Health Insurance

Health Insurance 101: Intro to Cost Sharing

Hello Everyone! I’m excited to continue on our Health Insurance 101 journey and get into the nitty-gritty of what you need to know about health insurance!

To give a quick recap, there are three essential components you should know and feel comfortable with when selecting a health insurance plan:

Three key essentials:

  • Cost Sharing
  • Benefits/Coverage
  • Networks

The gist: you need to find a health insurance plan that includes the BENEFITS, or medical services, that you need with the NETWORK of doctors and hospitals that you want to see with a COST SHARING setup that fits your budget.

Today we are going to hone in on COST SHARING. Now, what the heck does that healthcare lingo mean??

Cost Sharing: the amount of money you must pay for medical care vs what the insurance company will pay, or in simplified terms, the $$$.

Cost sharing will differ both between health insurance plans (health insurance plan X will cost more for me over the entire year than health insurance plan Y) and within the health insurance plan itself, for example, you may have to pay more for an emergency room visit than a clinic visit. Let me explain in further detail…

Let’s start with some basic definitions of the $$$ terms you need to know:

Deductibles: the amount of money you must pay out-of-pocket before your insurance kicks in and covers any other medical services

Premiums: the monthly payment you make to have health insurance coverage

Copayments: a defined amount you pay per medical encounter

Coinsurance: a percentage of your medical bill that you pay

Out-of-pocket: this means the insurance won’t cover the cost and you pay for everything yourself (i.e. you pull your wallet out of your pocket… get it…)

Summary of Benefits and Coverage: this document lays out your benefits (which we will talk about in another episode) and the cost sharing associated with those benefits. Know and love this document- even though it looks frightening!

So a basic life scenario with COST SHARING goes something like this…

Every month starting in January I pay a monthly PREMIUM to the health insurance company so that I have health insurance. Let’s say in January I get my annual preventive checkup with my doctor but that has NO COST SHARING (yay!) because it is preventive care that the health insurance covers (check with your insurance to confirm). Then in March I break my foot and have a hospitalization costing $50,000. My DEDUCTIBLE is $5,000 (the amount I must pay before health insurance kicks in) and I also have a $250 COPAYMENT for the Emergency Room (ER) visit and $250 COPAYMENT for the hospitalization. Therefore, I owe $5,500 in medical bills (DEDUCTIBLE + COPAYMENTS) and the insurance will cover the rest. But don’t forget you still also have the cost of your PREMIUM that you pay on a monthly basis! Then I have a follow-up clinic visit with my doctor in April to make sure my foot is doing ok and I have a $20 COPAYMENT for the clinic visit…you get the picture!

Additional key points and recommendations:

  • As you can see health care and your portion of the cost sharing can be expensive. Make sure you have enough money in your savings to cover any emergencies!
  • Review your Summary of Benefits and Coverage so you know how much different types of care costs. For example, it is probably more expensive for you to visit the ER than for you to go to an urgent care clinic. It is probably more expensive for you to get a brand-name prescription instead of a generic. Review and know!!  
  • AVOID COINSURANCE! You want to pick plans with copayments instead of coinsurance because you have minimal control over the size of your medical bills.

Let’s take the above example with COINSURANCE instead of COPAYMENTS. Let’s say my COINSURANCE is 20% of my hospital stay. Then I have my $5,000 DEDUCTIBLE plus $10,000 COINSURANCE (20% of $50,000) which leaves me paying $15,000 instead of $5,500. Yikes- AVOID COINSURANCE!

Now that we have gone through all the key Cost Sharing terms and example scenarios, let me know if you have any additional questions about the $$$ and I can be sure to address! Cheers to Health and Happiness!

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