Prevention is better than a cure and preparation is the key to success. Insurance is just one of those things. It can seem like an unnecessary line item in our budget until we need it. To add to the equation, no one likes to think of the negative things that can occur. And that’s fair. But there is a balance. Saying “that won’t happen to us” is a dangerous route to take. We prepare and do our best, but having a safety net just in case is ideal. So what options are available? The next few articles will go over 10 types of insurance that can protect our families. The first two are health insurance and supplementary insurance. To make good decisions we must understand the terms involved. Otherwise, we are likely to end up with immense medical bills. So let’s get started!
Health Insurance: We all know the value of health insurance, but there are a couple terms that may be unfamiliar. Understanding them can help your family make the best decision when deciding on a plan.
Premium: The monthly payment amount for the insurance plan
Deductible: This is the amount you must pay before the insurance provider pays anything. If you’re planning to have any surgeries or procedures plan carefully. The deductible renews every year. If circumstances allow scheduling more than one procedure in the same year can save you money and prevent you from paying the deductible twice. (Note: Always consult your doctor first. For medical reasons it may be required to perform a procedure immediately or to wait. Speak to your health care professional before making a decision.)
Co-Insurance: This is your portion of the bill. Many policies have a 20% co-insurance. This means that if your hospital bill is $10,000 you are responsible for $2,000 (20%). It’s important to note that some plans have a deductible and co-insurance. That can add up quickly.
Out of Pocket Maximum: This is the maximum you are required to pay for the year.
Co-Pay: This is the amount required for each doctor visit. It must be paid up front before seeing the doctor. The co-pay for specialist visits are often higher than your general doctor. Also co-payments are not normally counted toward your annual deductible.
HMO, Health Maintenance Organization, plans requires the patient to see a certain doctor. Choosing a doctor outside of the designated provider will leave you with a costly bill.
POS, Point of Service, plans require a referral from your primary care physician before seeing a specialist. That presents a clear challenge if you want a second opinion.
PPO, Preferred Provider Organization, has the most flexibility. You’ll be able to visit any doctor or specialist within the network. You also have the option to visit doctors outside of the network but your out-of-pocket costs will be higher.
High Deductible Health Plan (HDHP): As the name indicates this plan has a high deductible. The advantage is that it allows you to obtain a health savings account (described below) and the monthly premium is often lower than other plans. To qualify as a HDHP the deductible must be at least $1,400 per covered individual (for 2020). This plan is good for a person that normally only visits the doctor for annual visits and will not end up paying the deductible.
Health Savings Account (HSA) is a savings account used only for medical expenses. The amount that you deposit into this account is tax deductible (up to $3,500 a year per person) which makes it appealing. Many employers have health savings options or you can open one on your own. Bank of America is one of many companies that offer health savings accounts. When you open the account you will receive a debit card that can be used for medical expenses. The funds in this account are yours forever but only for medical expenses.
Flexible Spending Account is similar to a health savings account but it’s only offered through your employer. Some employers fund this account for you, but only a max of $500 can be carried over. Any additional excess would be forfeited to your employer.
Supplementary Insurance: We know that health insurance coverage has greatly increased over the years. Even if we are fortunate enough to have it we may not be able to afford the out of pocket costs, such as the ones mentioned above. That’s what accident insurance is for. Other companies such as Aflac and State Farm have supplementary insurance often called accident or hospital income policies. These policies are normally $12 – $30 a month and provide cash directly to the policy holder in the event of an accident or hospitalization.
Wow, so that was a lot! Healthcare can be confusing, but understanding all the terms in plain English definitely helps families to make the best decision for their circumstances. Open enrollment is just around the corner (starts in October for most) so take some time to review your current situation and goals to determine what will be best for you and your family. Always remember, you got this!
Until next time,
Crystal
Crystal Chantel is an accountant with well over a decade of experience in tax, finance, audit and accounting in New York and Florida. Each week in Money Talks, she’ll share her advice to help individuals to navigate their financial challenges! Looking for more advice? Check out her blog where she offers business, tax, and self-care tips for female entrepreneurs!