I have already had a number of questions about Project 2. If you have read the Project Letter (under the Projects button, Project 2 link in MyLabsPlus), you know this is all about comparing two health insurance plans. For many of you, these concepts are foreign since you may have never had health insurance or you may have been covered under your parent’s health insurance. Getting sick and not having health insurance is a quick road to severe financial difficulty. It is in your best interest to learn how it works so you can make good choices.
There are four key terms to understand: coinsurance, copay, deductible and out of pocket maximum.
Coinsurance – A form of medical cost sharing in a health insurance plan that requires an insured person to pay a stated percentage of medical expenses after the deductible amount, if any, was paid.
- Once any deductible amount and coinsurance are paid, the insurer is responsible for the rest of the reimbursement for covered benefits up to allowed charges: the individual could also be responsible for any charges in excess of what the insurer determines to be “usual, customary and reasonable”.
- Coinsurance rates may differ if services are received from an approved provider (i.e., a provider with whom the insurer has a contract or an agreement specifying payment levels and other contract requirements) or if received by providers not on the approved list. In addition to overall coinsurance rates, rates may also differ for different types of services.
Copayment (copay) - A form of medical cost sharing in a health insurance plan that requires an insured person to pay a fixed dollar amount when a medical service is received. The insurer is responsible for the rest of the reimbursement.
- There may be separate copayments for different services.
- Some plans require that a deductible first be met for some specific services before a copayment applies.
Deductible – A fixed dollar amount during the benefit period – usually a year – that an insured person pays before the insurer starts to make payments for covered medical services. Plans may have both per individual and family deductibles.
- Some plans may have separate deductibles for specific services. For example, a plan may have a hospitalization deductible per admission.
- Deductibles may differ if services are received from an approved provider or if received from providers not on the approved list.
Out of Pocket Maximum - The maximum dollar amount a group member is required to pay out of pocket during a year. Until this maximum is met, the plan and group member shares in the cost of covered expenses. After the maximum is reached, the insurance carrier pays all covered expenses, often up to a lifetime maximum.
- Some plans, particularly Blue Cross Blue Shield, do not include the deductible in the out of pocket max. This is a marketing ploy since you will need to pay the deductible to reach the out of pocket maximum.
Another key concept to understand is the difference between a charge and a cost. When you go to a hospital, ER or any other type of medical service, the insurance company is charged some amount for the service provided. We will assume that this charge would be the same no matter what insurance plan you have. This is the amount an uninsured person would pay. However, an insured person may or may not pay that amount back to the insurance company for those charges. If your plan has a copay, you pay that amount instead…this is your cost. In short, a charge is what the provider charges the insurance company and the cost is what the insured actually pays for the service. As the charges increase, the cost to the insured goes up. In this project, you come up with a model of this relationship.
For most plans, the costs increases very quickly at first. This is because you must meet the dedeductible before the coinsurance kicks in. So if you have a $1000 charge for a trip to the ER before the deductible is met, you pay that entire amount. However, once you have paid the deductible by utilizing services, the charges are split between you and the insurance plan according to a set percentage given by the coinsurance. If your coinsurance is 40% and you have met the deductible, the $1000 charge costs you only $400. This applies until you reach the out of pocket max. Once you reach this preset level in costs, the plan covers all charges until the lifetime out of pocket maximum is reached.
In this project you will be comparing a plan you choose to the Basic Plus Plan. Assume that this plan is available to you. Also assume the charges for prescriptions and visits set out in the project letter. You will also complete this project as an individual. The space for Family in Tech 4 is there since in some semesters (not this one!) I have students to Family Plans.
I hope this helps you to understand the concepts and terms. If you have any further questions, leave me a comment below.
