Private health insurance

The United States relies on a mixed healthcare system that combines both public and private elements. As a result, healthcare coverage in the U.S. is not uniform, but instead made up of a patchwork of coverage options each with its own structure and benefits. Broadly, healthcare coverage in the United States can be summed up in three categories: private insurance, which is the most common one; government-funded insurance that supports people who may have difficulty affording care, such as older adults, individuals with disabilities, and those with lower incomes.; and self-pay, which is not really a type of insurance but actually a lack of insurance. It refers to individuals who are uninsured and pay the full cost out of pocket.

Okay, let’s focus on private health insurance. It’s offered by insurance companies and it’s usually provided through an employer, though people can also buy it on their own. Private or “commercial” insurance often provides a balance between cost and flexibility in the choice of clinicians and facilities.

Now, there are some key terms patients usually notice the most about private health insurance. First up is the premium. This is a fixed amount the patient pays, typically monthly, to keep coverage active, regardless of whether care is used. It functions like a subscription fee. If the plan is purchased through an employer, the employer pays part of the premium, reducing the employee’s contribution. Factors that can increase the premium include older age, tobacco use, and geographic location.

The premium is intertwined with a deductible, which is the fixed amount the patient pays out-of-pocket for covered services before the insurance plan begins to pay.

In general, a higher deductible is paired with a lower premium, while a lower deductible usually comes with a higher premium and less out-of-pocket spending when care is needed.

Next up is a copay, a fixed, flat fee that the patient pays for specific covered health services. It is a cost-sharing mechanism between the patient and insurer until the maximum out-of-pocket limit is reached. For example, a patient may pay a set fee, let’s say 25 dollars for example, for a primary care visit. Specialist and emergency services often have higher copays like 50 and 300 dollars respectively.

Another important term is coinsurance. This is the percentage of costs the patient pays after meeting the deductible. Unlike copay, coinsurance is a percentage of the total bill. A 20 percent coinsurance means the patient pays 20 percent while insurance covers 80 percent. Higher coinsurance increases out-of-pocket costs, while lower coinsurance shifts more cost to the insurer.

Let’s apply these terms to a case of Alex, who broke their leg and headed to the emergency department. A clinician examined them, ordered an X-ray, and placed a cast. A few weeks later, they received a bill for 10,000 dollars.

Now let’s break down what they actually pay. Alex has a monthly premium of 200 dollars, which they pay to maintain coverage. For their emergency department visit, they have a copay of 300 dollars, which they paid immediately. Next is their deductible of 2,500 dollars. They have to pay that amount before their insurance starts sharing the cost. So far, Alex’s portion of the bill is 2,800 dollars. That leaves 7,200 dollars. Alex’s plan requires 20 percent coinsurance. Twenty percent of 7,200 dollars is 1,440 dollars. When that is added to the previous 2,800, their total out-of-pocket cost is 4,240 dollars. Their plan also includes a 5,000 dollar out-of-pocket maximum. Since Alex’s total is below that limit, they pay the amount we calculated. So even though the original bill was 10,000 dollars, Alex pays 4,240, and their insurance covers the rest.

Notice that after this encounter, Alex has already paid their full deductible for the year and has just 760 dollars remaining in maximum out of pocket costs. Additional expenses later this same year, even cancer treatment, surgery, or an ICU stay, will cost Alex no more than 760 dollars, regardless of the total bill.

Alright, let’s review the main types of private plans. These plans differ in cost and flexibility, meaning how many clinicians the patient has access to and if referrals are required to see those clinicians.

The first type is a Health Maintenance Organization, or HMO. Patients generally must stay within a “narrow network” of doctors and hospitals, so they may have fewer covered options. Also, patients usually need a referral from a primary care clinician to see a specialist. Because of these restrictions, HMOs are often lower cost.

Another type is the Exclusive Provider Organization, or EPO. Like an HMO, patients must stay in network to get coverage, but referrals are not required.