How does health Insurance work ?

Meet Birdy and Her Health Plan

Birdy has insurance and pays a monthly bill - called a premium - of $120 per month to keep her health plan active. Like most plans, her insurance also has some added costs. For "in-network" services she has:


  • Free annual wellness exams ( no cost )

  • Copays:  $30 primary care doctor visit$60 specialist doctor visit$60 urgent care visit

  • Annual deductible: $1,000

  • Coinsurance: 80% paid by insurance and 20% paid by member

Birdy's plan also has an annual, in-network out-of-pocket maximum of $4,500. This means she won't pay more than $4,500 for covered in-network medical services in a year.




Birdy Needs to See a Doctor: Her First Steps

One day Birdy wakes up with bad stomach pains and a fever. She wants to see a doctor quickly but she doesn’t think she needs to go to the emergency room. She considers her two options: contact her regular doctor for an appointment or visit a local urgent care. One factor she considers is the copay:

  • Doctor’s office copay: $30

  • Urgent care copay: $60

She thinks about going to urgent care, but she finds out her doctor has an appointment available. 

She heads over and pays her $30 in-network, doctor office visit copay. In most cases, her insurance will cover the rest of the costs for her doctor's visit.




Birdy Has a Serious (and Expensive ) Condition

The doctor thinks that Birdy will need an operation that will be billed at $85,000. This cost includes medical services such as lab tests, X-rays, doctor fees and her hospital stay. The great news is that the services are covered by her insurance plan, and the doctor's amd hospital close to home is a  hospital is in her plan's network.

So now what? Birdy needs to understand how her procedure will be covered. Since she's using in-network services, here's what she'll really pay:



  • Deductible: Birdy's plan has a $1,000 annual deductible, so she must pay the first $1,000 of her expenses.

  • Coinsurance: Now that Birdy has met her $1,000 deductible, the in-network coinsurance means her insurance plan will pay 80% of her medical expenses, and she will be responsible for just 20%, until she reaches her total annual out-of-pocket maximum.

  • Out-of-pocket maximum: Birdy's in-network out-of-pocket limit is $4,500, so once she pays a total of $4,500 in qualifying medical expenses, her insurance will begin paying 100% of the rest of the charges. She’s already paid a $1,000 deductible, so she will need to pay $3,500 of coinsurance and copay expenses to reach her out-of-pocket maximum. She’ll still have to continue to pay her monthly insurance bill, but won’t have many other out-of-pocket costs for the rest of the year, as long as she stays “in-network.”



In The End

Birdy's recovering well and her insurance is paying the rest of her medical bills which includes her medication, X-rays, hospital bill and follow-up care.

It's a good thing she had insurance and used in-network providers. Her total savings is $50,500!

Here is a simple breakdown:

TOTAL COST of her medical care: $85,000

✓   Birdy pays:

$1,000 deductible
+     $3,500 in coinsurance and copays
$4,500 (out of pocket maximum)

✓  Insurance pays: $80,500

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*The advertised prices under $50/mo is based on a study for the Department of Health and Human Services which found that 46% of people paid $50 or less for an Obamacare Plan after subsidies (Burke, Misra, and Sheingold, p.2, 2014). The full study can be found here:

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