Meet Susie. Susie just graduated from college
and got her first job at Corporate Co. The job is great: free food, friendly colleagues,
and even a health insurance plan. However, theres just one problem: Susie has no idea
what health insurance is, or even if their plan is right for her.
What should she do? Well her first step is simple: understand
how health insurance works. Like all insurance, in return for a monthly fee called a premium,
health insurance reduces the costs associated with a risk, in this case, excessive medical
bills due to sickness or injury. However, unlike other forms of insurance,
health insurance premiums are unique: theyre only based on a few factors, like age, location,
and smoking habits, and not on your health status. That means if you have a pre-existing
health condition, like diabetes or asthma, your insurer cannot raise your rates or deny
That is undeniably great for consumer, though
health insurance also has a lot of problems, mainly the confusing jumble of terms: HMO,
deductibles, the list goes on and on. However, Susie shouldnt worry. Explained
properly, health insurance isnt actually all that complicated. Lets walk through
Lets say Susie has a $200 monthly policy
with a $1,000 deductible, 20% coinsurance, and a $5,000 out-of-pocket maximum. Lets
also say she recently broke her leg playing soccer and has just been stuck with a $100,000
medical bill. Yikes! How much of that enormous bill does she have to pay? Lets start with the deductible first. A
deductible is simply the amount of money Susie must pay each year before her insurer starts
paying their share.
Susies plan has a $1,000 deductible. That means, for a $100,000 medical
bill, Susie must pay the first $1,000 herself. Then, the remaining $99,000 is split between
Susie and her insurer, based on her plans coinsurance. Coinsurance is the percentage
of costs Susie must meet after her deductible has been met.
Susies plan has 20% coinsurance.
That means for every $4,000 the insurer pays, Susie must pay $1,000. This cost-sharing continues until Susie reaches
her out-of-pocket maximum. This is quite literally the maximum amount of medical expenses Susie
has to pay each year before her insurer pays the rest. In this example, Susies plan
has a $5,000 out-of-pocket maximum, and shes already spent $1,000 on her deductible and
$4,000 on coinsurance.
That means shes reached her out of pocket maximum, and her
insurer will have to cover the rest. All in all, Susie only paid $5,000 for a $100,000
medical bill. If Susie didnt have health insurance, that payment would have been all
on her! Susie is thrilled by this, but also wonders
if a similar type of calculation applies to routine services, like doctor's visits or
medications. Well, no, as it generally turns out.
routine expenses are instead covered by something called a copay. A copay is a simply flat fee
associated with a specific, routine event, like $25 for a doctors visit or a certain
prescription drug. As for you pay for these services, it couldnt
be easier. Susie will either pay directly at the doctors office or just get a bill
from them later on.
Hopefully, you and Susie now have a better
understanding of how health insurance works. Be sure to watch our next video, which covers
everything from HMOs to Gold Plans, and be sure to check out our website, where you can
find more educational material and great health insurance plans..