RichDayHealthPlans Blog

You are probably frustrated in your attempts at purchasing health insurance intelligently. It can be very confusing task. Terms are used that are foreign to you. It isn’t easy to get clear workable definitions of these terms either.

Deductibles and coinsurance

Let us consider two basic terms that go together like salt and pepper – deductibles and coinsurance.

You probably realize that the deductible is the amount that you will pay first if you make a claim on your health insurance—usually this deductible is $2500. After you have met your deductible, there is usually MORE that you may be obligated to pay.

Coinsurance

That additional portion is called the coinsurance. Although there are many different kinds of coinsurance, we will talk about the most common. It is what they call a 70/30 plan. A 70/30 plan is one where you COINSURE with the insurance company the first $10,000 of expenses. You are responsible for 30% of the expenses and the insurance company is responsible for 70%.

An Example
Let’s take an example: Let’s say you need to have your appendix removed – an appendectomy. That operation could cost $30,000, perhaps more or less, but this is a good round number.

What will you, the insured, have to pay? Well, first, you will be responsible for the deductible of $2500. After that, you will be responsible for 30% of the first $10,000, or $3,000.

Stop-Loss
Notice: You are not responsible for 30% of the entire expense. There is a stop-loss built-in so you don’t have to pay 30% of $30,000 or $9,000– thank goodness. You are only responsible for $3,000 plus your deductible of $2,500. That totals $5,500. That $5,500 is called your out-of-pocket expense.

At this point, the insurance company will cover 100% of the costs up to a lifetime maximum of $5 million, typically.

Why haven’t you ever heard about coinsurance? It is because most agents find that it is difficult to explain coinsurance concept, so they take the easy way out. They don’t mention it. That really isn’t fair to you.

When you go into the hospital thinking that you will be responsible for $2,500 and find out that your bills total $5,500, you are not happy. I think it is important to explain the concept to you so that you won’t be taken advantage of.

Deductibles and coinsurances – How do they relate to copays?
Another important thing I need to tell you about your deductibles and coinsurance: Deductibles and coinsurance do not have to be met before you can use your copay. (The copay is the amount you need to pay the doctor when you visit him for a consultation – it is usually in the range of $25).

Therefore, when your insurance is in force, you don’t have to meet your deductible before you can see your doctor. You can just pay a copay for the visit.

You should not hit your deductible and coinsurance in any given year

Practically speaking, you will almost never hit your deductible and coinsurance. (About only 7% of people hit their deductible in any given year.)

If you go into the hospital, however, it is likely that you will have to meet your deductible and coinsurance.

Hospitalized?
What is the likelihood that you will be hospitalized? Thankfully, it is once every 9.2 years. It isn’t something that happens very often. So, don’t fret and think that you need to purchase an insurance policy with a very low deductible. The lower your deductible, the more you have to pay every month. It just doesn’t make financial sense.

An Example of costs

For example, if you have a policy with a $2,500 deductible (70/30 plan) your premium might be $135 per month. If you were to choose a $250 deductible, (100% plan) you would have to pay $316 per month.

The low deductible plan is 2.34 times greater in price. The low deductible plan is not a good choice, and I try to discourage people from choosing a low deductible.

Don’t choose a low deductible

Many people complain about the high cost of their health insurance. There is no question that health insurance is expensive, but when they tell you that they have a low deductible, in the range of $250, 500 or 1000, there is the evidence that they didn’t understand how to intelligently choose their policy…or they were influenced by an agent more interested in maximizing his commission than insuring them inexpensively.

Now that YOU know, you can do a better job of making the right choice for you and your family.

Our mission is to help people find affordable, sensible health insurance plans. Give us a call.