How Does My Insurance Work?
By Jordan Johnson, MA, LPC (WI), LPCC (MN)
Medical insurance can be confusing. Many people rarely use it, but when they do it is sometimes unclear how their plan will cover the services they receive from their provider. This can cause a good deal of stress and even some concern about using medical services in the first place. My goal with this article is to clear up some of the confusion and help you to understand the basics about how your insurance plan might cover services you receive.Terms
To begin, let’s define some basic terms when it comes to insurance:
- Insurance Plan- This is the agreement or contract that you have with an insurance provider (think Health Partners, Blue Cross Blue Shield, Preferred One, etc.) that gives you the right to submit medical service charges for payment. Terms of this contract are disclosed during open enrollment at your place of work on an annual basis. An employee can select the plan that they want to participate in.
- Premium- The monthly charge that you pay to maintain your insurance plan. This is usually deducted directly from your paycheck, but is sometimes billed separately. Generally, employers pay a portion of the monthly premium.
- Deductible- The annual amount that you are responsible to pay out of pocket before your insurance provider will cover all or the majority of your service charges. This annual amount can range from $0 to $4000+, depending on the plan.
- Coinsurance- This is a percentage that you are responsible to pay even after a deductible has been met. This varies between plans (with some plans not having it at all), but often it is something like 10-20%.
- Copay- Some plans require that you pay a small amount directly to your provider at the time of the appointment. This generally is anywhere between $10-$50. Most of the time, these plans do not require coinsurance to be paid. Copays do not contribute to your deductible.
- Out of Pocket Maximum- The total amount you would be required to pay in a year between deductible, coinsurance and copays.
- EOB (Explanation of Benefits)- This is a statement that is sent to you after a service is provided to explain the charges that were billed by your provider, the amount that the insurance company is covering, and the amount you have the responsibility to pay.
- EOB’s will have a few different categories on them. One is called the Adjustment or Allowed Amount. This is the insurance company stating what they value the service that was provided. For example, if a service was billed at $100, but the insurance company has stated an allowed amount of $75, they would adjust the amount to be paid to the provider from $100 to $75.
- After the charge is adjusted down, then the insurance plan’s deductible is considered. If the deductible is not yet met, then the patient is responsible for the amount that is left. In this example, $75 would be the patient responsibility, which would then get billed to the patient by the provider.
- If a deductible has been met, the EOB will then assign any coinsurance necessary to the adjusted amount. Let’s assume that this plan has a deductible that has been met, but also has a 20% coinsurance. In that case, the patient becomes responsible for paying 20% of $75, or $18.75.
- HSA (Health Savings Account)- An HSA is typically used by plans that have a high deductible as a way to help employees to pay for medical bills in a tax-advantaged manner. HSA’s are usually funded entirely by an employee with pre-tax dollars. Sometimes employers contribute an annual amount to the account on the employee’s behalf to help them meet their deductible. HSA’s are owned by the employee and balances on those accounts remain from year to year and past termination of employment. Individuals can use their HSA account like a medical savings account and can use the funds at their discretion, as long as the expenses are medical in nature or approved by the account policies.
Let’s look at an example situation and see how to understand insurance better. Let’s look at three different types of plans and then how they would cover a service charge.
You will note that both plans A and B do not have a copay and thus have a higher deductible than plan C. A and B are different in that plan B has an HSA account associated with it, so there are funds available there to make payments out of pocket while the deductible is being met. I’m assuming that all three plans have been used for a couple of visits or services so far in the year, with plan A having met its deductible.
Assume that an office visit occurs with a medical provider. Here’s what might come through on an Explanation of Benefits (EOB).
|Date||Code||Fee Charged||Allowed Amount|
With this information, here’s how the three different plans would assign responsibility:
|Plan Responsibility||Patient Responsibility||Deductible Balance|
Let’s look at plan A. The patient is responsible for 20% of the allowed amount since the deductible has been met. The amount of $35.90 gets sent to the provider, who then sends the patient an invoice.
Plan B sends the full allowed amount to the provider to invoice the patient, as the deductible has not yet been met. This patient has an HSA account, which can be used to pay that balance with the provider.
Plan C charges a $25 copay for office visits, which the patient pays at the time of service. Since that’s already been paid, the patient is not required to pay anything else. The insurance company reimburses the provider the allowed amount minus the copay. Notice that the copay doesn’t count towards the plan’s deductible, as office visits are treated differently than hospital procedures.
This is precisely why insurance can seem overwhelming and confusing. Since insurance plans have a variety of structures, it is difficult to predict what a doctor visit will cost you. The simplest one to understand is plan C, or any plan that has a copay for an office visit. These plans are designed to make attending an office visit pretty straightforward, with the copay being the total cost to the patient every time.
Another thing to note is that deductible amounts reset at the beginning of each calendar year. It’s important to be aware of what your deductible amount is and whether or not it’s been met yet. When your deductible is met, it can make services cost very little to you for the rest of the calendar year, but then when the year changes, those same services become more expensive, as your deductible resets.
Hopefully this has been helpful in understanding your insurance plan better. If you have a need for help understanding your specific plan as it relates to seeing a therapist with Hudson Counseling Services, we’d be happy to review your plan information and give you some insight into what services would cost you out of pocket.