Health Insurance Jargon: Knowing Your Premium vs. Your Deductible
October 11, 2017
Health insurance terminology can often be confusing. And when you’re looking for insurance, the number one question is always about the cost. Unfortunately, the cost of health care is not always a straightforward single dollar amount. So, let’s look at the major components of health care costs, so that you can be better informed to select the plan that meets your needs, and of course your budget.
Premiums
Simply put, a premium is your monthly cost for coverage. Health insurance companies use multiple factors to determine your premium. These can include your age, your health status, and even where you live.
It’s worth noting that each insurance company weighs factors differently. That is, some might put more weight on the fact that you had knee surgery in the past, while other insurance companies might think that doesn’t change the amount of “risk” you carry. How an insurance company evaluates all these factors is called underwriting. Shopping around for different insurance companies can be very important, as these different underwriting rules may yield very different premiums for the same level of coverage.
Deductibles
A deductible is the amount of medical costs you must pay before your insurance coverage starts picking up the bill. For example, you may be required to pay the first $1,000 of medical bills before your insurance covers any costs. There are exceptions to paying the deductible for certain medical services, as federal health care laws mandate certain services be included at no cost within a medical plan (e.g., preventative care, certain lab tests, etc.). But, once you have met your deductible, your insurance will kick in and cover the rest of your medical care (for the most part… it’s a little more complicated than that, so keep reading about co-pays and co-insurance).
Co-Pays and Co-Insurance
Now that we have defined premiums and deductibles, it is important that you understand the other costs that you may incur with your health coverage. These last two items that we are covering are co-pays and co-insurance.
Co-pays are set dollar amounts for certain services. That is, you may have to pay $20 for every doctor visit or a flat fee of $15 for every prescription. Co-insurance, on the other hand, is a percentage of the costs for a particular service. For example, your insurance may cover 80% of your in-network surgery. If that surgery costs $1,000, then your coinsurance is $200.
To make sure that you get a best-fit plan for your needs, you should carefully look at the plan documents before you purchase so that you can identify what services are included without the deductible, what your monthly premium will be, and what services require co-pays versus co-insurance.