3 Terms to Know Before Choosing Health Insurance

When you review health insurance plans to decide which plan suits your family’s needs best, you will likely see three terms throughout the explanation of benefits: premium, deductible, and copay.

In this video, I explain these terms and clear up common misconceptions surrounding them. By understanding these terms, you will be able to make an informed decision on which plan is best for you and your family.


Trying to figure out health insurance? Get my book Choose Your Best Health Insurance for detailed assistance on how to decide which insurance plan is right for you and your family.

What is a deductible, coinsurance, and copayment?

Insurance PolicyIt can be difficult to understand your insurance. Deductibles? Copays? Out-of-pocket maximums? What does this all mean? Knowing what these terms mean can make the task of choosing the insurance policy a lot easier. It can also help you to ensure that the policy you are choosing is within your budget and you don’t get stuck with any unexpected costs.

Today, we will discuss what a deductible is, what a copayment is and what coinsurance is. Knowing these terms when choosing a plan, as well as when visiting your doctor, will save you a lot of time and money.

First, what is a deductible? A deductible is the amount of money that you must pay for services before your health insurance kicks in. For instance, if you have a $5,500 deductible you will have to pay that whole amount out of pocket before your insurance pays a dime. Due to this, it is often advantageous to find a policy that has a lower deductible. Most people will never meet that high of a deductible, unless there is a medical emergency.

This can make it tricky when choosing insurances, especially through the market place. Most policies with low premiums have high deductibles and vice versa. This can make these policies more desirable because you may only be looking at what you will pay each month as opposed to what you will pay when you actually use your insurance, so make sure you choose a plan that fits within your budget and needs. One important thing to know is that plans through the health insurance marketplace pay in full on preventative services, regardless of if your deductible has been met. It is also important to check if your deductible if plan wide or if it has separate deductibles for things such as prescriptions.

You may see “individual versus family deductible” as a part of your policy’s description. The family deductible is typically higher than the individual deductible. However, this can be beneficial in some cases. For instance, let’s say your spouse has a procedure that costs enough to meet the family deductible. This means that everyone else on your policy has met their deductible too, even without stepping foot in a doctor’s office. If you have several members of your family on one plan, it may be a good idea to look into a policy that offers those benefits.

Second, what is co-insurance? Co-insurance is the percentage of the cost of a covered health service that you pay once you have met your deductible. For example, if you have a 10% coinsurance you will be responsible for 10% of the services rendered and your insurance will pick up the remaining 90%. So you may be thinking, wow, this sounds awesome! And it is, especially if you have a plan with a low deductible and a good co-insurance percentage. But then what if you have a procedure with an astronomically high allowed cost, like a heart attack, for example?

This is where your out-of-pocket maximum comes in. The out-of-pocket max is the the maximum amount you will have to pay toward your insurance for the year. Once you meet that number your insurance covers the rest of your services. This is a good way to protect yourself in cases of catastrophic health events. Therefore, it is important to know what your out-of-pocket maximum is, especially if you are of the population who is at higher risk for these major health events.

Third, what is a copayment? A copayment is a set dollar amount you pay for a covered product or service after your deductible is met. For instance, if your plan has a $40 copayment on a visit with your primary care physician, it will cost you $40 to see your doctor, assuming your deductible has been met. Also, with some plans, the deductible does not apply to certain services. For example, many chiropractic plans just have a set copayment regardless of if your deductible is met. Furthermore, the amount of your copayment can vary per service on your plan like for prescriptions or specialist visits. Like with the deductibles, it is typical that plans with lower monthly premiums will have higher copays.

If you’re still having trouble navigating your health insurance pick up my books Easy Healthcare: Choose Your Health Insurance and Easy Healthcare: Obamacare. These books include everything you need to know about how to choose the plan that best fits your healthcare needs.

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Why Isn’t My Insurance Covering Anything?

Pharmacist Showing Product To ClientI often receive questions from people who say they went to the doctor but their visit wasn’t paid for by their insurance, or their prescriptions weren’t covered. These people want to know why they are paying for health insurance if it isn’t going to cover anything.

In most cases, the answer is that they haven’t yet met their deductible. Many plans cover doctor’s visits and prescriptions, but only after the patient has paid first. If your plan has a deductible, it means that you will pay out-of-pocket for expenses up to that amount, and then insurance will kick in.

So let’s say, for example, that you have a $250 deductible with your insurance plan. You may have to pay out-of-pocket for doctor’s visits or copays until your total expenses reach $250. To be clear, that doesn’t mean $250 per instance. You may pay $60 for a prescription in January, $30 for another in February, and so on. All of those expenses get totaled—in this example you are up to $90. Once you have paid a total of $250, your insurance will kick in and cover your expenses for the rest of the year.

These costs usually reset at the beginning of the year. Hello, January. Early in the year, you may be paying out-of-pocket, but as the year goes on and you meet your deductible, your insurance may start paying on your behalf.

As you budget for the year, you may want to keep these expenses in mind. In fact, you may want to set aside some extra money each month toward the end of the year to cover your out-of-pocket costs at the beginning of the next year. You may also consider opening a flexible spending account (FSA) or health savings account (HSA) in the future to help cover your out-of-pocket costs.