7 Concepts Essential to Using Your Health Plan Wisely

If you’re new insurance there are seven basic concepts you want to understand to avoid nasty financial surprises. If you don’t understand these key concepts, you won’t be ready to choose a health plan wisely or use your insurance effectively.

1 - Cost Sharing

Your insurance company won’t pay all of your covered health care expenses. You’re liable for paying a part of your health care bills even once you have insurance. this is often referred to as cost-sharing because you share the value of your health care with your insurance company.

To clarify one point of potential confusion, "covered" doesn't necessarily mean that the health plan can pay for the service. It means the service is taken into account medically necessary and are some things that your health plan can pay for if you've met your cost-sharing obligations, which include deductibles, copayments, and coinsurance.

The three commonest cost-sharing mechanisms are deductibles, copayments, and coinsurance. Some health plans use all three techniques, while others may only use one or two. If you don’t understand your health plan’s cost-sharing requirements, you can’t possibly skills much you’ll need to buy any given health care service.

Note that if you purchase a silver plan within the insurance exchange in your state and your income causes you to eligible for cost-sharing reductions, your out-of-pocket costs are going to be less than they might rather be.

The deductible is what you've got to pay annually before your insurance coverage kicks in fully and begins to pay its share. for instance, if you've got a $1,000 deductible, you've got to pay the primary $1,000 of your health care bills (for services that count towards the deductible, as against being covered by a copay) before your insurance company starts paying. Once you’ve paid $1,000 toward your health care expenses, you’ve “met the deductible” that year and you won’t need to pay any longer deductible until next year (note that if you've got Original Medicare, your Part A deductible is per benefit period instead of per year).

Thanks to the Affordable Care Act, your non-grandfathered insurance company now has got to buy certain preventive health care without requiring you to pay the deductible first. this suggests your plan can pay for things like your yearly physical exam and screening mammogram albeit you haven’t met your deductible yet (note that not all preventive care is free; the list is sort of specific1 ). However, if you sprain your ankle or get the flu, you’ll need to meet your deductible (and/or copays) before your insurer can pay.

Copayments are a hard and fast amount—usually much smaller than your deductible—that you pay whenever you get a specific sort of health care service. for instance, you would possibly have a $40 copayment to ascertain a doctor. this suggests whenever you see the doctor, you pay $40 whether the doctor’s bill is $60 or $600. Your insurance firm pays the remainder. But confine mind that the copayment-covered visit may additionally include services that count towards the deductible, which suggests you will get a separate bill for those services. for instance, if your doctor draws blood and sends it to the lab for analysis, the value of the lab work could be counted towards your deductible, meaning that you're going to be liable for some or all of that cost added to the copayment (assuming you haven't met your deductible—and coinsurance, if applicable—responsibilities yet).

Coinsurance may be a percentage of the bill you pay whenever you get a specific sort of health care service (it's not an equivalent thing as a copayment; a copayment may be a fixed amount, while coinsurance may be a percentage of the cost). Coinsurance applies after you've met your deductible but before you've met your out-of-pocket maximum. for instance, you've got a $1,000 deductible that you've got already purchased the year, an out-of-pocket maximum of $5,000, and a 30% coinsurance for inpatient hospitalization. Now for instance you've got a hospital bill that involves $10,000 after the network-negotiated discount is applied. therein case, you'll pay $3,000 and your insurance firm can pay $7,000.

2 - Out-Of-Pocket Maximum

But what if your hospital bill is $100,000 instead? Does that mean you're on the hook for $30,000? No, because the out-of-pocket maximum will kick in after your share of the coinsurance bill gets to $4,000 (since your out-of-pocket maximum is $5,000 during this example and you already paid your deductible, the $4,000 is that the remainder of your cost-sharing obligation—but during this example, your coinsurance responsibility might be less than $4,000 if you had also been paying copayments throughout the year). Once your total out-of-pocket costs for covered expenses reach the limit set by your plan—in this case, $5,000—your plan starts to pay 100% of the value of covered look after the remainder of the year.

So the out-of-pocket maximum is that the point at which you'll stop taking money out of your pocket to buy deductibles, copayments, and coinsurance. Once you’ve paid enough toward deductibles, copays and coinsurance to equal your health plan’s out-of-pocket maximum, your health insurer will begin to pay 100% of your covered health care expenses for the remainder of the year. just like the deductible, the cash you’ve paid toward the out-of-pocket maximum resets at the start of every year or once you switch to a replacement health plan.

Under the Affordable Care Act rules, non-grandfathered health plans cannot have out-of-pocket maximums in more than $8,150 per person ($16,300 per family) in 2020. Health plans can have out-of-pocket limits below these amounts, but not above them.2 The ACA's cap on out-of-pocket costs only applies to services that are received from in-network providers and thought of essential health benefits.

3 - Provider Networks

Most health plans have health care service providers that have made a affect the health decide to provide services at discounted rates. Together, these health care service providers are referred to as the health plan’s provider network. A provider network includes not just doctors, but also hospitals, laboratories, physiotherapy centers, X-ray and imaging facilities, home health companies, hospices, medical equipment companies, outpatient surgery centers, urgent care centers, pharmacies, and a myriad of other sorts of health care service providers.

Health care providers are called “in-network” if they’re a part of your health plan’s provider network, and “out-of-network” if they’re not a part of your plan’s provider network.

Your health plan wants you to use in-network providers and provides incentives for you to try to do so. Some health plans, usually HMOs and EPOs, won’t pay anything for medical aid you get from out-of-network health care providers. You pay the whole bill yourself if you go out-of-network.

Other health plans, usually PPOs and POS plans, pay some of the value of the care you get from out-of-network providers, but they pay if you employ an in-network provider. for instance, my PPO requires a $45 copay to ascertain an in-network specialty physician, but 50% coinsurance if I see an out-of-network specialist instead. rather than paying $45 to ascertain an in-network cardiologist, I could find yourself paying $200-$300 to ascertain an out-of-network cardiologist, counting on the quantity of the bill.

And it is often important to know that out-of-network providers aren't obligated to simply accept anything but the complete amount that they charge for a given service. In-network providers have signed contracts with the insurance firm, agreeing to simply accept a negotiated rate for every service. this is often why your explanation of advantages might say that the provider billed $200, but $50 was written off, with the remaining $150 split between the patient and therefore the insurance firm consistent with the specifics of the health plan. The in-network provider cannot then send you a bill for that other $50—writing it off is a component of their contractual obligation.

But out-of-network providers haven't any such contractual obligations. for instance you see an out-of-network provider who bills $300 for a given service, and your insurance plan pays 50% for out-of-network services. That doesn't mean, however, that your insurer goes to pay 50% of $300. Instead, they go to pay 50% of whatever usual and customary amount they need for that service. for instance, it's $200. therein case, your insurer goes to pay $100 (50% of $200). and therefore the out-of-network provider can balance bill you for the remainder of the fees, which can amount to $200 out of your pocket.

4 - Prior Authorization

Most health plans won’t allow you to urge whatever health care services you would like, whenever and wherever you would like. Since your health plan is footing a minimum of a part of the bill (or counting it towards your deductible), it'll want to form sure you need the health care you’re getting, which you’re getting it during a reasonably economical manner.

One of the mechanisms health insurers use to accomplish this is often a pre-authorization requirement (also mentioned as prior authorization). If your health plan has one, it means you want to get the health plan’s permission before you get a specific sort of health care service. If you don’t get permission first, the health plan will refuse to pay and you’ll be cursed with the bill.

Although health care providers will usually take the lead appear getting services pre-authorized on your behalf, it’s ultimately your responsibility to form sure anything that must be pre-authorized has been pre-authorized. After all, you’re the one who finishes up paying if this step is skipped, therefore the buck quite literally stops with you.

5 - Claims

Your insurance company can’t pay bills it doesn’t realize. An insurance claim is how health plans are notified of a few health care bill. In most health plans, if you employ an in-network provider, that provider will automatically send the claim to your health insurer. However, if you employ an out-of-network provider, you'll be the one liable for filing the claim.

Even if you don’t think your health plan can pay anything toward a claim, you ought to file it anyway. for instance, if you don’t think your health plan can pay because you haven’t met your deductible yet, you ought to file the claim therefore the money you’re paying gets credited toward your deductible. If your health plan doesn’t know you’ve spent $300 on treatment for a sprained ankle, it can’t credit that $300 toward your deductible.

Additionally, if you've got a versatile spending account that reimburses you for health care expenses not paid by your insurance, the FSA won’t reimburse you until you'll show that your health insurer didn’t pay. the sole way you'll show this is often to file the claim together with your insurer.

6 - Premiums

The money you pay to shop for insurance is named the insurance premium. you've got to pay insurance premiums monthly or every pay period if your plan is obtained via your employer. If you do not pay your insurance premiums by the top of the grace period, your insurance coverage is probably going to be canceled.

Sometimes you don’t pay the whole monthly premium yourself. this is often common once you get your insurance through your job. some of the monthly premium is taken out of each of your paychecks, but your employer also pays some of the monthly premium. this is often helpful since you’re not shouldering the whole burden yourself, but it makes it harder to know the true cost and value of your insurance.

If you purchase your insurance on your state’s Affordable Care Act insurance exchange, you'll qualify for a government subsidy to assist your pay your monthly premiums. Subsidies are supported your income and are paid on to your insurance company to form your share of the monthly premium cheaper. Learn more about the Affordable Care Act insurance subsidies in “Can I buy Help Paying for Health Insurance?”

7 - Open Enrollment and Special Enrollment

You can’t check-in for insurance whenever you want; you’re only allowed to check-in for insurance at certain times. this is often to stop people from trying to save lots of money by waiting until they’re sick to shop for insurance.

You can check-in for insurance during the open enrollment period.

• Most employers have an open enrollment period once annually, commonly within the autumn.
• Medicare has an open enrollment period every autumn (but just for Medicare Advantage and Part D plans; in most states, there's no annual open enrollment period for Medigap plans).
• Affordable Care Act insurance exchanges even have an open enrollment period once annually (in most states, it runs from All Saints' Day to December 15, but some states have extended enrollment periods), and therefore the same enrollment window applies to individual market plans purchased outside the exchange.

If you don’t check-in for insurance during the open enrollment period, you’ll need to wait until the subsequent open enrollment period, usually a year later, for your next opportunity.

An exception to the present rule, triggered by certain events, maybe a special enrollment period. A special enrollment period may be a brief time when you’re allowed to check-in for insurance albeit it’s not open enrollment. Special enrollment periods are usually triggered once you lose your existing insurance or have a change in family size. for instance, if you lose (or quit) your job and thus your job-based insurance, that might trigger a special enrollment period—in both the individual market and for an additional employer-sponsored plan that you're eligible—during which you'll check-in for a health plan albeit it’s not open enrollment.

Note that special enrollment periods within the individual market (including plans purchased via the insurance exchange in your state) last for a minimum of 60 days, while employer-sponsored plans only need to offer 30-day special enrollment periods.