Health Insurance

Adulting 101, Lesson 172: About Health Insurance

Deductibles? Premiums? PPO or HMO? HSA vs FSA? Co-pays?

If you’re like most Americans, these words have been foreign to you up until the time came where you HAD to decipher this lingo because you got a surprise exorbitant bill in the mail, or another pleasant “surprise”.

Then, one beautiful day, as you’re going through the mail, you open up an envelope from your doctor, and inside there’s a paper that says “E.O.B.—THIS IS NOT A BILL” at the top and in the bottom right corner, below a bunch of other numbers, says you owe $278.50.

“Wait, I thought I had insurance and it was covered?!?!?”

“Almost $300 for a 5-minute office visit?!?!?!?”

If you’ve had this experience, fear no more. Below you’ll find a Cliff Notes version of everything you need to know about health insurance so that you can avoid having this perfectly-avoidable, unpleasant mishap.

Premium: what you (or your employer, or both of you combined) pay each month for health insurance. Your monthly fee.

Deductible: the amount you must pay BEFORE your insurance “kicks in.” For example, if you get a procedure done that cost $750, and you have a $500 deductible, you will pay the first $500, and insurance will pay a significant portion of the rest. Deductibles are enforced annually, which means at the beginning of each year, it goes back to zero and you’re on the hook for paying again. That is why many people choose to get as many procedures done as possible in the last few months of the year, after their deductibles have been met, to minimize having to pay if they get it done the following year when their deductibles are due once again.

Co-pay: A percent or per visit fee that will be charged on each visit, usually a small portion of the total fee.

HMO vs PPO: There is no “right” or “wrong” answer as to which one of these is better for you, it all depends on many factors, including your overall health status, how often you go to the doctor, whether you have any chronic diseases that need medication and consistent care, and other factors. PPOs allow you to go to a specialist directly, without having to get a referral from your primary, whereas HMOs require you to get the referral from the primary, which can be inefficient and time-consuming. The upside: HMOs generally have less out-of-pocket expenses.

HSAs: Health savings accounts are plans in which a high deductible PPO is “paired” with the ability to get some tax savings by putting untaxed money in a savings account for health-related expenses. The advantage of a health savings account is that each year, unused money rolls over to the next so you can save up as much as you want (up until a certain amount annually) over the long-term. Another advantage is that you can then use these funds as regular dollars, and negotiate cash prices with your doctors, which typically results in getting reduced fees and significant discounts when used appropriately.

FSAs: Flexible spending accounts, in which many companies give their employees a fixed amount annually to use at their discretion for health-related costs. The disadvantage is that at the end of the year, any unused money cannot be rolled over to the next year, so you are encouraged to use them in their entirety each year.

There you have it. Hopefully, you know have a better understanding of the basics of health insurance, and can make a wise decision when facing the decision of which health plan to enroll in, either via your employer’s open enrollment period, or when seeking health insurance on the individual open market.

If you have any questions, feel free to contact us!