Know the basics when choosing a health insurance plan

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Adapted from MU Office for Financial Success Finance Tip of the Week blog post by Graham McCaulley and Brenda Procter, Personal Financial Planning, University of Missouri Extension

Whether you get insurance through your work or buy it on your own, most people have some level of choice in the type of plan they have. Health insurance, which has a language all its own, is a contract that requires your health insurer to pay some or all of your health care costs in exchange for a premium. As you make health insurance choices for you and your family, understanding some basic terms will help you know what your costs will be for certain health care services. Understanding how health insurance works can also help you decide which type of plan is best for you and your family.

Basic health insurance terms and how they work together

Premium – The fee you must pay for you or your family to have a health insurance plan.

  • Is usually paid once a month.
  • Must be paid to keep your coverage, whether you use it or not.
  • Can vary greatly in amount.

Out-of-pocket costs – The dollars you pay out of your own pocket for health care services.

  • Does not include monthly premiums.
  • Usually includes deductibles, copayments and coinsurance.
    • Deductible: The amount you owe for covered health care services before your health insurer or plan begins to share expenses with you.
    • Copayment: A fixed amount (e.g., $15) you pay for a covered health care service, usually paid at the time of service. The amount can vary by the type of covered health care service you receive and whether the service is in-network or out-of-network.
    • Coinsurance: Your share of the costs of a covered health care service. The amount you pay is a percentage (e.g., 20%) of the charge for the service.
    • Out-of-pocket maximum: A dollar limit on the amount you will pay each year toward your medical care.
      • Your out-of-pocket costs (deductibles, copayments and coinsurance) count toward your out-of-pocket maximum, but monthly premiums do not.

In general, less expensive premiums mean more out-of-pocket costs, and more expensive premiums mean fewer out-of-pocket costs. Different health insurance companies will charge different premiums for different types of plans. You may pick the least-expensive premium to be able to save money each month, but that could cost you more in the long run depending on how you use your insurance. Also, you may have different in-network and out-of-network levels of coinsurance, which affect your out-of-pocket costs. Plan networks vary considerably, and it is critically important that you find out which facilities, health care providers and suppliers are in a plan’s network before making a final decision, especially in rural areas.

For important tips on choosing the plan that is right for you and your family, read the full version of this article at http://missourifamilies.org/features/financearticles/healthins.htm

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