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Health Insurance 101: Medical Insurance Basics

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Health Insurance 101: Medical Insurance BasicsA wise person once said that “your family is just one serious illness away from bankruptcy.” There are many people in the U.S. who don’t have adequate health insurance, either because they can’t afford it or because they assume they are healthy and don’t need medical insurance.

I am a firm believer that everyone should obtain health insurance.  There are just some things in life you can’t plan for.  Medical insurance generally gives you access to doctors and medical care at discounted prices as well as helps you hedge against the possibility of medical expenses wiping you out financially.

Important Health Insurance Terms

There are a few health insurance terms you should know.

  • Copay:  Generally a fixed fee (i.e. $20 or $30) that you pay out of pocket each time you visit a doctor.
  • Deductible:  The dollar amount of medical expenses you must pay for out of pocket during the year before the insurer pays anything.
  • Coinsurance:  If applicable to your plan, the percentage of each medical bill you are responsible to pay after your deductible is met.
  • Out of Pocket Maximum:  Many plans have an out of pocket maximum.  Once the total of your deductible, copays, and coinsurance payments reaches this figure, your plan will begin paying for 100% of all medical expenses for the rest of the year (meaning your coinsurance and copays no longer apply).

Types of Medical Insurance Policies

It’s important to understand what types of health insurance options are out there.  Here are a few of the most common:

1.  Health Management Organization (HMO)

  • Provides coverage within a network of doctors.
  • Generally one of the least expensive options out there.
  • You must generally receive a referral from your primary care specialist in order to see a specialist.
  • Very inexpensive if you use physicians in network
  • You generally have to pay for everything out of pocket if you choose to see a doctor who isn’t a member of the HMO network.

2.  Preferred Provider Organization (PPO)

  • Is a network of doctors and specialists who have agreed to a negotiated rate with your insurer.
  • Generally more expensive than an HMO
  • More flexible and has a much larger selection of doctors to choose from than an HMO.
  • No need to receive a physician referral in order to see a specialist.
  • Insurer will still pay some of the cost (i.e. 70%) when you see an out of network doctor.

3.  High Deductible Plan

  • Has a high deductible (obviously)
  • Generally has very low premiums
  • May not be the best option for someone who is sickly, has chronic health issues, plans to have a major surgery during the year, or can’t afford the higher deductible
  • May save you a lot of money if you are relatively healthy and rarely go to the doctor.
  • A high deductible plan is a requirement for having a Health Savings Account, one of the most tax efficient vehicles out there.

Finding the Best Health Insurance Plan for You

Think about the health care you have received in the past.  Then compare how much that care would cost under each medical insurance plan you are considering.  Make sure you take into consideration premiums paid, deductibles, coinsurance, and copays.  Obviously the past is not always indicative of the future and your medical needs may not be the same every year, but this at least helps you make an educated guess.

Once you have estimated costs for each medical  insurance plan you are considering, make sure you consider other relevant factors as well, such as:

  • Flexibility in choosing your own doctor
  • The doctors and hospitals that are in network
  • What the medical insurance policy covers and doesn’t cover
  • The ability to see a specialist without getting a referral
  • The out of pocket maximum (and whether your emergency fund can cover this)
  • Other factors important to you.

How to Save on Medical Insurance and Expenses

Medical expenses are rising at a rate much higher than inflation.  As health care costs continue to rise, these get passed down to individuals in the form of higher premiums, larger deductibles, and higher copays.  Health care is one of the largest expenses many families face each year.

Below are a few ways to save on health insurance and health expenses.

a.  Shop around to find the best deal on your health insurance.  Don’t just go with the first medical insurance plan you see or the plan you’ve always used in the past since costs and benefits can change annually.  Spending a few minutes obtaining health insurance quotes can easily save you hundreds of dollars a year.  Here are a few places to check out:

b.  Consider using a Health Savings Account or Flexible Spending Account if appropriate.  Why pay for medical expenses using post-tax dollars when you can use pre-tax dollars?

c.  Oftentimes your ophthalmologist or optometrist won’t be the cheapest place to purchase your contact lenses or glasses.  Get your prescription and measurements from them but save money by purchasing them through a discount vendor such as DiscountContactLenses, EyeBuyDirect.com, or ZenniOptical

d.  If you have money left in your FSA at the end of the year, try and use what’s left before you forfeit that money.  Here are a few ideas of things you could purchase or pay for using those funds so they aren’t wasted:

e.  Use “in-network” healthcare providers.  Look on your insurer’s website to see which doctors are “in-network.”  You may have to pay significantly more out of pocket if you go out of network.

f.  If travelling abroad, consider purchasing travel insurance if appropriate to protect you in the event of a medical emergency.  A number of companies provide such insurance, such as Atlas.  

g.  Use cheaper generic medications rather than expensive name brands.

Final Health Insurance Tips

  • Know and understand all the details of your medical insurance coverage.  Know what your health insurance plan covers and what it doesn’t cover.  Know what your premiums, deductible, co-insurance, and copays are.
  • Make sure you purchase enough medical insurance coverage.  Remember that a serious accident or illness could easily exceed $100,000 of coverage.  Personally I think $1 million is the minimum coverage most people should purchase.
  • Keep good immunization and health records.
  • If you leave your job or are laid off, COBRA (a government program) may allow you to continue your health insurance coverage for a certain amount of time.  However, your medical insurance premiums will likely be higher since they are no longer subsidized by your employer.

 Additional Information on Medical Insurance

For additional information on health insurance (as well as other types of insurance) you might consider reading the below book:

 What are your thoughts about health insurance?  What kind of a plan do you prefer and how do you save money on medical insurance?  Leave a comment below!

Image: Elnur/Bigstock


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