One of the reasons many newcomers to the United States find the healthcare system “too complicated” is not necessarily the medical care itself, but rather the complexity of health insurance policies — something most of us may never have experienced before.
During my first few years living in the U.S., whenever I had to see a doctor or receive treatment, I felt as if I were waiting for college admission results. As a student on a very limited budget, even a bill of a few hundred dollars was enough to keep me worried for days.
Today, I feel much more confident using health insurance. Not because I have a better plan, but because I now know much more clearly when to use it, where to go, what to do, whom to ask, and what to expect.
To help you feel more comfortable when navigating health insurance services, this article explains the most important concepts in U.S. health insurance through simple examples that are easy to understand.
Why do you need to understand these terms?
Health insurance plans in the U.S. can differ significantly from one another, which is one reason many newcomers find the system difficult to understand. For example, in Vietnam, terms such as “deductible”, “coinsurance”, and out-of-pocket maximum are rarely applied in both public and private health insurance plans.
In the U.S., however, most health insurance plans focus more on how you share costs with the insurance company through concepts such as deductible, copay, coinsurance, and out-of-pocket maximum. You may have to pay a portion of your medical costs before your insurance begins to contribute, continue sharing part of the cost afterward, and eventually have most covered expenses paid by the insurance company if your total eligible spending reaches a certain limit.
That is why many people are still surprised when they have insurance but are still responsible for paying a significant portion of their medical expenses.
To better estimate how much you may need to pay, it is helpful to understand the five key concepts below.
What is a Premium?
A premium is the recurring amount you pay to keep your health insurance active. You can think of it like a monthly internet or phone subscription. You still have to pay it every month, even if you do not see a doctor that month.
For example, suppose the insurance company charges $700 per month. Your employer contributes $500, and you pay the remaining $200 through payroll deductions. That $200 is the premium you are responsible for.
If you purchase insurance through the Marketplace, you also pay a monthly premium. Depending on your income, however, you may qualify for government assistance through the Premium Tax Credit.
It is important to remember that the premium is simply the amount you pay each month to maintain your insurance coverage. Even if you pay your premium consistently, you may still be responsible for other costs according to the rules and benefits of your specific plan.
What is a Deductible?
A deductible is the amount you must pay out of pocket before your insurance company begins sharing the cost of certain covered services.
For example, if your deductible is $2,000, this means that during the plan year, you may need to pay the first $2,000 for services that are subject to the deductible before your insurance begins paying according to the terms of the plan.
For instance, imagine you need surgery that costs $20,000, and your plan has a $2,000 deductible. In that case, you may need to pay the first $2,000 yourself. After that, the insurance company begins paying the remaining cost according to your plan’s coverage rules.
Not every service requires you to meet the deductible first. Many health insurance plans still cover certain preventive services, such as annual checkups or vaccinations, even before you have met your deductible.
What is a Copay?
A copay is a fixed amount you pay each time you use certain medical services.
Some common examples of copays include a $15 copay for a primary care visit, a $25 copay for a specialist visit, or a $5 copay for certain prescription medications.
For example, if the actual cost of a doctor’s visit is $180 but your copay is $15, you only pay $15 at the clinic. The remaining amount is paid according to your plan’s coverage.
Copays are often applied to common services and can make it easier for members to predict the cost of each visit.
What is Coinsurance?
Coinsurance is the percentage of costs that you and the insurance company share after you have met your deductible.
For example, if your plan has 20% coinsurance, the insurance company generally pays the remaining 80%.
Suppose you have already met your deductible and then receive treatment that costs $10,000. You would pay about $2,000, while the insurance company would pay about $8,000.
This is why many people may still need to pay a fairly large amount, even though they have health insurance.
What is an Out-of-Pocket Maximum?
This is one of the most important concepts in health insurance, yet it is often overlooked.
The out-of-pocket maximum is the most you will have to pay in a plan year for covered medical services.
Once the total amount you have paid — including deductible, copays, and coinsurance as defined by your plan — reaches this limit, the insurance company usually pays 100% of covered expenses for the rest of the plan year.
For example, if your plan has an out-of-pocket maximum of $6,000, and you have already paid $6,000 in eligible expenses during the year, covered medical costs afterward generally will not require additional payment from you.
In-Network and Out-of-Network
In addition to the terms above, you should also pay close attention to the concepts of in-network and out-of-network care.
Each insurance company typically works with a network of doctors, hospitals, and clinics. This network is called “in-network.” If you use services from in-network providers, your costs are usually much lower.
On the other hand, if you visit an out-of-network provider, you may have to pay significantly more — or even the full cost in some cases.
For that reason, before scheduling an appointment, it is always a good idea to check whether the doctor or hospital is in your insurance plan’s network.
Things to Keep in Mind When Choosing a Health Insurance Plan
Choosing a health insurance plan based only on the monthly premium is not enough. A lower premium may come with a higher deductible or a higher out-of-pocket maximum.
On the other hand, a plan with a higher premium may help you save significantly if you expect to use medical services frequently.
Therefore, when choosing insurance, you should consider the plan’s premium, deductible, copay, coinsurance, out-of-pocket maximum, and network of doctors and hospitals together, rather than focusing only on the amount you pay each month.
Key Takeaways
| Premium — The recurring amount you pay to keep your insurance active. Deductible — The amount you must pay before insurance begins sharing the cost. Copay — A fixed amount you pay for certain medical services. Coinsurance — The percentage of costs you and the insurance company share after the deductible is met. Out-of-pocket maximum — The most you will pay in a year for covered services. In-network — Refers to the doctors, clinics, and hospitals included in your insurance plan’s provider network. |
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