Wednesday, April 06, 2016

The Definitive Guide to Health Insurance

Health insurance plans pay for covered medical expenses that you might incur to treat medical conditions. Plan participants pay premiums and then file claims to receive benefits. Benefits are paid directly to the providers unless the insured paid for the expense and in that case, the insurance company would reimburse the insured according to the terms of the policy.

RESOURCE: This guide is a part of my larger guide called The Definitive Guide to Workplace Benefits. Be sure to check it out.

You Can No Longer Be Turned Down For Pre-Existing Conditions

As a result of the Affordable Care Act, you can no longer be turned down for a health insurance policy. This is a key component of the law and one that those of us who have medical conditions or family members who do truly appreciate.

Preventative Care Is Covered At 100 Percent

Any preventative medical expense is now covered at 100 percent. There is no cost to the policy holder to receive those services.

The Health Insurance Mandate - You Must Have Health Insurance

It is now required by law to have health insurance either on your own or through an employer group. If you don't have coverage, you may be subject to a penalty. The reason you must have health insurance is to spread the risk of everyone being guaranteed a policy over all of the people covered.

How To Understand Your Health Insurance Policy

Health insurance companies are incredibly complex policies. Most people never read the policy and find out through trial and error what is covered and not covered based on what providers tell them.

The best tool you can use to understand your policy is a document called a Summary of Benefits & Coverages. This summary outlines what it covers, how much it pays as well as what is not covered under the policy.

Your Health Insurance Will Only Cover What Is Medically Necessary

Your health insurance will only cover procedures that are medically necessary. This means that cosmetic procedures that aren't related to a medical condition won't be covered.

What is medically necessary will depend on your health care provider and your policy. As an example, some medical supplies are limited to certain quantities even if you might need more of them.

The most common time I've experienced this is with prescription drugs. Insurance companies will only cover a 30 day supply. If the medication only comes in quantities that cover 28 days, you are technically shorted two days.

So even though, it's medically necessary, you'll still get caught under certain rules of the policy.

You May Have To Go To Certain Providers Called In Network Providers

Plans differentiate between providers that are in network and out of network. In network providers have agreed to work with the insurance company and charge certain prices. Out of network providers have not.

Because of this out of network providers may not be covered at all or only up to an allowable amount. You'd be responsible for the excess cost above the allowed amount.

You want to make sure that you go to doctors in your network to receive maximum benefits under your plan.

The Premium

The most common feature of a health insurance plan is required premium to maintain coverage. Paying your premium on time is essential to maintaining coverage.

The premium you pay may or may not be the total premium under the policy. If your policy is employer sponsored, then it's likely your premiums are subsidized by the employer who is also making contributions.

If you by insurance privately, you may received subsidies under the provisions of the Affordable Care Act. These subsidies would come from the government. Whether or not you receive a government subsidy is dependent on your income.

If you don't receive a subsidy, you are paying the full cost of the insurance policy. If you are accustomed to employer provided medical coverage, you'll likely be shocked at the full cost of a health insurance policy if you have to pay it.

If you are on medicare or medicaid, your coverage might be subsidized completely by the government.

The Out of Pocket Maximum

The out of pocket max is the most you'll have to pay out of your own pocket during the plan year. The out of pocket maximum is listed for both an individual and a family.

This number is very useful because it will limit your overall risk in any one given year. As a single person, if your premium is $100 per month and the out of pocket maximum for an individual is $6,000 per plan year you can calculate the most you'll have to pay.

$100 premium per month X 12 months = $1200 + $6,000 out of pocket max = $7,200 max

In that example you'll know when you begin the year, the most you'll have to pay is $7,200. It helps you plan and also compare plans.

An out of pocket max is listed for both an individual and family. It's usually written like this:

$6,000 individual/$12,000 family

While the numbers for you plan might be different, just keep in mind to calculate your total possible yearly outlay for medical expenses could be as high as your annual premium PLUS your out of pocket max.

The Deductible

The deductible is an amount of money you'll have to pay out of your own pocket before your insurance kicks in. Just like the out of pocket maximum it's written the same way.

$1,000 individual/$2,000 family

In this case, if you were single, you'd have to spend $1,000 out of your own pocket first and then the insurance company would begin paying (subject to your co-insurance amount discussed below).

Example: I have to buy diabetes supplies for my son's insulin pump. Before the insurance company will pay for these supplies, I'd have to pay $1,000 first before the insurance company would pay. Once I've reached that limit, the insurance kicks in for my son. But if me or my wife have something done, we will also be subject to the $1,000 deductible until we reach the $2,000 family deductible. Then it would start paying for us.


Coinsurance is an amount you have to pay once the insurance company begins paying until you reach your out of pocket max. In most of the policies it's listed as a percentage such as:

10%, 20%, 30% co-insurance

If your coinsurance was 20%, after you have met your deductible, you would pay 20 percent of the cost of the covered amount.

Example: I've met my deductible and my son's diabetic supplies cost $1,000. I'd have to pay 20% of the $1,000 or $200 at the time I bought the supplies.

Common coinsurance items are outpatient service, hospital stays and durable medical equipment.


Copayment or copays are flat amounts for specific covered services. Copayments typically are part of doctors visits and prescription drug costs. The copays for doctors may vary depending on whether they are primary care physicians or specialists.

Drug copayments also vary. Typically, drugs are listed in tiers. Tiers may be a flat copay, most common for generic drugs or a percentage of the drug price.

Example: My son's diabetes doctor copay is $40. When we visit that doctor, I pay $40 and the doctor files a claim to get paid.

Copays may also apply for emergency room visits and before admissions to the hospital.

You'll have to review your summary of benefits to know for sure and also to determine whether services subject to a copay must meet the deductible first.


That's a guide to how your health insurance plans will customarily work. Remember that the first place to start understanding your specific plan is by reviewing your Summary of Benefits. If you need more help, contact your plan administrator or insurance company for more specific information.

If you have any questions, please include them in the comments below.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.