One big problem with shopping for insurance, which the Affordable Care Act will fix, is lack of access to information. Even on sites like ehealthinsurance, it can be hard to compare plans– you have to look closely at each one to get information about deductibles, copays, coinsurance, and what’s covered– and some plans available in your area may not be on the site at all. Also, the rates it shows are teaser rates– they could be much higher if you have a pre-existing condition.
On Obamacare’s health insurance marketplaces, all the information you need to shop for insurance will be in one place. You’ll be able to see every qualifying plan available in your area, the price you see is what you’ll actually pay, and insurers will be required to include a summary of benefits that includes, copays, deductible, coinsurance etc. You can see what that looks like in Massachusetts, which already has a marketplace up and running (they did health reform in 2007, and it became the model for Obamacare):
But here’s a question: What if the real problem isn’t access to information, but that insurance information is too complex to understand in the first place?
George Loewenstein, a healthcare economist at Carnegie Mellon University, did a study (published in The Journal of Health Economics) in which he gave a multiple-choice quiz to a couple hundred people, all of whom have insurance, on some basic health insurance terms: out-of-pocket maximum, coinsurance, copay, and deductible. Here are the results:
He found that only 14% of the participants could correctly identify what all four terms mean. And remember, these are supposedly the most basic features of insurance, and the respondents were all people who have insurance and consider themselves the primary or secondary health-care decision-makers in their family. Lowenstein told The Washington Post:
“I have a PhD in economics and I’ve spent a bunch of time giving insurance companies feedback about policies, and I still find them difficult to understand […] It’s inherently complicated. Even if you understand each concept individually, it’s still difficult to figure out the cost.”
If a health policy researcher with a PhD in economics finds insurance plans inherently hard to understand, the millions of Americans purchasing health coverage later this year– many for the first time– are in for a struggle. To help them out, here are the most important terms you need to know when purchasing health insurance.
Most people know this one, but just in case… Your premium is the regular payment you make (usually monthly) to an insurance company to buy your insurance plan.
The deductible is the amount you have to pay for healthcare in a year before your health insurance kicks in.
- Example: Let’s say you have a plan with a $1,500 deductible. You break your leg ice-skating, end up in the ER, and the bill is $1,000. You’ll have to pay the entire bill, because you haven’t reached the deductible yet. But, if later that same year you break your other leg rock-climbing (please be more careful!), and the ER bill is again $1,000– this time you only pay $500. And now that your insurance has kicked in, for the rest of the year you won’t have to pay anything towards health bills… except copays and coinsurance.
A co-pay is a fixed amount you pay for a service– usually for routine stuff, like visiting your primary care physician, a trip to the emergency room, or prescription drugs. It’s the same no matter how long the visit or how much the prescription costs (although sometimes plans will have different co-pays for brand name and generic drugs). Also, note that the deductible usually doesn’t apply to co-pays and vice versa (unless it specifically says so).
- Example: Say your plan has a $1,500 deductible and a $150 co-pay for emergency room visits. For each of those broken legs you’d only pay $150 (assuming they don’t do surgery or anything). That $150 co-pay doesn’t go towards the deductible though– meaning if you end up in the hospital later for surgery, you still have to pay the full $1,500 before your insurance kicks in.
Sort of similar to a co-pay, but (1) is a percentage of the total cost, rather than a fixed dollar amount, and (2) is usually in addition to your deductible.
- Example: Say your plan has a $1,000 deductible and 20% co-insurance on hospital visits, and you have to get surgery on one of those broken legs that costs $10,000. You’ll pay the $1,000 deductible, plus another $1,800 for coinsurance (that’s 20% of the remaining $9,000), up to your out-of-pocket maximum.
IMPORTANT: On healthcare.gov it looks like they’re specifying if copays and coinsurance come after the deductible. So if a plan says “10% coinsurance after deductible” that means you pay entirely out-of-pocket until you hit the deductible, then you pay 10% of the costs until you hit the out-of-pocket maximum for the year. If it doesn’t specify– say it just says $20 copay– then that $20 is all you’ll pay for the service, and the deductible doesn’t apply.
5. Out-of-Pocket Maximum
This one is probably the most important, so listen up. The out-of-pocket maximum is the limit on how much you have to pay for healthcare in a year. Once you hit the out-of-pocket maximum, you don’t have to pay any more copays, deductibles, or coinsurance that year– your insurance company covers everything.
Before health reform, out-of-pocket maximums could be ridiculously high. Obamacare limits out-of-pocket spending to $6,350 for individuals and $12,700 for families, but like premiums, this is also on a sliding scale based on income. Take a single adult making $15,000 a year– her out-of-pocket maximum can be no more than $2,250. But if her income doubled to $30,000 a year, her out-of-pocket maximum would be the full $6,350.
Putting it all together
Still, even knowing all the terms, this stuff is pretty complicated… and it gets worse. Take that coinsurance we mentioned earlier– it’s based on something called the allowed amount, which is what the plan will pay for a given service. If a provider charges more than the allowed amount, you have to make up the difference.
So for example, say a hospital charges $1,500 for a hospital stay, but your plan’s allowed amount is only $1,000, and the coinsurance is 20%. You pay $200 (20% of the $1,000) plus everything over the allowed amount– in this case $500. Your total bill for that hospital stay would be $700. And that’s ignoring the deductible.
Yeesh. So is there any way to make this easier? Lowenstein suggests eliminating deductibles, coinsurance, and every other form of cost-sharing except for copays. The co-pays would be higher, but, he says, a least consumers would know what they’re getting. Still that’s not going to happen before the exchanges go live in October, so if you’re buying insurance next year make sure you know these terms!