In our fast-paced lives, the thought of tackling healthcare finances can feel overwhelming. But what if we told you that gaining clarity on your healthcare costs could actually reduce stress, rather than add to it? This guide is designed to demystify healthcare finances, transforming complex terms into simple words that make sense.
Understanding your yearly healthcare costs
When it comes to healthcare expenses, there are four fundamental terms you’ll encounter regularly: Premium, deductible, copay, and out-of-pocket maximum. Grasping these concepts is the first step toward managing your medical budget effectively.
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Premium cost
Think of your premium as the regular “subscription fee” you pay to your health insurance company. This amount, typically paid monthly or annually, ensures your coverage remains active, regardless of whether you use medical services. -
Deductibles
Your deductible is the amount you must pay out-of-pocket for covered medical services before your insurance company begins to pay its share. For example, if you have a $2,000 deductible, you’ll pay the first $2,000 of your medical bills for the year. Once you’ve met this amount, your insurance kicks in and starts covering a portion of your costs, often through copay or coinsurance. -
Copay and coinsurance
These are the amounts you pay for specific healthcare services after your deductible has been met (though some plans offer copays for certain services even before the deductible is met).- Copay (Copayment): A fixed amount you pay for a covered healthcare service, like a doctor’s visit or a prescription. For instance, you might pay a $30 copay for a primary care visit, and your insurance covers the rest.
- Coinsurance: A percentage of the cost of a covered healthcare service that you pay after you’ve met your deductible. If your coinsurance is 20% and your insurance covers 80% of a $100 service, you’d pay $20.
- Copay (Copayment): A fixed amount you pay for a covered healthcare service, like a doctor’s visit or a prescription. For instance, you might pay a $30 copay for a primary care visit, and your insurance covers the rest.
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Out-of-pocket maximums
The out-of-pocket maximum is the absolute most you will have to pay for covered medical expenses in a calendar year. Once you reach this limit through your deductible, copay, and coinsurance payments, your insurance plan will typically cover 100% of all further covered medical costs for the remainder of that year.
Decoding the process: How medical billing works
There are five key steps in medical billing that happen after you receive care. Here’s a simplified, step-by-step breakdown of what happens during each of those steps:
Five steps in medical billing
STEP 1
Service
You visit a healthcare professional — a doctor, nurse, specialist, or even a physical therapist — and receive medical care. This service could be anything from a routine checkup to a complex surgical procedure.
STEP 2
Claim submission
After your visit, your healthcare provider’s office creates a detailed record of the services you received and sends a claim to your health insurance company. This claim acts as a formal request for payment, outlining the medical codes for diagnoses and procedures performed.
STEP 3
Claim processing
Upon receiving the claim, your insurance company reviews it to determine what services are covered under your specific plan. They apply your benefits, checking if your deductible has been met, and calculate any applicable copays or coinsurance. This process determines how much they will pay and how much you are responsible for.
STEP 4
Explanation of Benefits (EOB)
Before you even get a bill from your provider, your insurance company will send you an Explanation of Benefits (EOB). The EOB is not a bill, but a detailed statement explaining:
- The services you received
- The amount your provider charged
- The amount your insurance covered
- Any discounts applied
- The amount you are responsible for (your deductible, copay, or coinsurance)
STEP 5
Billing
Finally, after your insurance has processed the claim and sent you an EOB, your healthcare provider will send you a bill for the remaining amount you owe. This amount should match the patient responsibility listed on your EOB.
Essential healthcare financial terms: A quick Q&A
Navigating healthcare can introduce a whole new vocabulary. Here are some key terms explained.
- What exactly is a “network” in healthcare? A healthcare network refers to the group of doctors, hospitals, pharmacies, and other healthcare providers that have a contract with your health insurance company.
- Why is the difference between “in-network” and “out-of-network” so important? This distinction directly impacts your costs. In-network providers have a contractual agreement with your insurer, meaning you’ll typically pay less for their services because the insurer has negotiated lower rates. Your deductible, copays, and coinsurance will usually be lower when you stay in-network. On the flip side, out-of-network providers do not have a contract with your insurance company. This means you’ll likely pay significantly more out-of-pocket, and your out-of-network expenses might not count towards your in-network deductible or out-of-pocket maximum.
- What is “prior authorization” and why do I need it?
Prior authorization (sometimes called “pre-authorization” or “pre-certification”) is a requirement from your health insurance company that your doctor obtains approval before you receive certain medical services, procedures, or medications. This is often required for expensive treatments, specialty drugs, or non-emergency procedures.
- What is “balance billing” and how can I avoid it? Balance billing occurs when a healthcare provider bills you for the difference between their standard charge for a service and the amount your insurance company paid. This typically happens when you receive care from an out-of-network provider. For example, if a provider charges $500, and your insurance only pays $300 (because they deem $300 to be a “reasonable and customary” charge), the provider might try to bill you for the remaining $200.
While balance billing is illegal in many states for emergency services and for certain in-network situations, it’s crucial to be aware of it, especially when considering out-of-network care.
Tying things together: Tips for managing your healthcare financials
Taking an active role in managing your healthcare finances can save you money and prevent unwelcome surprises. Here are some actionable tips based on what you’ve learned.
- Review your explanation of benefits: Understand what services were provided, what was covered, and what you’re responsible for.
- Ask questions: Don’t hesitate to ask your provider or insurance company about any charges or billing concerns.
- Stay organized: Keep track of your medical bills, including EOBs and insurance claims, to ensure accuracy and avoid surprises.
- Take advantage of resources: Doctor On Demand® by Included Health offers resources and support to help you navigate healthcare financials like in-app claims history and assistance. Check your coverage in the app, we’ll show you the cost of your visit upfront, so you’ll never get a surprise bill.
1. First, log in.
2. Add your insurance information.
3. Your cost will show before your visit.
About the author
Dana Duran is a copywriter with over 15 years of experience writing and editing content for start-ups, wellness brands, and non-profits, including 10 years of writing, editing, and producing in the museum and cultural space. She currently lives and works in San Diego, CA.
