In my last post we discussed what a health premium was because it seemed like, at the time, the easiest way to showcase the basis of health insurance. For myself, it helped me understand how my parent’s health insurance worked (because I’m riding that train until the wheels fall off!)
But along with a health premium comes other important terms that I would be remiss not to mention or look at because it’s when you understand how they all work together that you can start to fathom health insurance in the United States.
So let’s start from the top, shall we?
We know what the hell a health premium is…
We locked down that all employers offer a benefits package at minimum to those who work full-time, a.k.a. 40 hours a week. We identified that those benefits can include a wide range of things but the main thing is health insurance of various forms.
We defined that a premium is the amount you pay every month for your health insurance to stay active. And, fun fact from my mother, your premium is usually deducted from your paycheck every time you get paid if your insurance is through an employer, like taxes. And we found a job I would be stupid not to apply for!
But if I’m being real with you, we skipped over some other stuff connected to health insurance because I needed to create my damn dictionary to understand it all.
A Damn Dictionary: Define deductible, co-payment, co-insurance — and how it connects to a premium
The easiest way I’ve found to understand this is to give you definitions of each of these parts and then put them into a real-world example. Teacher mode has been activated. Let’s begin.
- Deductible: the amount of money you have to spend out-of-pocket on medical services before your insurance starts to pay. After you meet this amount of money, you then only have to pay a co-payment or co-insurance. A deductible is usually reset annually by your insurance provider.
- Co-Payment: A set amount of money you pay for covered healthcare services after you have met your deductible. It’s usually pretty small, like $20.
- Co-Insurance: This is similar to a co-pay, it’s just a different form. This is a percentage of costs for health care services that you pay (10% for example.)
- How it connects to a premium: I’m going to keep this as simple as possible because I feel like my real-world example will sell it.
- You pay a premium every month to simply have health insurance.
- Your health insurance provider makes you pay a certain amount of money out-of-pocket before they will start paying for your health services, called a deductible.
- After you have reached your deductible, you then only have to pay a fixed amount of money before health visits, or sometimes not at all, called either a co-payment or a co-insurance.
A Real-World Example: Suzy goes to the doctor
Based on all the information we have now, let’s meet Suzy, who is about to go to the doctor for the first time on her very own, brand-spanking-new health insurance plan.
Suzy rolls up in her 2020 Toyota Camry and walks into the doctor’s office. She presents them with her health insurance card, sees the doctor, and goes home.
She then receives a bill from her insurance that says she has to pay $200 for her recent doctor’s appointment. Why is she paying out-of-pocket for her visit if she has health insurance?
Well, Suzy has a health insurance policy that has a deductible of $2,000. She does pay a health premium every month for her insurance, but that is simply to keep it active and allow them to cover the basic costs of a visit. There will still be a large portion of money for her to pay towards her deductible, even though she pays her premium monthly.
Because this is her first time going to the doctor, she hasn’t paid any money out of pocket for any health care service yet, so she hasn’t met her deductible. This means after she pays her $100 bill, she will still have $1,900 more dollars to go before she has met her deductible for her plan.
Let’s go down the road a bit in the year and say Suzy finally meets her deductible. From this point on, the only thing Suzy will have to pay (generally speaking) will be either a co-payment or a co-insurance for every one of her health service visits.
Some Important Things to Note
Did Suzy’s situation help? I hope so! But I have a few things to add.
How much you pay for your premium is calculated by various factors. The higher your premium payment is, the lower your deductible level is and vice versa in almost all cases as well, so basically if you pay more upfront every month you have less money to pay out-of-pocket.
For example, on my parent’s plan, our deductible is pretty low. On top of that, once we meet our deductible, we usually don’t have to pay any type of co-pay or co-insurance, because of who we get our insurance through.
At least until we get into what an HSA is…
Drink water. Stay weird.