In the first portion of this series, I discussed health insurance through the lens of everything we must pay for. This time, I’ll explain the costs your insurer is liable for. You’ll notice that insurance companies have fewer expense categories than you. That’s by design…
Insurer’s Copay
Your copay is only a portion of the full copay. After your visit, your doctor collects your share through a POS terminal at the office, then forwards a bill to your insurance company for their portion. It’s a very messy process. Insurance companies often can’t pay these bills quickly enough. So after 30 days, the doctor’s office, instead of re-billing the insurance company, tacks the difference onto a patient’s bill. Look out for this hidden fee, and dispute with great prejudice if it occurs.
Insurer’s Co-insurance
If your plan stipulates a 20% co-insurance policy, that means your insurance company pays 80% of any future medical bills. Then, the 20% paid out-of-pocket must count towards your Out-of-Pocket Maximum. Sounds good, right? Finally, insurance is helping to defray the cost.
But co-insurance is ultimately just another strategy insurance companies use to reduce their liability. If it’s early in the calendar year and you’ve already met your deductible: you aren’t well. The chances are high that you’ll continue to need lots of treatment to get better. And those treatments must’ve been pretty expensive since you met the deductible so soon. The insurance company views you as a risk, now. You’re in danger of meeting your Out-of-Pocket maximum, meaning that the insurance company could be legally obliged to pay 100% of your bills.
But by passing on only a percentage of the cost, the insurance company keeps you trapped in that space between deductible and Out-of-Pocket maximum. By the time you get close, the calendar year ends, everything you paid resets, and the insurance company keeps as much of their money as possible.
Negotiated Rates
The fact is, most people won’t have medical bills that exceed their out-of-pocket maximum. That number is too high, by design, for all but the most catastrophic situations.
Health insurance provides a secondary benefit called “negotiated rates” for those individuals. When you visit a medical practitioner or hospital, they can pretty much bill you whatever amount they want. Only a few services have a legally-mandated price.
But for some practitioners, the insurance company negotiates how much they’ll pay them for that service. For example, a hospital may charge $500 for an ER visit. But the insurance company negotiates that they’ll only pay $250 for emergency visits. The $500 bill sent by the ER to the insurance company is the pre-negotiated rate, and the $250 bill is the negotiated rate. And an insured patient at an in-network practice will not need to pay more than the negotiated rate. Think of it as an extreme loyalty discount—a coupon.
The medical practices that negotiated a rate with your insurance company are considered in-network. The medical practitioners that didn’t agree to the discounted rates are out-of-network. And out-of-network providers will charge you the pre-negotiated rate.
In the example above, consider that the patient had to go to an ER out-of-state. Then, the insurance company may only pay $250 of the $500 balance, leaving the patient responsible for the $250 balance.
Insidiously, insurance companies also issue different deductibles, co-insurance, and out-of-pocket maximums for in-network vs. out-of-network visits. For example, the deductible may be $5,000 for in-network visits, but you could have a separate, $10,000 deductible for out-of-network visits. You are effectively trapped inside your insurer’s network of providers, as the financial consequences of out-of-network care can be disastrous.
60% of all personal bankruptcy cases filed in the United States directly result from insurmountable medical debts
