If you’re fortunate enough to have a job that provides you with health insurance, then the process of selecting your insurance is simple: You take the coverage your employer provides. But for tens of millions of people, it’s more complicated than that. If you’re a part-time or freelance worker, you’re responsible for acquiring your own insurance either through the health insurance marketplace, or private health sector.
The Affordable Care Act mandates that individuals have medical insurance, so opting out entirely carries a financial penalty. That being the case, it’s in your best interest to have coverage, even if you believe that you’re not at great risk of illness or injury. This leads to the question, how do you choose between healthcare plans? There are a number of factors that go into making the decision as to which healthcare coverage is right for you.
When shopping for health insurance, it’s important to understand the general concepts involved in the insurance coverage. Without knowledge of what certain things mean, you won’t be able to meaningfully compare the prices of the plans and choose the most affordable health insurance.
There are 4 basic concepts that shape a healthcare plan: The premium, and then three similar but not identical concepts of deductibles, copays, and coinsurance.
The premium is one of the very first things you’ll want to take a look at when comparing health insurance quotes, as it’s the expense that you will be incurring regardless of how much healthcare you end up needing. A premium is the amount of money you pay to the health insurance company in exchange for coverage.
A premium usually takes the form of a monthly payment, and you can often set up an automatic electronic payment system through your bank account. Premiums vary, both from state to state and depending on how extensive your coverage is. The next few concepts will directly influence how large or small a premium might be.
A deductible is a fixed amount that you are responsible for paying before your health insurance provider covers your medical expenses. So, for example, if you have a $500 deductible, any medical costs you incur of $500 or less must be covered by you. Once cumulative medical costs exceed the 500 mark, your insurance provider will cover those costs.
Deductibles are generally larger figures, and it’s possible that it will take multiple visits to a doctor or multiple health issues to exceed a deductible. The deductible is measured over the course of a year or similar insurance coverage period.
Once you reach the threshold of your deductible, your coverage may or may not be covering the entirety of any medical bills you require. This depends on whether your plan also has either of the following two options.
A Copay is a smaller, fixed amount that you pay for any medical expense of a given kind. For example, you might have a $50 copay for any doctor visits. This means that any time you go to the doctor, you would need to pay $50 and your insurance company would pay for the rest. You might also have a $25 copay on prescriptions, meaning that you’re responsible for paying the first $25 of any medication prescription you need filled before your medical insurance kicks in.
Healthcare plans often times have a combination of copays and deductibles. This means that even once you’ve reached your deductible, you’ll still incur expenses for medical treatment. The final concept of coinsurance can often be paired with these first two as well.
While deductible and copays are fixed amounts, coinsurance is the idea that your healthcare provider will cover a percentage of your medical expenses while you are responsible for the remaining percentage. An example might be an 80/20 coinsurance split. This means that your insurance provider will pay 80% of the cost of a medical expense, and you will pay 20%.
In this example, a $100 expense would cost you $20 out of pocket, with the coverage paying for $80. A $50,000 expense would cost you $10,000, with the coverage paying $40,000. As you can see, coinsurance can be the more expensive option in the event of large medical bills, as deductibles and copays are fixed amounts rather than scaling percentages.
Weighing your options
So how do you put it all together and figure out the right health insurance for you? The trick is to compare health insurance quotes for their premiums, deductibles, copays, and coinsurance, and find the option that fits within your budget.
If you are young and relatively healthy, healthcare plans with low premiums may be the priority. After all, the premium is what you’ll have to pay even if you don’t need any medical care at all. If you’re worried about incurring a major medical expense running into the many thousands of dollars, stay away from plans offering coinsurance where your payment responsibility isn’t capped, and instead get a plan with a deductible and copays.
Finding affordable health insurance is a matter of weighing risk versus your everyday budget, and understanding the numbers involved allows you to make an informed and intelligent decision that will keep you both financially and physically healthy.