Amidst all of the craziness of life, you may not have noticed that the end of the year is approaching and many people need to figure out what they are going to do about health insurance in 2017. Open Enrollment starts on November 1.
In Washington state, 50% of people are covered by an Employer group health insurance policy. The other 50% is covered by Medicare, Medicaid, Individual coverage, or choose to go without coverage (see KFF.org)
If you are one of the folks who has to figure out your own insurance, the process can be daunting. You have to consider so many things (premiums, networks, doctors, prescriptions, and benefits just to name a few). So where do you start?
Today we are starting a series on Health Insurance Basics. We will be defining terms, talking about the Exchange, and giving you the knowledge you need to be a savvy consumer. And if it’s all still too much, we are here to help. The assistance of an independent insurance agent is at no cost to you – so don’t be afraid to ask for help!
First up – Deductibles and Out-of-Pocket Maximums
Why start with deductibles and out-of-pocket maximums? The answer is easy – if you understand them now, you may be able to take advantage of that knowledge in 2016. Why wait for next year?!
A deductible ain’t no bull – and sometimes it may feel like you got gored by a bull.
The deductible is the amount you are responsible to pay for medical care before the insurance carrier pays for anything. Once you have met the deductible you will pay for a percentage of your care until you hit your out-of-pocket maximum (more about that later).
Here’s an example using 2 friends: Tom and Sophia.
Let’s assume that Tom and Sophia both need the same $4000 surgery, both are going to the same doctor, and it’s January 1. They both have insurance through the Super Duper Insurance company and pay 20% after their deductible, but Tom has a $1000 deductible and Sophia has a $5000 deductible.
Tom: Tom will pay the first $1000 of his surgery as his deductible, and 20% of the remaining $3000, or $600. Tom’s total cost for the surgery is $1600.
Sophia: Sophia’s $5000 deductible is more than the $4000 surgery, so she will be responsible for the full cost of the surgery. She will still have to pay another $1000 before she meets her deductible.
Who’s got the better deal? Well – that depends. Sophia paid $2400 more than Tom for the surgery, but Sophia’s insurance policy will cost less per month than Tom’s due to the large deductible. If Sophia’s plan is more than $200 less per month than Tom’s, then she may have the better deal because it will be cheaper over the course of the year.
If you’ve met your out-of-pocket maximum, you probably feel like all your pockets are empty!
The out-of-pocket maximum is how much you must pay before the insurance company pays 100% of your costs. In 2016 the out-of-pocket maximum for an individual is $6850.
Let’s go back to Tom and Sophia. After their first surgeries, Tom and Sophia have not hit their out-of-pocket maximums. But let’s say it’s a really crummy year, and now both of them need a $12,000 surgery.
Tom: Tom already met his deductible on surgery #1, so for surgery #2 he is only responsible for 20% of $12,000, or $2400. For the year he has paid $4000. This is still below his out-of-pocket maximum.
Sophia: Sophia still has to meet her $5000 deductible. Since she paid $4000 for surgery #1, she will pay the first $1000 of surgery #2. She is also responsible for 20% of the remaining $11,000, or $2200. However, $4000 + $1000 + $2200 = $7200. This is more than Sophia’s out-of-pocket maximum of $6850. Sophia will end up paying $1000 for the rest of her deductible, and $1850 more to meet her out-of-pocket maximum. She is now done paying for health care for the year. If she needs other covered procedures or benefits, they will be paid 100% by the insurance company.
So what does this all mean?
For 2016, it’s worth checking to see if you are close to meeting either your deductible or out-of-pocket maximum. Everything resets on January 1, so if you are close to either one of those numbers, it is a good idea to evaluate any care you need before the end of the year.
Have you put off having a procedure, but have met your deductible? Have it done so that you only pay a percentage, rather than having to meet the full deductible again.
Did you meet your out-of-pocket maximum early in the year due to a major surgery, or a series of smaller issues? Now’s the time to get everything else taken care of! Have that suspicious mole removed, schedule the knee surgery you’ve been putting off, or go to that physical therapy you’ve been putting off. If the Super Duper Insurance company is going to pay 100% of the costs, why would you put it off?
When planning for 2017, look at the flip side. Say you go to the doctor in December and she recommends an expensive wrist surgery. If it’s not an emergency, go home and check out your deductible and out-of-pocket maximums. Does it make sense to wait until January? You would get more benefit from meeting your deductible early in 2017 rather than in the last weeks of 2016.
Do you have other questions about deductibles or out-of-pocket maximums? Give us a call, or send us an email. We are here to help!