Health Insurance For Dummies: Explained

Matt Allen (00:01)
Mm-hmm.

Welcome back to another episode of Talking Shit. Shit of course is an acronym for Straight Health Insurance Talk. I am Matt Allen and joined with me once again is Aaron Miller. How are we doing today, Aaron?

Aaron (00:20)
Doing great, Matt. How are you doing?

Matt Allen (00:22)
Fabulous. What are we talking about today, Aaron?

Aaron (00:28)
Well, every time we go into a podcast day, I'm I'm looking like what are people asking questions about? What can we shed light on? And today we're gonna do health insurance for dummies. We're gonna just go straight to the basics and we're gonna break down in way more detail than anybody needs.

Matt Allen (00:48)
Okay, perfect.

Aaron (00:50)
So today we're gonna start off with what the heck is a deductible and what is going on with it? Why why does it unlock certain things? Why does it exist in the first place? What's going on with this deductible thing?

Matt Allen (01:07)
Okay. a lot of people do get overly, in my opinion, overly concerned about what their deductible is. The deductible is essentially, and there's a little nuance, and that's why I don't say absolutely, but the deductible is essentially what you will owe towards medical expenses before the insurance will start to pay.

Now

Aaron (01:36)
Okay.

Matt Allen (01:37)
the nuance is insurance will pay on other stuff before you hit the deductible. And there's nuance within the deductible because there's individual deductibles, there's family deductibles, and then there are programs that are becoming even more popular. There are per incident deductibles.

Aaron (02:04)
Hm. Okay.

Matt Allen (02:05)
So you've got

annual, per instant, those types of things.

It's essentially the the reason that we have the deductible in an insurance product at all. So there's a deductible on your auto insurance, there's one on your homeowners, there's one on on your health insurance. It's to discourage you, which may seem strange, but it's to discourage you from going and like seeking care.

Aaron (02:33)
Yes.

Matt Allen (02:33)
Because they want you to have some skin in the game. If

If an insurance product offered a $0 deductible, zero out-of-pocket max, people would just relentlessly overwhelm the healthcare system because there's no skin in the game for them. They can just go in and do whatever they want. Now, if you have a deductible with like $5,000 and your out-of-pocket max is $10,000, you know, people are like, well, the insurance companies, they're robbing from us, they're stealing from us. And it's like, okay, I understand that angle on it.

But if you have a $10,000 out of pocket max and you have a $500,000 bill, they're on the hook for $490,000 of that. They're paying out a lot and they're taking on a lot of risk. What they're trying to do is hedge their bets and and still present a profitable product. So that's where the deductible comes in. I'll give you a great example of this in action: Medicare. Okay.

Aaron (03:35)
Mm-hmm.

Matt Allen (03:36)
Medicare.

part A has a bunch of copies on it, and Part B has an annual two hundred eighty-three dollar deductible. It's not a lot. But after you hit that deductible, Medicare pays eighty percent. Okay. They used to have a Medicare supplement plan called a Plan F, as in Frank. Plan F, the way it was written, it said it would pay everything Medicare didn't, including all your copay and including your Part B deductible. So if you had F

A and B and you went you go to the chiropractor for free, you could go to the dermatologist for free, like no cost to you, there was no barrier to getting health care. It put such a strain on the healthcare system when seniors now without jobs and on fixed income were told you don't pay for health care. They were going in for everything. They didn't have anything to do. They were just swamping.

Hospitals, emergency rooms, urgent cares, doctor visits, because there was no barrier for them. There was no skin in the game for them. So

Aaron (04:41)
Interesting. 'Cause that deductible

for Medicare is low, right? And that's

Matt Allen (04:46)
Two hundred and eighty three dollars a year. So low.

Aaron (04:49)
still enough of a barrier.

Matt Allen (04:51)
Well, they got rid of the plan F. You have to have turned sixty five by january first, two thousand twenty to get a plan F anymore, so if you're too young you can't get one. Now they've got a plan G as in George. Plan G pays everything except that two hundred eighty three deductible and it's really lessened the burden on the healthcare system. Like that just that two eighty three annual is enough for people to be like, Well, I don't r yeah, I'll I'm good. A lot of people are probably thinking, Well

This is discouraging people from getting the health care they need. It's not. You still go in and get the healthcare that you need. It's so that

Aaron (05:28)
Right.

Matt Allen (05:28)
you don't abuse the system and abuse your coverage. That's the idea behind it. Because if everybody in the country had no deductible, we'd have we'd have an issue. We we don't have enough healthcare providers for that.

Aaron (05:44)
Wow. So I'm hearing it as almost a threshold to hit in how much money you pay out of your own pocket to unlock certain benefits. That's essentially what I'm hearing from the deductible side.

Matt Allen (05:58)
Right. Yes. I got a little off on a tangent there. So the deductible, let's let's say Matt Allen has a five thousand dollar deductible. That means that cumulatively throughout the year from January first to December thirty first, healthcare expenses that I would have will go towards the deductible. So let's say I had a thousand dollar urgent care visit and then a two thousand dollar surgery where they removed a mole and then I had a three thousand dollar

ER visit. Okay, that's six thousand in total care. The first five thousand is gonna be on me. I gotta pay that because that's my deductible. But then the thousand on top of that is now subjected to whatever the co insurance is with the insurance company. So typically it's eighty twenty, seventy thirty, sixty forty. Some really not great plans are fifty fifty. And so in that scenario, the insurance and I then split

Anything above the deductible. Now that is an annual cumulative deductible that is by far the most popular one. There are other products though that are on a per incident deductible. So each time you have some sort of medical incident, you have a deductible to satisfy, and then the insurance will pay. And this might make you think, that's like terrible, that's awful, I need the annual cumulative.

But you will get a much lower premium if you have a per incident deductible. And the deductible is usually a little bit lower on those.

Aaron (07:30)
Mm.

Okay. Got it. So we help people in transition. Maybe they're coming off a work job. Maybe the ACA is right for them. We've had the conversations, all the above. Does their deductible restart? Yeah, we're in July right now. Let's say they had that work plan for six months and now they get on the ACA. Does that deductible carry over at all? Or since it's a new plan, is it start fresh?

Matt Allen (08:00)
No, it's gotta start fresh. It's a new company because the insurance company is the one that needs to have the money being paid towards the deductible. So you can't just carry it over. So if you've already satisfied the deductible, that's a vote to taking Cobra for those six months. But again, only if you are expecting to have more medical care. People get so caught up that they're missing the forest for the trees. I get people so many times are like,

God, I never hit my deductible. It's so high. And I'm like, are you complaining that you didn't get hurt? Or that like you didn't need a surgery? Or that like your mom didn't have cancer or something like what are you what's the actual complaint here? What are we talking about? You shouldn't want to get value from your insurance products. Auto, home, life, disability, health. None of those product those should be the biggest waste of money you have in your life because that means things are going well.

For you. That means life's good.

Aaron (09:00)
Right. Yeah.

Matt Allen (09:03)
If you're getting value out of your insurance products, something's off with life. Like, that's a bummer. We gotta we gotta adjust a few things. If you're like making money on your auto insurance policy, don't you think we'd need to reevaluate that maybe like your lifestyle choices of how you're driving?

Aaron (09:22)
Yeah, maybe have someone else take the wheel at that point. Just

Matt Allen (09:27)
I mean, insurance

is to avoid a catastrophic loss. And I keep beating this drum and I keep saying there's so many people out there who want their health insurance to cover all of these things and they get obsessed with having things apply to their deductible, all this, and it's just got them so ingrained and so used to utilizing the healthcare system for everything in their life. Every little thing now they think they need to run to a medical professional.

Because they need to start racking things up against their deductible, their annual cumulative deductible, so that they get some value out of it. It's like we we are so obsessed with that notion. Instead of trying to avoid using our health insurance and our the healthcare system and taking care of ourselves, that's that's the real health insurance. You you shouldn't be getting value out of your health insurance. So the deductible, yes, annual.

Cumulative, it's the amount that you pay, it's kind of this threshold that you have to hit before the insurance pays. However, there are these things called copies.

Aaron (10:36)
Let's dive in. Copes.

Matt Allen (10:37)
Okay.

So if Matt Allen has that $5,000 deductible plan, Matt Allen might also have a $50 primary care physician copay. Maybe I got a hundred dollar specialist visit copay. Maybe I got a $75 urgent care copay. What does that mean? That means as long as I go and see a provider who is in the network of the insurance.

And I see a primary care physician, I will only owe fifty dollars. Now that does not mean if the primary care physician goes, dude, what is that on your skin? That's freaky. We gotta run some tests. I've never seen that before. Chat GPT's never seen that before. We're we're running tests. We're doing a biopsy, dude. You're gross. If that happens, it's not fifty dollars. That is then

Medical care above and beyond. What that fifty dollars is for is for the doctor visit the doctor's charge. Same thing with the specialist. You go into a podiatrist and he goes, Dude, three of your toes are dislocated and he's gotta pop them back into place. It's not gonna be a hundred bucks for that whole visit. It'll be a hundred bucks for the podiatrist's time, basically, and then if there are other things needed. So people get very caught up in this idea of

I need a good copay. I need a good copay to be able to go see my doctor. And that's all well and fine and good. But how much value is there really for you between a fifty dollar copay and a thirty dollar copay? I understand 20 bucks, 20 bucks. Like, unfortunately, now in this economy with inflation, that's probably just like a sandwich. But it's a sandwich. I I get that. But is it is it really

Aaron (12:27)
Good sandwich.

Matt Allen (12:27)
worth like upping your premium a bunch just to get a lower copay? A lot of people are just

Missing they're missing the point here. So those copays that you pay do not go towards your deductible. They are just a set fee. And keep in mind you have to be within the network to do it. You can't just go to any doctor and say, hey, it's gonna be 50 bucks for me to go see them. You have to stay within the network. So co-pays kind of trap you a little bit. If you're if you're in one of those programs, you may have a PPO plan through your job that may have out-of-network coverage. So you can see.

providers outside of the the network, but oftentimes those those plans they don't have co-pays for out of network stuff. They just it's just all goes to to a deductible.

Aaron (13:16)
Got it. Now is that the same with drugs? They have copies for drugs, or is it sort of on a different tier?

Matt Allen (13:22)
Prescriptions

prescriptions again, I feel like as a society we are just missing the forest for the trees on the on the prescriptions. Over ninety percent of all prescriptions filled year over year are generic. Okay, what generic means is when the drug came out, the pharmaceutical company that invented the drug had a patent on it. Patents usually last about twenty years. Because drugs take so much R and D

And they have to jump through so many clinical trials and hoops to get approved by the FDA that to bring a new drug to market, it's like a billion dollars to be able to do that. Obviously, that's a little inflated now, and back in the day, you know, 20 years ago when they were developing whatever, it wasn't a billion dollars. But that patent is designed to allow the pharmaceutical company to recoup their investment and profit.

And to then encourage more pharmaceutical companies to come out with more drugs to better help people with their health care. But after 20 years, the formulary becomes generic. How you make the pill, it becomes generic. And so any company can make it. And so it gets mass produced. It's not behind this paywall anymore. All of that to say, you can walk into Walmart if you have a generic prescription, slap down four bucks and get the thing filled.

You don't need insurance. You don't need a copay. You don't need something to go towards your deductible. You can go to Cost Plus Drugs, Mark Cuban's company, and you can have 90-day supplies just delivered to your door. And you just pay cash. You circumvent the health insurance. The reason that it's cheaper to circumvent the health insurance, and the reason people are crazy for just being obsessed with drug copies, is when you go to use your insurance to fill a prescription, your

Insurance is acting as something called a pharmacy benefit manager, a PBM. And what they do is they coordinate your benefits with the pharmacy and the pharmaceutical company and all of that. They try to make it all happy and good. Well, they take a fee for that. It's called the spread. They're not doing that just in the goodness of their heart. They're getting paid on that. And so if you bypass

The insurance company, you go straight to the pharmacy, straight through GoodRX, straight through Cost Plus Drugs. They're gonna completely either eliminate that spread cost or they're gonna greatly reduce it, thus making the drugs more affordable for you. So are there copays for prescriptions on most plans? Yes. I recommend almost everyone, unless you're on a name brand specialty drug. I recommend

Aaron (16:11)
Mm-hmm.

Matt Allen (16:11)
almost everyone. Don't even use your health insurance.

to fill your prescriptions. You're gonna pay more money. Use one of these costs here.

Aaron (16:18)
It's gonna go

towards my deductible, Matt.

Matt Allen (16:20)
It will not, actually. Not

Aaron (16:23)
Now

Matt Allen (16:25)
if you're using a copay.

Aaron (16:28)
Got it. All right. Now you've mentioned this a couple of times, co insurance.

What is co insurance? It sounds like from what you're saying it is just a kind of a split between you and the health insurance company on paying bills. Now, is that large bills or could be anything?

Matt Allen (16:51)
So it could be anything, but there's three so there's three factors here. Number one is your deductible, number two is coinsurance, and number three is your out-of-pocket maximum. So on a standard health insurance plan, you're gonna have a deductible that's annual and cumulative. Let's let's write running with this $5,000 deductible. Let's say I have a $5,000 deductible, 80% coinsurance, and a $10,000 out of pocket max. So get out the calculators. Pretend I had a $100,000 accident. Okay?

First five thousand I gotta pay, because that's my deductible. Then I'm gonna split the bill 80-20. I pay twenty percent, the insurance pays eighty percent, but only up until I have in total hit my out-of-pocket maximum for the year. So that out-of-pocket maximum is gonna include the five thousand deductible and the twenty percent. Once those two together reach my out-of-pocket maximum.

I now pay 0%, the insurance now pays 100%. So in this very made-up scenario, I pay the first $5,000. Then we split the next $25,000, where the insurance pays $20,000, I pay five. But guess what? Matt's now paid five and five. Matt's paid ten. Matt's paid his out-of-pocket max. Now insurance pays a hundred percent of the rest. So on that hundred thousand dollar bill, the insurance would pay ninety, I would pay ten. At that time.

My deductible's maxed out. My out of pocket maximum's maxed out. Any subsequent health care I need for the rest of the year annually is no cost to me as long as I get it all done again within that network.

Aaron (18:36)
Okay. All right.

Matt Allen (18:37)
So

co insurance is really not that big of a deal, because it's only applicable between I paid five up to needing to pay ten.

Aaron (18:51)
Okay. Yeah, that makes sense.

Matt Allen (18:52)
So in

that scenario that I came up with, if my coinsurance was fifty percent, sixty, seventy, eighty, ninety percent, it wouldn't have mattered. I'm still gonna owe 10 grand. However you cut them off. So at the end of the

Aaron (19:03)
Right. Right. On a large climate.

Matt Allen (19:07)
day, the numbers that really matter are your out-of-pocket max and your network. Where can I take this health insurance? Where where are these charges actually gonna apply to my deductible?

Aaron (19:18)
Yeah. And does this get any more confusing when we think about families on the same plan? 'Cause

Matt Allen (19:25)
yeah.

Aaron (19:27)
I mean, now what, our total family out of pocket maximum, let's say we have a family of four, would that be forty thousand?

Matt Allen (19:36)
No, so you're gonna wanna consult your summary of benefits and coverages and talk to the person who sold you whatever health insurance that you have. But it is the family when we talk family deductible, the most standard way you'll see it through plans is it will be twice what the individual deductible is.

Aaron (19:59)
Okay.

Matt Allen (20:00)
So if me and my three kids and my wife were all on this five thousand dollar individual plan, we would likely have a ten thousand dollar family deductible. Then

Aaron (20:13)
Okay.

Matt Allen (20:14)
the individual in this made up plan is a ten thousand out of pocket max. That would likely be doubled as well to twenty thousand.

Aaron (20:22)
All right. Now, 'cause that I'm sure that's one specific plan, but is that sort of industry standard?

Matt Allen (20:30)
Sort of if you get to in some of the ACA plans and some of the group plans that people might get through their job, if that's typically how it works when you're in network.

Aaron (20:44)
Okay.

Matt Allen (20:44)
If you are out of network, a lot of ACA plans won't cover you at all, but the ones that will cover you outside the network, oftentimes the family deductible and family out of pocket max will be tripled. And I've also seen that with

work plans, the out of pocket max and the deductible, if you're outside the network, will be tripled. So it's always in your best interest to be in network. Sometimes we can't make that happen. Sometimes we don't want that to happen. Sometimes you want to seek care outside the network, and I get that. You're just gonna pay more for it. And so the nuance with the family deductible is in my scenario, let's say me, three kids, my wife, ten thousand family deductible, twenty thousand out of pocket max.

So in the scenario where I had a hundred thousand dollars worth of care, I had a hundred thousand dollar accident. I hit my individual deductible, I hit my out of pocket max individual of ten thousand. A lot of people would be like, Okay, well yeah, but you hit the family one too, because you had a hundred thousand dollars worth of care, not so fast. Since I only had to pay ten thousand and then insurance paid a hundred percent because it was all just Matt Allen's bill.

We have only satisfied half of the family out of pocket max. Because we've only paid ten. So

Aaron (22:07)
Okay. Right.

Matt Allen (22:09)
then if my daughter tore her ACL again and had a sixty thousand dollar surgery, she would hit her five thousand deductible and her ten thousand max. Now as a family, we cooked. We're we're done. We're all healthcare for the whole family, we we crushed it. But you can kind of see that's a lot of money.

We shouldn't be trying to hit these things. We shouldn't be trying to it it took me having a hundred thousand dollar accident, my daughter having a sixty thousand dollar surgery to to to make that to get there. That's not the point. The point should be you have an insurance to avoid a catastrophic loss, because in that made up scenario, what the insurance would have paid almost a hundred and fifty thousand dollars for those two things. That's incredible. That's amazing. That's gonna save us from going into massive medical debt. That's what health insurance is for.

We shouldn't be trying to get value from it. So all of that is to say if you choose to only use your health insurance and design a plan where those are the only types of things you're actually insuring for is the big stuff. If you don't want the copay to see the doctor, if you don't need the copay to see the podiatrist, if you're just a pretty healthy guy and if you go to the doctor you pay cash.

And you only want it for the ACL, you only want it for the $100,000 surgery, you can save an incredible amount of premium. Just an incredible amount of premium over these ACA plans. And you can go wherever you want to go. So if you truly only focus on using your insurance for the catastrophic and you're not trying to get value out of it, you're not a high utilizer of the healthcare system, you're not trying to stack up doctor visits so we hit our deductible.

If that is not in your wheelhouse and that's not what you want to be doing, you can save a ton of money on your health insurance premiums by just going to a plan that's a catastrophic type.

And I'm not talking about the ACA catastrophic plans. We're moving away from the ACA. Those are jokes.

Aaron (24:14)
Right.

All right. So we've hit deductible, we've hit copay, co insurance, and out of pocket maximum. What else do we need to know?

Matt Allen (24:28)
Premium. that's just the locked in amount of money that you pay per month. so there's a lot of people who you know, they'll they'll try for the trade-off of a high premium, low deductible. and at the end of the day, you can crunch numbers all you want. Basically never works out in your favor. I'm huge advocate of the bronze plans, catastrophic plans. You know, bet on yourself. Don't try to get value out of your health insurance.

I'd rather pay three hundred a month for my health insurance than pay six hundred with a half as big deductible, hoping that I get value out of that, like hoping I go get health care. That's not the point. Yeah.

Aaron (25:08)
Right. Yeah.

All right. That's what we got today. Health insurance for dummies,

Matt Allen (25:15)
Amazing.

Aaron (25:15)
although I think we went pretty in depth. I don't think these people are dummies if they followed along with us.

Matt Allen (25:22)
Yeah. I could go in a lot more depth if you really want. We're not ready

Aaron (25:27)
I mean

Matt Allen (25:28)
for that.

Aaron (25:28)
I we we we'll do intermediate next.

Matt Allen (25:31)
Intermediate, okay. Healthcare for s slight slightly dumb knees.

Aaron (25:38)
Or graders maybe.

Matt Allen (25:40)
I love it.

Aaron (25:42)
Love it.

Matt Allen (25:43)
Alright. This has been another episode of Talking Shit. Shit, of course, is an acronym for Straight Health Insurance Talk. I am Matt Allen.

Aaron (25:52)
And I am Aaron Miller.

What is a deductible? It's what you pay toward covered care before your insurance starts sharing the cost. Most plans use an annual deductible that resets each January. Some use a per-incident deductible instead, which usually means a lower premium.

What is the difference between a copay, coinsurance, and the out-of-pocket maximum? A copay is a flat fee for a specific service, like a $50 doctor visit; tests and procedures may cost extra. Coinsurance is your share of costs after the deductible, such as 20%. The out-of-pocket maximum is the most you'll pay for covered in-network care in a year. After that, the plan pays 100%.

How does a family deductible work? Family deductibles and out-of-pocket maximums are commonly twice the individual amounts. Each person also has their own individual limit within the family total. Out-of-network limits are often much higher, or there's no out-of-network coverage at all.

Does my deductible carry over if I switch plans mid-year? No. A new plan, even from the same insurer, starts at zero. If you've already met your deductible and expect more care before year-end, staying on COBRA until January can make sense.

Should I use insurance for generic prescriptions? Often, no. Paying cash through GoodRx, Cost Plus Drugs, or a pharmacy discount program can cost less than a copay for many generics. Brand-name and specialty drugs are different; they usually need insurance.