Eli5: How does health insurance work in the U.S?


I have been working for a new company for a year now, and have been on their insurance through Aetna the entire time. It’s the first time I’ve had health insurance through work.. So I’m paying monthly out of my check for the health insurance, but then im still going to owe my health provider out of pocket at the end of the year if i don’t pile up enough medical bills?

In: Economics

It’s going to depend on the specifics of your plan, but generally speaking insurance is more for catastrophic events, not day-to-day stuff. It still usually gives some benefit, for those “regular” office visits, but its real purpose is to keep you from going bankrupt due to a surprise visit to the ER.

What is deducted from your paycheck is all you pay if you don’t need medical services. Depending on your plan and the services you need, you will have a co-pays that you will receive a bill for that is additional you owe. Once you’ve paid your maximum for that year any additional services you need don’t come out of your pocket.

Some people have more deducted from their paycheck so they don’t have to pay as much out of pocket. If they have chronic issues or a family member that needs extra care, then this may be the better option. I have a Health Savings Account (HSA) and have less deducted because I don’t have much healthcare needs. I pay a co-pay for checkups, urgent care visits, and medications, but it’s less than paying for the more expensive plan. The money that goes into my HSA is non-taxable and cam be used to pay the co-pays. My employer contributes a large amount to the account annually so I don’t need to spend my own money. I’ll hit the end of my co-pay limit before that account is empty and that account stays with me if I change companies.

The details are plan specific, but you pay part of the premium, and your employer pays the rest.

When you use health care services, insurance pays a percentage, and you pay the rest. There is an out of pocket maximum per calendar year. Once you exceed that, insurance covers the whole bill.

So, if you break your arm, insurance pays whatever the policy covers, say 80%. If the bill is $2000, you owe $400.

If you get cancer and your treatment costs $200,000, your cost is capped at whatever your out of pocket maximum is, say $4000.

It’s all very dependent on your plan and without knowing that it’s hard to tell you how yours works specifically.

I have sold insurance, done medical billing, and reimbursement.

Your insurance typically operates thus.

You have a monthly payment, that your employer may help cover. This is your initial cost. You will also have a deductible and a maximum out of pocket. This works this way. If you’re on a high deductible plan, your deductible can be upwards of $3500+. Or you can be on a plan with a higher monthly cost and lower deductible. You are responsible for all medical costs until your deductible is met. After that, your insurance company will pay a predetermined percentage, say 80% and you are responsible for the 20%, up until your max out of pocket is met, then the insurance will cover 100% until your annual renewal. I have seen some great plans and some that were absolutely horrible, $5,000+ deductibles with $10,000+ out of pocket. And that was just the individual. The family deduction and out of pocket were much higher.

After dealing with the criminal enterprises that are called insurance companies, from the provider side trying to get paid their expected rates, I have seen companies purposefully violate contracted agreements, knowing no one can afford to take them on. They are ripe for massive multi-billion dollar class action lawsuits. They really need to be sued into oblivion for the contract violations they perform daily. The provider I worked for had to write off tens of thousands of dollars annually because the companies refused to pay or would pay low. There is a standing letter to one of the big insurance companies that the provider’s legal team sent that said the insurance company owed them over $386,000 in incorrect payments. That’s just one company and one provider.

As mentioned in other replies, it varies a lot from plan to plan, but basically:

Premium: this is what is deducted from your paycheck regardless of whether you need medical care or not.

Deductible: This is the amount you just pay out of pocket before insurance provides any coverage. It’s cumulative for the plan year so if you have a $1000 deductible and you get a medical bill for $800 you would pay the whole bill yourself. Then if later that year you got a second bill for $700 you would only have to pay $200 to reach $1000 total before coverage kicks in.

Coverage: This is SUPER plan specific, but this is the % insurance pays of the bill, often 80%. Some things are covered more, some are covered less.

Out of pocket maximum: If you’re having a particular bad health year, this is the maximum you would pay (again cumulative) in a year, at which point insurance covers 100% of costs (that are specified in your individual plan)

But of course we make it even more complicated because some items like preventative care are fully covered without a deductible as are some tests and screenings depending on your plan, and there’s a whole seperate set of rules for care providers that don’t participate in your insurance plan and the need or lack thereof for pre approval and referrals that are again, plan dependent.

Depends on your plans type, and other specifics. But yes, many plans have deductibles our out of pocket maxes that you’ll have to pay on top of the premiums from your paycheck. My plan requires us to pay $4000 as a family on top of the premiums before they cover anything. My wife’s old plan before Covid layoff was like a $20 copay for routine doctor visits, $50 for a specialist, and some percentage of bigger ticket costs up to the per person limit.

You pay your insurance company a monthly membership fee called a premium in order to participate in the plan. Your insurance company specifies a dollar amount called a deductible; with certain exceptions*, you pay for all your own doctor’s bills until your cumulative medical spending hits that threshold.

At that point, your insurance company pays a percentage of all your medical bills going forward, and you pay the remainder; your share is called a co-pay.

Your insurance company also specifies a dollar amount called your out-of-pocket maximum. Once your cumulative spending hits that threshold, your insurance company pretty much covers all of your medical bills. Catastrophic illnesses and injuries can get expensive quickly and thus easily cause you to exceed that threshold, so that is where you get the most benefit from having insurance.

*Generally speaking, your preventative visits (like a yearly physical with your GP) are covered at 100% regardless of whether you’ve already crossed the deductible threshold. This was required by the Affordable Care Act; the theory is that if you’re getting preventative care regularly, you’re less likely to have an expensive issue pop up later.

Be aware, USA health insurance is bad and many argue a racket/scam. I’ve been told this by people who **work** in insurance.

So yes, it’s confusing because that’s how the system is built.

•you pay a “premium” which is the monthly cost for insurance “coverage.” Premium = monthly charge— aka your paycheck deduction monthly.

•go to doctor, that doctor sends a bill to insurance company.

•insurance company pays a *percentage* if that doctor bill. The scam here is that percentage is sometimes 0% and rarely 100%.

•insurance will pay that percent

•you owe the other percent.

Example: doctor visit costs $250. Insurance pays $220 for it, so (250-220=30) so you owe $30 to the doctor.

There are a lot more vocabulary terms Involved and it’s more annoying than anything. Also this is NOT exactly how it works but an over-simplified version. There are many ways insurance will pay for your bills— sometimes a percent, sometimes all of it, sometimes all of it minus a few dollars (leaving you with a $[some integer like 30] “copay”). Or it can pay $200 of a $10,000 bill, leaving you with $8,800 to pay

Tldr you effectively pay insurance for a “chance” at them paying your medical bills. It’s almost like a lottery, will they pay the bill in full or not? Also remember it’s built in part to scam (insurance employee words, not mine).

I had Aetna for the last twenty years…. Until last year when I finally dropped them because I was paying a high premium every month just to have to meet a stupid deductible if I needed to use it. Then there’s always a co pay etc. Man screw that. It is cheaper for me to just pay out of pocket if I need something. Even if I had a catastrophic event, I would still receive an enormous and impossible to pay bill through insurance. I was constantly getting bills from them for things they wouldn’t cover. It was hard to find in network doctors sometimes. They don’t cover certain medications that are necessary to work on children sometimes. Now I do have eye insurance through Humana but it only costs me $1.50 a paycheck and I use it every year. I also have dental insurance which cost me about $6 month, and I use it a minimum of twice a year. But I just pay out of pocket for meds now.

Lot of negative plans listed on this thread. For me, I’m lucky to work for a company that has a pretty great health insurance plan. They prefer to invest in a healthy staff.

I pay $200 per month for my premium for myself, wife, and daughter, $25 co-pay for regular doctor visits, $35 co-pay for specialist visits (no referrals needed). Preventative stuff is usually free. Also provide a 24/7 help line where you can talk to a nurse to help determine best course of action based on your issues. I think this helps prevent a lot of unnecessary ER visits. Also another help line to assist with paperwork, understanding bills, finding in-network providers, etc.

I’ve never paid more than my co-pay for any issues to this point. This includes a 2 week hospital stay for COVID, I had cancer in my neck removed, sleep test, 2 years of psycho-therapy, couple broken bones, breathing treatments, ENT surgery, gall bladder surgery, multiple MRIs, many more.

Company uses Blue Cross/Blue Shield of New Jersey.

My dental insurance is ok as far as coverage for big stuff. But they offer up to 4 free cleanings per year. That’s practically unheard of as evidenced by by dental office being astounded by that. I go to all 4 with a smile.

Health insurance in the US is a confusing thing compared ot what Helath insurance means in the rest of the world.

it should work the way you think, the provider takes care of all the clerical stuff regarding costs in Health as long as you pay your premium, however in the US they have the fundamental difference of being primarily for profit and ot maximize these profits they instead do a sort of co-payment: they cover a part of the costs up until a certain value.

it’s exactly as bad as you think, and most Insurance plans in the US are outright criminal in what they are allowed to get away with. and it’s all because they crippled all other options.