Insurance 101

November 20, 2014

How Insurance Works

A health insurance policy is simply a contract between an insurance company and an individual. The type and amount of health care costs that will be covered by the health insurance company are specified in advance, in the member policy/contract or Evidence of Coverage booklet. The individual insured person’s obligations may take several forms:

  • Premium: The amount the policy holder or his sponsor (e.g., an employer) pays to the health plan each month to purchase health coverage.
  • Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its portion. For example, a policy holder might have to pay a $500 deductible per year, before any of their healthcare is covered by the health insurer. It may take several doctor’s visits or prescription refills before the insured person reaches the deductible and the insurance company starts to pay for care.
  • Copayment/copay: The amount that the insured person must pay out of pocket before the health insurer pays for a particular visit or service. For example, an insured person might pay a $45 copayment for a doctor’s visit or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
  • Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a copayment), the coinsurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment until they have reached their maximum out-of-pocket, while the insurance company pays the other 80%. This is the upper limit of coinsurance a policy holder is required to pay. Depending on plan, the policy holder could end up owing very little, or a great deal, depending on this factor.
  • Maximum-Out-of-Pocket: Major medical plans have a maximum out-of-pocket. It is also referred to as a stop-loss. This simply means the most that the policy holder is allowed to spend based on policy limits. The higher the maximum out-of-pocket, the lower the monthly premium. Consequently, the lower your maximum out-of-pocket, the higher your monthly premium will be. Our expert agents can help you understand which plan and packages will protect your financial well being.
  • Subsidy: With the advent of the Affordable Care Act, many Americans may receive financial assistance in the form of a “subsidy” to help offset the costs of an on-exchange marketplace plan. The subsidy amount is determined by FPL (Federal Poverty Level). Contact our professional agents today to see if you are eligible for a subsidy.
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