Now that the election is over, it’s time to turn the focus back to YOU as you begin to make decisions for your 2017 health benefits. As I mentioned in the last blog, this series is about YOU and your Open Enrollment.
Certainly, anyone who has ever had health insurance is familiar with the term, deductible. However, I find that many people do not fully understand what a deductible is or how it impacts their health insurance plans, premiums and overall out-of-pocket costs. Today, I would like to review deductibles and four other frequently used health insurance terms.
The deductible is the amount you will need to pay for health insurance services before your health insurance begins to pay towards your healthcare services. The deductible may come in at any point depending on what type of health insurance plan you have. Some plans, specifically high deductible plans (see below), do not pay anything until the deductible has been entirely met, with the exception of some services such a preventative care. Once you have paid your plan deductible, your health insurance will then cover the costs, and you will only have to pay the required copays or co-insurance. Your plan’s Summary of Benefits will detail which type of payment is required. On the Summary of Benefits, you may see the following: X-Rays and Lab Work – $0 after deductible. This means that you must first pay your deductible, then, you will not have to pay for x-rays and lab work.
Example: Deductible = $2000. The cost of an x-ray is $150. If you have not paid any of your deductible, the cost of the X-Ray to you will be $150. However, if you have already paid your deductible, your cost for the X-ray would be $0.
It’s also important to note that your prescription plan may have separate deductibles from your medical plan.
Example: Medical Deductible – $2000; Prescription Plan Deductible – $100 (this means that you must pay $100 towards your prescriptions before your prescription plan begins to cover your medications.) Some drugs are covered at no cost.
- Copayments (Copays)
Not to be confused with coinsurance, mentioned below, is the amount that you agree to pay as part of the service that you receive.
Example: A visit to your Primary Care Physician may have a visit co-pay of $20. Even if you’ve already met your deductible, $20 is your co-payment. If you have not met your deductible, you will pay the co-payment + the allowable cost of the service.
Similar to copays, except co-insurance is typically detailed in percentages. Co-Insurance is the proportion of costs that you pay after your deductible is paid.
Example: The allowable fee for a service in your plan is $100, if the co-insurance is 20%. You would pay $20 – once your deductible is paid. If your deductible has not yet been satisfied, the amount you would be responsible for is $100.
- Flexible Spending Accounts (FSA)
A Flexible Spending Account is an account that you set up with your employer to put aside pre-tax money for qualified medical expenses and reimbursement. Why should I do this? These funds you set aside for medical expenses are not taxed. Therefore, your overall taxable income is lower. Below is an illustration from Benicomp.com of how you may benefit from enrolling in a Flexible Benefit Account.
|FSA Tax Savings Example|
|With FSA||Without FSA|
|Pre-tax contribution to reimbursement account||-$1,500||$0|
|Federal income and social security taxes||-$7,107||-$7,597|
|After-tax dollars spent on eligible expenses||$0||-$1,500|
|Tax savings with the FSA||$490||$0|
Before you go crazy with allotting funds to your flexible spending account, keep in mind that this money is not refundable and is forfeited if not spent by the end of the year (some plans offer the opportunity to carry-over a small amount – check with your Flexible Spending provider). Therefore, it’s important to estimate your qualified medically related expenses before determining an amount to contribute. FSA’s are great if you have predictable expenses such as maintenance drugs, glasses, contacts, braces, copays, coinsurance, deductibles, etc. If you are unsure of what items are covered under a qualified medical expense, click here for a full list of what’s acceptable according to the IRS.
- High Deductible Health Plan (HDHP)
A High Deductible Health Plan (HDHP) is a plan with a higher deductible than traditional health insurance plans. With HDHPs, typically, you are required to pay the deductible before any claims are covered. An exception may be preventative treatments and appointments that are 100% covered. The benefits of an HDHP are that you may use them in conjunction with a Health Savings Account (HSA) – not to be confused with an FSA, as mentioned above. If you are interested in learning more about an HSA plan and what to consider in determining if this is the right choice for you, check out this article on MyFabFinance.com.
Today’s health insurance is not your parents’ insurance. Gone are the days of health insurance plans with $0 deductibles, $0 co-pays and $0 co-insurance. Those plans still exist, but they’re also extremely expensive. It’s time to take ownership of your health insurance and shop it with the same research and intensity as any other major purchase.
Are there any other health insurance terms that confuse you? Sound off in the comments section below!