How Does Health Insurance Work?

When we’re not sure if we locked our cars, or turned the gas off, or paid the credit card bill, we’re jolted with a feeling of urgency. That kind of feeling, however, rarely happens when you think about getting health insurance.

But medical bills can be the cause of multiple bankruptcies, mostly because they are usually both an unexpected and a large expense. Let’s crack the code of health insurance and look at how it works.

What Do All These Health Insurance Words Mean?

Let’s look at how health insurance works by tackling the terms you need to know in order of when you need to know them. The more you know them by heart, the better you can make the right health insurance choice.

Enrolling in health insurance

Like enrollment periods for academic years, health insurance providers have specified times to enroll with them.

Open enrollment periods. These are periods of time you can enroll for health insurance during the year. They depend on the health insurance provider. If you miss it, you will need to 1) wait for next year’s open enrollment period, 2) buy a short-term policy, or 3) take advantage of a special enrollment period.

Special enrollment period. These exist because often missing open enrollment periods, or losing your current health insurance, is not something you planned. Special enrollment periods apply after a major life change, or after a change of job if your current health insurance is locked into your employment.

After finding out when you can enroll, you can start on the next step: choosing the kind of health insurance fit for your lifestyle.

Choosing your health insurance provider

There are several terms you need to know when choosing your health insurance provider.

Policy. Your health insurance policy is basically the contract of payments and benefits you have with a health insurance provider. It’s an agreement that if you pay this much during the agreed time periods, they will cover certain medical bills with a certain limit, and so forth. It’s what you enroll for.

Premium. Your premium is the amount you pay to the health insurance provider in exchange for the promised benefits. When anyone is asking about raising or lowering your premiums, they are talking about you and your wallet. Now, the main factor in calculating a premium is your Insurability.

Insurability. They calculate your insurability based on your age, gender, occupation and hobbies. The higher your risk assessment is, the higher the premium. If you apply for health insurance with multiple existing conditions, you might be denied insurance by a private health insurance provider.

Network. When you choose a health insurance provider, one of the benefits you get is access to their network of health professionals and medical specialists. If there’s a doctor you prefer, you can ask them which insurance providers they are linked with, and it can be part of your choosing process.

So when choosing your insurance policy, remember that the premium is based on your insurability. You might want to go for health insurance sooner rather than later, and get the policy before any death-defying activities. Also remember that each provider has a network of health specialists you can access with your policy, and you might have a preference there.

Managing health insurance payouts

Now you’ve figured out the enrollment periods, and chosen the provider you want, and narrowed your premium payout into a range that you’re willing to pay. Let’s look at the health insurance terms you need to know to choose the best policy for you.

Deductibles. With a health insurance policy, you reduce what you pay for certain medical services. These are “covered” by the policy. A deductible means you have to pay up to a certain amount of your own bills for covered services, before the policy kicks in. If your policy deductible is USD 1000, you will pay that much for your medical bills before the provider steps in.

Coinsurance. With some health insurance providers, you still need to pay a certain percentage of your total medical bills. So, say you had surgery worth $3000. You’ve paid the deductible of $1000. The remaining bill is $2000. Your coinsurance percentage is 20%, so you need to pay 20% of the remaining bill, which is $400. The provider pays the other 80%, or $1600.

Copayments. It’s the same as coinsurance, but by amount, not percentage. For surgery worth $3000, you pay the $1000 deductible. The balance is now $2000. Your copayment is $400, so you pay that. The provider pays the remaining $1600. However, unlike coinsurance, you would pay only $400 if the remaining bill was $2000, $2500, $3000, and so forth.

Out-of-pocket maximum. With all the out-of-pocket expenses we’ve been talking about, you might be wondering if health insurance is worth it at all. However, providers have a specified maximum amount they can ask you to pay–it’s a federal requirement. Once you hit that maximum, the provider will shoulder the following costs–provided you don’t hit your maximum with the provider.

In short, when choosing a policy, inquire about the deductible and the coinsurance and copayments. The lower the premiums are, the higher those out-of-pocket payments tend to be. The higher the premiums are, the lower the expenses tend to be. And don’t forget, the out-of-pocket maximum helps keep your total expenses manageable.

How Does Health Insurance Work?

Health insurance can feel like a complicated thing, but in the long run, getting health insurance younger, and choosing a reliable provider, might save your future plans and goals.

James Donaldson

I like to blog about insurance, health and the great outdoors. Memphis born and raised.