How Does Health Insurance Work?

Health insurance is an agreement between you and your health insurer. Your health insurer agrees to pay some of your medical costs in exchange for a monthly payment. This monthly payment is called a premium.

What is a premium?

The premium is a fixed price you pay to your health insurer every month even if you receive no medical care. It is like car insurance. You pay for it every month even if you are not in an accident that month. The price of the premium may be higher or lower depending on the plan you choose.

Why do I have to pay a premium every month?

By paying the premium each month for your plan, you are telling the insurance company that you wish to continue being signed up for that plan. When you do not pay your premium for that month, you are telling your insurance company that you do not wish to continue having coverage under that plan. Your insurance company WILL NOT help cover your medical expenses if you stop paying the monthly premium.

Plans also require you to pay a deductible.

Generally, each plan has a fixed amount called a deductible. This cost equals bills for healthcare BEFORE your plan will start to pay its portion.

Deductibles will be higher for some plans and lower for others. The amount set for the deductible will change how much your premium is each month. See how deductibles and premiums are related

What does it mean to “meet your deductible?”

This term refers to when you have paid your deductible in medical care bills. Once you have met your deductible, your insurance plan will begin to pay their portion of your medical expenses.

For example: Let’s say your deductible is $2,500.  Once you pay $2,500 in medical bills – you have “met your deductible” and your insurance plan will now start helping pay the cost of your medical bills.

Will I always have to meet my deductible before my plan helps me pay for medical care?

Some plans have co-payments for certain medical services, such as going to see your family doctor. A co-payment is generally a low fixed amount that you pay at the time you use that medical service. This co-payment replaces the plan’s co-insurance. If you get medical care that has a co-payment under your plan, the co-payment will generally be the only cost you are asked to pay.

For example: If your plan has a co-payment of $30 to see a doctor. This means when you go to see your family doctor, you will be required to pay $30. This co-payment replaces your plan’s co-insurance. You pay the fixed amount of $30 to see your family doctor, and your insurance plan will pay the remainder of what your doctor is owed.

When I have met my deductible– how much of the bill do they pay and how much do I still have to pay?

Once you meet your deductible – your insurance plan will pay a set portion of your medical expenses. This portion is called co-insurance.  The portion your insurance plan pays is based upon the plan you choose. Co-insurance is generally listed as a fraction. A plan with 80/20 co-insurance means that, after you meet your deductible, your insurance company will pay 80% of your medical expenses. You will then only be responsible for the remaining 20%.

The portion your insurance plan pays is often referred to as the level of coverage for that plan .

Higher level of coverage = insurance company pays a larger portion
Lower level of coverage = insurance company pays a smaller portion.

When does my insurance plan start paying ALL of the bill?

Each plan has an out of pocket maximum. This is the maximum amount you will be responsible for in medical bills each year.  Once you have paid the amount of your out of pocket maximum, you insurance company begins to pay all of your medical expenses.

For example: If your plan has an out of pocket maximum of $2,500 –
Once you have paid $2,500 in medical expenses (deductibles + co-payments + co-insurance = $2,500), you will no longer have to pay any portion of your medical bills.  Your insurance company then begins to pay ALL of your expenses.

THIS DOES NOT INCLUDE YOUR PREMIUM.  You will still be required to pay the plan’s premium each month.