Health insurance primer

What we're going to do in this video is try to break down the terminology and a little bit of the math of health insurance. So the first question that you might wonder is: how much does an insurance plan cost? In many cases, you might have an employer who pays for all or part of your insurance. But in many cases, you have to get your own insurance, and so I'm going to focus on the second case.

What I did is I went to my state's insurance exchange and I just looked up an indicative plan for a family of four that makes a combined $100,000 a year. This is just one of the plans that I found. I got rid of the company's name, and what it has here is the monthly premium. So whenever people talk about premiums in insurance, they're talking about the amount that you have to pay to get the insurance.

So this is saying that you have to pay $629.51 a month in order to get this insurance. You might also hear things in terms of annual premiums, and you might guess how to go from a monthly to an annual premium. If you multiply this number, $629.51, times twelve, you're going to get an annual premium of $7,554.12. So this is how much someone would have to pay, likely you, in order to get this insurance.

And what this is telling me on my exchange is that this is actually after a pretty big subsidy that I'm getting from the federal and state government. Most of this is happening from the federal government, but we could talk about that in future videos. The big picture here is if you want to know how much a policy costs, that's the premium. This is how much per month, and this is how much per year.

Now, the next thing that you are very likely to see when getting a policy is a term called a deductible. One way to think about a deductible is this is how much you will have to pay out of your own pocket until the insurance really starts to kick in. So here we're looking at actually two columns: in-network and out-of-network. In-network are doctors and health care providers that the insurance company already has put in their network; they already have some type of an arrangement with, while out of network, they don't have an arrangement with those parties.

So for this insurer, if you go in-network, you would have to spend up to $6,300 on an individual before the insurance really starts to kick in. So if you had to go and get some type of a surgery that costs $6,000, even if you've been paying the premium, you would have to pay $6,000 on top of the premium in order to get that surgery. If that surgery, on the other hand, costs $10,300 for just one person, let's say that surgery costs $10,300, well in that situation you would have to pay the first $6,300, which means the insurance company would pay the remainder.

It would pay the remaining $4,000, and in that year if you were to get other surgeries for that individual, let's say it's you, it would then be covered. The insurance company would pay above and beyond anything above and beyond the $6,300.

Now, you also have a deductible for the entire family, so they're not just totaling what each individual is spending; they're also totaling what the whole family is spending. So let's say I have four people in my family, and over the course of the year I've had two for each of them, I have spent $30,150. I'm just using this as an example. So each of them has not gotten to their individual deductible yet, but in total, my family of four, $30,150 times four is $12,600. After this point, even though no individual has maxed out their deductible yet, now the insurance will also kick in.

Now, when they talk about a drug deductible, this is a separate deductible for the drugs. So the one that I looked at before could be general procedures or certain types of care you might need, while this right over here is specific to what you might need for meds. But it's the same idea. If it's for any one individual, the first $500 on medication in that year they're going to have to pay out of pocket, but then after that, the insurance kicks in, and then once again, $1,000 for the entire family.

Now, the out-of-pocket maximum says no matter what, no individual on an individual basis should you have to put out more than $7,800 for an individual, no matter what happens, and no more than $15,600 for an entire family. So this is real money here, but it's saying that you won't have to pay more than that out of your actual pocket.

And then here, the maximum cost per prescription, this is the most that you will ever have to pay to get a prescription. So even if there's some type of exotic drug that costs $1,000 per prescription, the most that you would have to pay is $500 per prescription for that.

Now that we've dissected deductibles a good bit, another term that you are likely to see is copay. Copay, one way to think about it, is something that you pay every time you go into that service. So for example, a primary care visit, this says the first three visits are a $65 copay before the deductible. So this is saying even if you haven't used up your $6,300 individual deductible, your primary care visits are covered, but every visit you have to pay $65.

The reason why they call it copay is that you and the insurance company are paying. That visit might cost the insurance company another $150, $200, or $250, but you're paying $65 on every visit, so the insurance company is kicking in even before the deductible has been reached.

Now, specialist visits—these if you go to specialist doctors like a cardiologist, or a rheumatologist, or a dermatologist—these copays only kick in after the deductible. So what that means is before you reach your deductible ceiling, you're going to pay what it costs out of pocket. So if that specialist visit costs $500, you're going to pay $500. But once you've reached your deductible, then every visit after that is going to cost $95, is what you would contribute, and then the insurance company would pay the rest.

Now the last term I'm going to introduce into this video is that of coinsurance. So what this is telling us right here, they're telling us how we are covered for various drugs. So for example, if it's a generic drug—these are things that are off patent—then you pay $18 after you have reached your deductible. So no matter what the drug costs after you've reached a deductible, every prescription you pay $18.

Now these Tier 2 drugs—and I'm not going to go into detail about this—but these are drugs that tend to still be on patent and they tend to be more expensive. What this coinsurance is telling us is you're going to pay for the drugs out-of-pocket until you reach your deductible for this insurance plan, and then after you've reached a deductible, you're going to pay 40% of the cost.

So whenever someone talks about coinsurance, that means that you are splitting the cost with the insurance company at that point, and it's usually specified as a percentage. So the 40% is what you would pay for that drug. So if, let's say it's $100 a month, you would pay 40% of that, so $40, and you would only get the 60% subsidy from the insurance company after your drug deductible has been reached.

So I will leave you there. I've already introduced a lot of ideas to you, but hopefully, that will already start to help you dissect how insurance plans work.