If you're a 20-something just moving out of your parents’ home, you might have relied on their health insurance plan to cover your medical bills. Now you need to choose your own policy so that unexpected medical emergencies don’t break the bank. You’ll encounter a lot of strange-sounding terms, like the $500/$1500 deductible. But don't panic: it doesn't take long to figure out what they mean.
When choosing a health insurance plan, you need to decide whether you want policies for each individual, for the two of you as a couple, or for a family. A Preferred Provider Organization, or PPO, lets you choose doctors from anywhere for a higher premium. A Health Maintenance Organization, or HMO, is cheaper, but it restricts you to getting services from the insurance company's member providers.
Insurance companies only pay for costs above your deductible, which is the amount of money you have to pay out-of-pocket before any actual coverage begins. Choosing a high deductible means reducing your monthly payments. Deductibles usually come across in two numbers, such as $500/$1,500. The first number is the amount you have to pay for each covered individual before coverage starts. The second is the maximum amount you have to pay for all family members before coverage begins. For example, that $1,500 might come from one $500 claim for you, one $500 claim for your spouse and one $500 claim for your child, which totals $1,500 out-of-pocket.
Your maximum out-of-pocket expenses for the year will vary by company, though it is typically a multiple of the two numbers. For example, a $500/$1500 policy might have a maximum of $2,000 for individuals and $6,000 for the family. Once you reach those maximums, the insurance company covers all costs minus any copayments. At the beginning of the subsequent year, the deductible starts at zero, meaning you must satisfy the maximums again before the company kicks in its share.
Copayments and Co-insurance
Some health insurance plans have copayments, which typically apply to HMOs, and co-insurance, which typically applies to PPOs. These are set amounts or percentages that you pay for covered services, and can vary by the type of service. Examples include a $10 copayment for each prescription or 20 percent of the total bill for each doctor visit. The amount can be fixed across all the plans of an insurance company and have little to do with whether you choose a $500/$1500 deductible.
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