Decisions you make about health insurance affect your finances in profound ways. Going without insurance puts you at grave risk of financial disaster -- and you'll also owe a federal tax penalty for not being covered.
While buying insurance provides important protection from devastating financial loss, finding the right policy isn't easy. And if you don't do it right, you could end up with costs that are much higher than they should be.
To avoid ending up with a policy that isn't right for you, there are some basic things you'll need to know. Unfortunately, a recent study from UnitedHealth shows many Americans are unfamiliar with key factors affecting the coverage they receive and the amount they pay for care.
What is this essential info many Americans don't know? Read on to find out three key facts about health insurance many people don't understand.
1. What coinsurance means
While more than 6 in 10 Americans understand some of their costs -- such as deductibles and premiums -- coinsurance is a much more confusing concept. In fact, just 31% of survey respondents had a good understanding of coinsurance.
So what is coinsurance exactly? It's the amount you pay for covered services after your deductible is met.
Say you have a $1,000 deductible and 20% coinsurance costs. Your insurer won't pay for services until you've spent $1,000 and met your deductible. Once you've paid $1,000 for covered services, your insurer starts paying. But if your policy has 20% coinsurance, your insurer only pays for 80% of expenses. If you've met your deductible and have a covered outpatient procedure that costs $2,000, your insurer would pay $1,600 (80%) and you'd pay the remaining 20%, or $400.
2. How out-of-pocket maximums work
Out-of-pocket maximums cap how much you'll get stuck paying for covered medical care over the year. Yet the majority of Americans aren't familiar with how they work, as just under 40% of Americans know the meaning of out-of-pocket maximum.
If your policy has a $3,000 maximum out-of-pocket limit, you won't pay more than $3,000 per year -- no matter how much covered care you get. Once you hit your max, you stop spending any money on any covered services, which means no more copays or coinsurance costs.
The out-of-pocket maximum applies only to services your insurer is willing to pay for. If you have elective procedures or care that isn't covered, it doesn't count toward your maximum spending. The maximum limit also doesn't include premiums, so even if you pay a few hundred a month for your policy, these premium payments don't reduce your spending limit. But it does include your deductible.
3. The difference between in-network and out-of-network care
When you sign up for an insurance policy, some providers are in-network and others are out-of-network. The difference is a source of confusion for many Americans. In fact, more than one-third of survey respondents incorrectly thought visiting an in-network doctor would increase their medical bills, and around one-quarter thought going to an in-network provider would make no difference in cost. The reality is, visiting an out-of-network doctor is costlier because:
- Many insurance policies have a higher deductible for out-of-network providers than providers who are in-network. If you have a $1,000 deductible for in-network caregivers but a $2,000 deductible if you go out-of-network, you'd have to spend $1,000 more before your insurer covers any care.
- Many policies have a higher out-of-pocket maximum for out-of-network providers. In some cases, this is much higher, and in others, there's no out-of-pocket limit at all for out-of-network providers. This means there'd be no cap on how much you'd pay if you went out-of-network.
- Most insurers charge higher copays and/or coinsurance costs for out-of-network providers. You might pay a 20% coinsurance cost to visit an in-network doctor but a 50% coinsurance cost for someone who doesn't participate with your insurer.
- Your insurer negotiates rates with in-network providers. Your insurer may agree to pay $45 for a chiropractic visit, but no more. If you visit an out-of-network doctor, that doctor hasn't agreed to accept negotiated rates and might charge more. If your out-of-network chiropractor charges $60 for a visit, you'd be responsible for paying added costs. And the insurer would give you credit only for $45 toward your deductible and out-of-pocket max, even though you spent $60.
Clearly, you need to know the difference between in-network care and out-of-network care -- unless you want to incur a whole lot of extra expenses.
Find out how big an insurer's network of providers is before you buy coverage because you don't want a plan that won't cover many caregivers in your area. And if you have a particular doctor you want to see, make sure your doctor is considered in-network with your plan.
Know these key facts before buying health insurance
Health insurance and healthcare are both very expensive, and you're likely to spend a lot of money getting covered and staying healthy -- unless you're lucky enough to have an employer that provides you with very comprehensive coverage. Since there's a good chance you'll spend thousands on insurance coverage, make sure you understand how to shop for policies and key terms affecting coverage.
This guide to buying health insurance can help you join the minority of Americans who are familiar with all of the factors affecting what they'll pay for care.