Understanding Health Insurance

Health insurance can be confusing, but understanding it is important because it impacts your wallet. Making sure you are not under insured or over insured can help you protect your savings. If you are lucky enough your parents have insurance, and you may be eligible to stay on their health insurance until you turn 26. Personally, this was not an option for me. As the daughter of undocumented immigrants, my parents were not eligible for health insurance so I did not have much background on this topic and learned as I went.

When I entered the workforce, I was immediately presented with my employer’s health insurance options. I had to make a choice without any background knowledge of how it would impact my finances. Along the way I learned that like anything else the more informed we are as consumers the better able we are to make choices. Here are some of the things I wished HR had explained to me when making my health insurance decision. I hope this helps you in understanding health insurance!

Why do I need health insurance?

The monthly cost of health insurance is not cheap. So this was one of the first questions I asked myself, especially as a healthy 20-year-old. But the more I learned about how health insurance worked the more I realized that not having health insurance can be a more expensive option in the long run. As of January 2019, health insurance is no longer mandatory at a federal level, so you may be asking yourself the same question. Here are some things to consider before you decide to forgo health insurance:

Preventative care and early intervention

Health insurance covers 100% of preventative care which includes things like check-ups, screenings, and immunizations. If you do not have insurance these things will seem expensive and you are more likely to avoid them. It may also be easier to ignore a minor health issue which can lead to a bigger health problem. Preventative care and treatment are the best ways to evade costly hospital care or medical procedures in the long term. It is hard to think about this when you are healthy but as our parents would say insurance is all about, “mas vale prevenir que lamentar”.

Medical Emergencies can lead to bankruptcy

If you decide not to get insurance and are responsible with your preventative care you are still not immune to accidents. Accidents can require expensive medical care leading to thousands of dollars in medical bills. These unexpected situations have led many to bankruptcy. According to research, medical debt is one of the leading causes of bankruptcy contributing to 62% of bankruptcy cases in the US in 2007. The US is the 3^rd country with the most medical bankruptcies in 2021, only behind China and India! Insurance will not absolve you from the risk of medical debt but it will help you reduce the risk by covering the high cost of health care.

Terms to know

If you are not familiar with how health insurance works you are going to find that there are terms you may not know. So we are here to help break it down. Once you understand these terms you have a better understanding of now health insurance works. You will also be able to compare plans based on the true cost of plans based on your needs:

Premium

Is the monthly payment that you pay to have access to a health insurance plan. Think of it as a monthly membership fee. Like a gym plan you are paying monthly to be a member of a health insurance plan. The premium is only part of the total expenses you must cover as a member. Typically, the lower the monthly premium the higher other out of pocket expenses (all the expenses below) will be.

Deductible

This is the annual amount you need to pay out-of-pocket for medical services before your health insurance “starts working”. Your deductible is set when you select your plan. For example; if your deductible is $1,500 a year then you are responsible of paying that amount before the insurance plan starts covering any expenses. You will hear plans be described as “low deductible” or “high deductible” depending on the amount they have set. Once you meet your deductible you will still need to pay copays and co-insurance until you hit the out-of-pocket max.

Out of Pocket Maximum

Is the maximum amount for which you will personally be responsible. This includes your deductible but excludes your monthly premiums. Other expenses excluded in your out-of-pocket max are: medical services not covered by your plan, out of network services, and costs above the allowed amount for service that a provider may charge. Once you reach the out of pocket max the plan pays for 100% of your covered medical services. The out-of-pocket maximum for a plan that meets the Affordable Care Act standards is $8,550 for individuals and $17,000 for a family.

Co-payment

Or “copay” is a fixed amount you pay for medical services or prescription medication. Copays vary for services within the plan for example medications, lab tests and visits to specialists may all have different copay amounts. Copays are typically implemented once you meet your deductible (before that you are likely paying full costs). Generally, plans with lower monthly premiums have higher copayments and plans with higher monthly premiums have lower copayments.

Co-insurance

Is like a copay but it is charged as a percentage instead of a fixed amount. For example, if your co-insurance is 20%, this means you pay 20% of the total bill and your insurance covers 80%. Typically, co-insurance begins once you meet your deductible before that you are liable for 100% of the costs until you hit your deductible.

As you can see understanding health insurance involves knowing all the components that make up its true cost. You probably also realized that health insurance does not always cover 100% of medical expenses and that as a consumer you end up being responsible for many expenses even with health insurance. That is why it is important to focus on your entire health insurance plan and not only on your monthly premiums. It is also essential that you make sure you have an emergency fund that can help cover your portion of medical expenses. Keep an eye out on future posts as we discuss more about health insurance including types of plans and how to select a plan!