Understanding health insurance costs

Recently I was in the hospital to have my Achilles tendon repaired. The surgery entailed several phone calls from the hospital explaining things like what medicines to discontinue, when to stop eating, what time to be there, what to bring along and lastly, advising me I will be responsible for my deductible, coinsurance and any copay. I was told that if I paid my deductible, coinsurance and copay at admission, I would receive a discount of 10%.

Being an insurance agent, deductibles, coinsurances and copays are common terms. I then decided that taking time to explain them to would make a good column.

Deductibles on your health plan are the first dollars you must pay for any medical treatment before the insurance company pays.

Coinsurance is paid as a percentage of the cost of a service. In my case, the cost of my service was $20,000, leaving me responsible for $2,000.

A copay is a fixed cost ($40, for example) that an insurance policyholder pays for a specific service covered by insurance.

Coinsurance and copays apply in different situations, but both are expenses associated with your insurance plan. With a copay, you know exactly what your out-of-pocket payment will be at each visit. Coinsurance will likely result in a higher cost at your visit.

However, you'll meet your deductible and hit your out-of-pocket max faster, so coinsurance might work out better if you expect a lot of health-care needs.

Maximum out-of-pocket expenses are also important to understand. Health policies limit the amount you have to pay for covered services in a plan year. They may limit your expenses by individual or household. If your policy reads maximum out-of pocket $2,500/$5,000, then one person is limited to $2,500 and your household is limited to $5,000.

We all know health-care costs have been increasing. Deductibles are being raised, and as I explained coinsurance can cost several thousands of dollars.

Most people don't plan on being sick or injured. But as I found out, your body does not always cooperate. With that in mind there are several strategies to cover unexpected costs.

Create an emergency fund, somewhere you have $2,000 or $3,000 available when needed. This could be in a bank account, money market or my favorite, a life insurance policy. Cash value life insurance policies allow you to withdraw money or borrow against the policy while providing needed life insurance.

You can also purchase a supplemental plan. Supplemental health insurance plans are designed to cover the out-of-pocket expenses resulting from hospital stays or emergency room visits.

Supplemental plans can reimburse you for expenses paid or provide daily benefits for each day you spend in a medical facility.

Lastly, you can borrow the money or arrange a payment plan from the hospital.

Both of these strategies result in interest charges increasing the overall cost of your emergency.

Planning for something that may not happen is hard. Understanding that planning for the unforeseen is the responsible way to protect your family. Look at your health policy to determine the maximum cost for an emergency you could face.

Then choose a strategy that works in your budget.

Bob Hollick is a State Farm Insurance agent based in Washington.