The Complete (Fun) Guide To Understanding Health Insurance

health insurance deductibleA few months ago, I went on a mini-rant about why health insurance is so complicated. I feel that I am a reasonably smart person, but for the life of me, I just cannot wrap my head around all of the in’s and out’s surrounding the world of health insurance. I think I get the gist of it, then I learn of a new term and it throws everything out the window.

Since I don’t like to be clueless, I did some leg work. Lots of leg work and learned a lot about health insurance, co-pays, plans, health insurance deductibles, co-insurance, etc. While I can’t officially call myself an expert, I do know enough about it to feel comfortable talking about it.

So today, I am going to walk you through health insurance. Before you run away, hear me out. I’ll do my best to keep it basic, and I’ve even included a bunch of awesome videos that explain things in better ways than I can (trust me, I’ve tried). So sit back, relax, and educate yourself on health insurance.

Your Guide To Understanding Health Insurance

Health Insurance Background

A few years ago, the President signed into law the Affordable Care Act (or Obamacare as some like to call it) which made getting health coverage easier for those that had pre-existing conditions and for those who weren’t covered by their employer. It also created a centralized location for you to shop for health insurance coverage as well. While there is debate surrounding the ACA, I am not getting into that today. Here though, is a nice short video on the myths and facts of health insurance that clears a lot of stuff up:

Moving on, every year, there is an open enrollment period that allows you to sign up for health coverage and/or make changes to the coverage you currently have. This open enrollment period runs from November 15th to February 15th. So, if you do the math, you have about 18 days as of this writing to sign up/make changes.

After the open enrollment period ends, you are stuck with your plan until the next open enrollment period rolls around. Of course, there are some exceptions. If you have a life event, like a marriage, divorce, birth of a child, etc. you can change your plan outside of open enrollment. Here is a complete list of what qualifies for a life event.

Signing Up For A Plan

OK, we’ve covered the open enrollment part of health insurance, now we get into a little more detail. If you are like me, this is where things start to get a little dicey. When selecting a plan, you have to look at a handful of things, including:

  • what is covered
  • what is NOT covered
  • who is considered in-network
  • who is considered out-of-network
  • cost of prescription drugs
  • cost of co-pays
  • health insurance deductibles
  • co-insurance
  • monthly premium
  • out-of-pocket maximum payments

Let’s take a minute to define some of the components of health insurance coverage so you can better choose a plan:

Covered/Not Covered: this will be a list of services and procedures that the insurance plan covers and doesn’t cover. For most, things like routine doctor visits are covered while cosmetic surgeries will most likely not be covered.

In vs. Out-of-Network: this will tell you what doctors and hospitals are considered to be part of the health insurance plan. If a doctor is in-network, then you will pay less money and more services/costs will be covered. If you see an out-of-network doctor, then you will be paying more money out of pocket. Therefore, if you like your doctor, make sure you pick a plan that has them considered in-network.

Premium: this is the amount you pay each month (or from your paycheck) for your health insurance coverage.

Deductible: this is the amount of money you pay before your insurance coverage kicks in and starts to pay. It is just like your deductible with car insurance. If you have a $500 deductible and get into an accident where your car needs $1,500 worth of repairs, you will pay the first $500 (your deductible) and the insurance company will pay the remaining $1,000.

Co-Pay: this is the amount of money you have to pay when you visit your doctor or hospital or fill a prescription. Usually this amount ranges from $10-$20 for doctor visits and up to $100 for hospital visits.

Co-Insurance: the amount of money you owe for service after meeting your deductible. In most cases, this is broken down into an 80/20 format where the insurance provider pays 80% of the bill and you pay 20%.

Out of Pocket Maximum: all plans have different amounts of an out of pocket expense. Some are $2,500 others are $10,000 with still more in between. This simply means the higher amount, the more money you pay. Once you reach that limit, you no longer have to pay for health care costs for the year. Understand though, that lower out of pocket limits tend to have a higher premium.

Now that all of that is understood, we can can choose a plan. This can get overwhelming, trying to compare a bunch of plans, so what do you look for? Below is a short video that walks you through the 3 things you should look for when choosing a healthcare plan.

Saving Money On Healthcare Costs

Now on to the fun part of the post – how you can save money!! Surprisingly, it is rather easy to save money on healthcare costs. While you won’t be saving money on your monthly premium, you can save money in other ways. Here are a few ways:

Stay Healthy: This is basic folks. If you eat right and exercise, the odds of you needing to go to the doctor drop tremendously. By not going to the doctor, you save by not having to pay co-pays or health insurance deductibles.

See The Doctor: In the event you think something is wrong with you, GO TO THE DOCTOR. We tend to put it off as just a sore leg or just a rash. While many times this is the case, in some instances, it is something more serious. By going to the doctor, you might be out $20 for your co-pay, but you will save thousands by catching something early.

Here is a quick story to drive this point home. We know of a couple where the wife needed a kidney transplant. They were looking at her family for a potential donor when her husband offered to give her his. After it was confirmed to be a match, they had the surgery. A few weeks passed and she was all healed up, but he was still having some pain. He went back to the doctor and they ran some tests and found a tiny lump on his pancreas. It was cancer. For those reading this that don’t know, pancreatic cancer is probably the deadliest cancers out there. Had he not gone to the doctor for the nagging pain he felt, it would have progressed and he most likely wouldn’t be here today.

The same idea applies with an annual physical. Get it done. The sooner you know about high cholesterol or other potential ailments, the sooner you can take corrective action now and save money in the long run.

Gym Reimbursements: You might tell me that the savings from staying healthy are offset by the cost of going to the gym, joining a club, etc. Not so. Many healthcare plans offer discounts for joining a gym. My old provider gave me $150 each year as long as I went to the gym twice a week. On top of that, there were other discounts too. I received a coupon for $20 off a bike helmet and I received a free one-on-one consultation with a nutritionist.

Shop Around: Not everyone charges the same price for the same service, something that blew my mind. I thought a broken leg was a broken leg, but apparently not. In any case, first check out what the average cost of the service is, then shop around. Here is a great video showing you how to do this:

Negotiate: Once you shopped around, you are free to negotiate. I know, this one blew my mind as well. You can read how I saved 20% just by asking for a discount.

Be Smart With Prescriptions: We all know that prescription drugs cost a ton of money. Luckily, there are ways to save money. You could buy generics. You can even save by choosing the right pharmacy. This post walks you through 5 ways to save on prescription drug costs.

Use Saving Accounts: There are two types of savings accounts related to health care that can save you money. The first is a flexible spending account (FSA). This works by having you put money aside for out of pocket healthcare costs. The money is taken from your paycheck pretax, saving you money on taxes. When you go to the doctor or fill a prescription, you use this money you saved. The catch with the FSA is that you have to use the money in the account during the year. Any unused money is lost.

When I had an FSA, I low-balled the amount I saved. I see the doctor once for a physical and I see the eye doctor once for my checkup. I also see the dentist twice. I added up the money I pay for these and saved this amount. For any other expense related to health care, I just paid out of pocket.

The second savings account is a health savings account (HSA). These are tied to high deductible insurance plans. They work the same way FSA accounts do in that you choose how much to save from your paycheck and that money is saved pre-tax. The differences though are what make the HSA awesome. First, you don’t have to use the money in a given year. You can use it 2, 5 or 20 years from now. As long as you use it for medical expenses, you never pay tax on the money. This is great because you earn interest in your HSA account and even better, many HSA providers allow you to invest your money! This means you have have your money grow for you over the long-term.

You can read this post on how I am basically treating my HSA account as a Roth IRA on steroids.

Final Thoughts

I know that health insurance is not the most exciting thing to talk about, but it will most likely be the item that costs you the most money in your lifetime. You might not think it now, but as you age and things go wrong, you will see your costs for health coverage skyrocket. It is one of the main reasons why people go broke in retirement – they underestimate how much healthcare will cost them.

Take some time and do your homework. Pick out the plan that makes the most sense for you and your family. Then, make it a point to be more active and healthy. Even if you turn off the TV and run around outside with your kids for 30 minutes, it’s better than sitting on the couch all night long.

[Photo Credit: Kate Ter Haar]

Special thanks to UHC for providing me with the awesome videos you see in this post!

4 thoughts on “The Complete (Fun) Guide To Understanding Health Insurance”

  1. Quite a comprehensive overview! I think that there are ways that we can prevent a decent percentage of health care costs, and a big variable is how much effort we put into simply taking care of ourselves. Making more smart decisions on a daily basis can add up to a situation where a person can be healthier over the long-term. Things can still happen of course, but it helps alleviate some issues.

    1. I agree 100%. Things can still go wrong even when we eat right and take care of ourselves, but many more things can and do go wrong when we don’t take care of ourselves.

  2. I didn’t realize that you could get discounts on health insurance for going to the gym. Right now I have the habit of going about four times a week. I am sure that my insurance might have some discount as well. This is something I can look more into. Thanks for sharing.

  3. McKayla Strauss

    I actually didn’t realize that in/out-of-network is something to pay attention to when searching for a health insurance policy. It’d definitely be nice to find a policy that covers doctors and hospitals that are close by. I feel like it’d almost be a waste to get a policy that only covers those that are a little too far away.

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