doctors, clinics and hospitals that are "in network". this means that the insurance company has an agreement with them to provide services at specific rates, which is why it is almost always more beneficial to go to an in network provider. Your out of network benefits will generally not be as good, meaning you may pay a higher deductible, higher percentage of coinsurance, and have a higher out of pocket maximum and possible more for prescriptions. All of these aspects will be described in detail below. For the sake of this hub and basic understanding, know that in network is more beneficial cost wise than out of network. If you have a choice of plans, consider the different networks, or if you already have a favorable established relationship with a doctor or clinic, pick the plan that will have that clinic or doctor in your network.
Copay- This is a flat amount of money you pay for specific services, mainly an office visit. plans either have a copay or they do not. Generally plans with a copay are more expensive on a premium basis(monthly amount paid, or annually, depending on how you want to calculate it). Copay's range in cost, most common being $25-$35 range. A copay can offer peace of mind to the member knowing that when you go to a doctor visit you know what you will be paying, and it is not very much. Some aspects you want to know about your plan is if the copay counts towards your deductible and out of pocket max, as this can effect the premium. Copay plans are generally more expensive as members use the plan more since there is a low cost to see the doctor, and more of the cost is covered by the insurance company. When determining which plan to choose, sometimes it is not as easy as picking the cheapest(monthly cost for premium) plan. I will explain how to analyze the plan and how you intend to use it to determine what plan is the best fit.
- Money saving tip- If you or your family frequent the clinic, a plan with a copay will save hundreds each year.
Deductible- This is the money you will pay out of your own pocket before your insurance kicks in. Generally, the higher the deductible, the lower the monthly cost. the theory of a deductible is that you will think more about going to the doctor or using their insurance, since the initial costs will be covered by you personally. There are medical plans that do not have a deductible, meaning you immediately receive the benefits of insurance, but at a higher monthly rate. I will discuss later the importance of not only looking at the monthly cost of a plan, but how utilization can help determine what plan to choose. Bottom line, this is the dollar amount you will pay before you get help from your insurance plan.
-Money saving tip- If you are younger, it may be wise to choose a higher deductible plan, as younger people are generally healthier, and go to the doctor less. You will pay less in premium, and still be covered if something major comes up.
Coinsurance- Once your deductible is met, your medical expenses will start to be paid in part by the insurance company. this amount of payment is reflected by a percentage, and called coinsurance. if your coinsurance is 90%(you may see it as 90/10) this means once your deductible is met, the insurance company will pay 90% of the cost, and you are responsible for the other 10%. Generally, the higher the coinsurance the higher the monthly cost. There are plans that range from 100% coinsurance(which means you pay nothing after the deductible) and usually decrease in 10% increments.
-Money saving tip- If you have a higher deductible plan, supplementing the plan with an HSA or FSA can help save money using pretax dollars towards medical expenses. Just be careful not to put too much in the account, as some have a use it or lose it rule.
Out of Pocket Maximum- This is the very most you could pay out of your pocket in a year towards medical expenses. Most of the time, your out of pocket maximum is three times your deductible. To reach this amount is as follows. I will use a $500 deductible, 90% coinsurance plan as an example. Let's say by March you reach your $500 deductible, then the coinsurance kicks in, and insurance pays for 90% of your next expenses. Now by the time October rolls around, you have paid out of your pocket $1500(which means you have accumulated $10,500 worth of medical expenses, as 10% of $10,000 is $1,000, plus the $500 you already paid towards your deductible, equaling $1,500, which is three times your deductible). For the rest of the calendar year, any medical expenses will be completely covered by your insurance company. Usually the higher the out of pocket maximum, the lower the premium. Again as I have Mentioned before, premium cost is not the only thing to consider, I will show you how your total cost comparing two plans can help in your decision, and it is not always the obvious one.
-Money saving tip- If you hit your out of pocket maximum, try and get into the doctor for any check ups or testing before the new year, as your insurance company is covering the cost.
Prescription Drug Coverage- The last main aspect of Medical insurance I want to cover is the prescription drug coverage. There are four different prices for prescriptions,Low cost, high cost, specialty drugs, and then self administered or collectables. a common drug plan will look like this-
$10 / $25 /$50 / 25%. think of the first 3 like a copay, and the last one like coinsurance.
-Money saving tip- most pharmacies will use a generic drug over a brand name drug if they have it, but make sure to ask if there is a generic in case they didn't check. Also, if you have a prescription you are on for a long time, asking for a 3 month supply at a time can save money, as you may only be charged one copay, or a discounted copay, instead of three separate copays.
Other aspects to know
You have the option of a single or family plan. Family plans usually multiply the deductible and out of pocket max by two. It does not matter who uses the plan the most or least, once the deductible and out of pocket maximum is hit by any family member, any other family member will no longer pay anything out of pocket.
If your employer does not offer medical insurance, you can purchase individual medical plans, simply go online to an insurance company such as Healthpartners, Blue Cross Blue Shield to find out more information.
Make sure to ask your employer if they have open enrollment or not. What this means is that each year, anyone who is eligible to be on the plan(works full time, fulfilled the wait time) can decide to enroll. If they do not have open enrollment, you will only get one chance to enroll in the plan, and that is when you are initially eligible.
Example on how to pick the correct plan
Plan 1- $500 deductible 90% coinsurance, $1,500 out of pocket maximum, Annual premium = $2,500
Plan 2- $1,000 Deductible 90% coinsurance, $3,000 out of pocket, Annual premium = $1,500
At first glance, you may think the Plan 2 is the better deal, as its only $500 more on the deductible, to save $1,000 in premium. Lets do the math to see.
When evaluating a plan, a great place to start is calculating the total maximum cost you could spend on your plan for the year.
Plan 1 total cost= $4,000($1,500 out of pocket max, plus $2,500 in premium)
Plan 2 total cost= $4,500($3,000 out of pocket maximum, plus $1,500 in premium)
By calculating the max amount you could pay total for the year, you can see what plan may be better to choose. Not only is plan 1 a better plan, but you will also spend less money over all if you were to max out your plan.
Now many of us do not have a choice of our healthcare plan. Our employer may have one plan, and your only choice is whether you want to enroll in it or not. My goal with this hub is to shed some light on the aspects of a medical plan, and hopefully share some practical ways to structure your healthcare, get the most out of it, and save some money in the process.