What is Health Insurance, and How Does It Work?
Health insurance helps protect your employees (and you) from the higher costs of receiving health care in the event of illness, accident, prescription drugs, doctor visits, hospital stays, and preventive care.
Health insurance carriers may offer a variety of health plans with varying levels of coverage and benefits. Let’s go through an example of how health insurance could impact health care costs.
Example of out-of-pocket maximum with high medical costs
Let’s say you need surgery with allowable costs of $20,000, and the following figures apply to your health insurance plan.
In your health insurance plan, you may have:
Now we will break down how those cost-sharing measures make an impact on the $20,000 medical bill.
A premium is the amount a member pays to an insurance carrier each month for their health care plan.
A deductible is an amount you pay for covered health care services before your insurance plan starts to pay for a portion of the costs.
For example, let’s say your deductible is $5,000. You will need to pay 100% of the first $5,000 of eligible medical costs before your plan starts paying for covered services.
Coinsurance is the portion of eligible medical expenses that you will have to pay after you’ve met your deductible.
For example, if your coinsurance is 20%, you are responsible for paying 20% of your eligible medical expenses, and the plan will pay the remaining 80%.
A copay is a fixed amount that you pay for a health care service or prescription and can vary depending on the type of service. The health insurance plan will detail if there is a copay, what the amount is, and to which services it applies.
What Are Out-of-Pocket Maximums?
An out-of-pocket maximum is the most you will pay for eligible medical expenses during a policy period (typically a year). Amounts paid for the deductible, coinsurance, and copays count toward the out-of-pocket maximum. After you’ve reached your out-of-pocket max, your health insurance plan will pay 100% of the costs for eligible services covered in your health insurance plan.
How Do In-Network and Out-of-Network Benefits Work?
Health insurance plans have a network of care providers, hospitals, and facilities that they contract with to provide lower cost of care. In-network services are paid at a higher benefit level, which results in a lower cost to the covered individual. Out-of-network providers do not have a contract with the carrier, and typically result in higher costs to the individual.
What Are the Main Differences Between HMO and PPO Plans?
HMO (Health Maintenance Organization) plans typically require members to select a primary care physician (PCP) to coordinate care within the network. In order to see a specialist, members may need a referral from their PCP. Having care coordinated by a PCP may result in lower overall costs for the member. PPO (Participating Provider Option) plans do not require members to select a PCP, and in most cases, members can go to any provider within the network without a referral. This increase in flexibility may result in a higher overall cost for the member.
How Do Smart Networks Work?
A Smart network is a group of providers that encompass a specific geographical area, and is less broad than a standard PPO network. Plans with a smaller network typically have lower premiums.