Health care in the United States can be very expensive. A single doctor’s office visit may cost several hundred dollars and an average three-day hospital stay can run tens of thousands of dollars (or even more) depending on the type of care provided. Most of us could not afford to pay such large sums if we get sick, especially since we don’t know when we might become ill or injured or how much care we might need. Health insurance offers a way to reduce such costs to more reasonable amounts.
The way it typically works is that the consumer (you) pays an upfront premium to a health insurance company and that payment allows you to share “risk” with lots of other people (enrollees) who are making similar payments. Since most people are healthy most of the time, the premium dollars paid to the insurance company can be used to cover the expenses of the (relatively) the small number of enrollees who get sick or are injured. Insurance companies, as you can imagine, have studied risk extensively, and their goal is to collect enough premiums to cover the medical costs of the enrollees. There are many, many different types of health insurance plans in the U.S. and many different rules and arrangements regarding care.
Key question #1: Where can I receive care?
One way that health insurance plans control their costs is to influence access to providers. Providers include physicians, hospitals, laboratories, pharmacies, and other entities. Many insurance companies contract with a specified network of providers that have agreed to supply services to plan enrollees at more favorable pricing.
If a provider is not in a plan’s network, the insurance company may not pay for the service(s) provided or may pay a smaller portion than it would for in-network care. This means the enrollee who goes outside of the network for care may be required to pay a much higher share of the cost. This is an important concept to understand, especially if you are not originally from the local Stanford area.
If you have a plan through a parent, for example, and that plan’s network is in your hometown, you may not be able to get the care you need in the Stanford area, or you may incur much higher costs to get that care.
Key question #2: What does the plan cover?
One of the things health care reform has done in the U.S. (under the Affordable Care Act) is to introduce more standardization to insurance plan benefits. Before such standardization, the benefits offered varied drastically from plan to plan. For example, some plans covered prescriptions, others did not. Now, plans in the U.S. are required to offer a number of “essential health benefits” which include
- Emergency services
- Laboratory tests
- Maternity and newborn care
- Mental health and substance abuse treatment
- Outpatient care (doctors and other services you receive outside of a hospital)
- Pediatric services, including dental and vision care
- Prescription drugs
- Preventive services (e.g., some immunizations) and management of chronic diseases
- Rehabilitation services
For our international population of students who might be considering coverage through a non-U.S. based plan, asking the question, “what does the plan cover” is extremely important.
Key question #3: How much will it cost?
Understanding what insurance coverage costs is actually quite complicated. In our overview, we talked about paying a premium to enrol in a plan. This is an upfront cost that is transparent to you (i.e., you know how much you pay).
Unfortunately, for most plans, this is not the only cost associated with the care you receive. There is also typically cost when you access care. Such cost is captured as deductibles, coinsurance, and/or copays (see definitions below) and represents the share you pay out of your own pocket when you receive care. As a general rule of thumb, the more you pay in premium upfront, the less you will pay when you access care. The less you pay in premium, the more you will pay when you access care.
The question for our students is, pay (a larger share) now or pay (a larger share) later?
Either way, you will pay the cost of care you receive. We have taken the approach that it is better to pay a larger share in the upfront premium to minimize, as much as possible, costs that are incurred at the time of service. The reason for our thinking is that we don’t want any barrier to care, such as a high copay at the time of service, to discourage students from getting care. We want students to access medical care whenever it’s needed.