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Who’s on First: Pharma, Health Insurance Agencies, Tech, or Hospitals?

Fellow Average Joes…if you’re anything like me, you either like or have watched baseball.

Baseball is like the health industry: each ‘player’ has a certain position with various responsibilities.

 

There are four main groups in the field of health:

  1. Pharmaceutical/drug companies
  2. Providers (provide health care to average joes such as ourselves)
  3. Payers (the health insurance industries that ‘pay’ for health care)
  4. Tech (Medical Technology Companies, etc.)

 

Now that we know who’s on the field, let’s get down to it: health care costs. How are they determined?

Who’s on First? Tech and Pharma share First Base.

Tech and Pharma, while both vastly different companies, share the same goal: create new prescription drugs or medical devices, and sell those to the health care providers.

Who’s on Second? Providers (hospitals and doctors) share second with Payers (Health Insurance Agencies)

These are the people you see when you break your arm. Your bill takes into account how many prescription drugs the health providers purchased. As well as other factors, such as: building rent, fixed and variable costs of running a hospital/health clinic.

But if you break your arm and have a health insurance plan, then note this Average Joes…the hospitals and health insurance agencies bargain BEFORE you come in with your broken arm.

They bargain over the prescription drugs prices, hospital bed, etc.

That is why the Average Bobs might have a different hospital bill than the Average Joes: second base bargaining.

Any questions, comments, or confusion? Please comment below!

 

What is a Deductible? Why do I care?

Let’s start with the basics: what are you paying for?

The layman is essentially buying a health insurance plan to reduce costs of health care.

The layman must know what to expect to pay for under a health insurance plan.

So, I’ll break health insurance into 2 parts: the layman needs no care and the layman breaks an arm (needs care).

PART A: 100% healthy (no care whatsoever)

Benefits:

  1. Next month in case the layman does break an arm, etc., the layman has health insurance to lower costs

Costs:

  1. Premium: Think of this as the down payment for health insurance. The amount the layman pays each month for the plan regardless of whether or not the layman uses all the plan benefits.

PART B: Let’s say I broke my arm and now need to pay. What do I have to pay for?

Benefits:

Luckily the layman has a health insurance plan to alleviate the skyrocketing costs of care. How much the layman pays depends on the benefits of the health insurance plan

Costs:

  1. Premium: Think of this as the down payment for health insurance. The amount the layman pays each month for the plan regardless of whether or not the layman uses all the plan benefits.

Besides the costs, now the layman must pay hospital bills. And bills from Walgreen’s Pharmacy. So, when does health insurance start paying?

The layman breaks an arm and goes to the hospital (let’s say the appointment costs $100)

The amount the layman pays from his paycheck is the deductible, or the pre-health insurance plan amount.

Readers, if you remember one term, please remember this one: deductible (payment pre-plan)

  1. Deductible: the amount the layman pays for hospital bills/prescription drugs etc. before the health insurance plan starts to pay for part of the cost. Let’s say the deductible is $30

Now that the layman has spent a certain amount of money (deductible-$30), the health insurance company pays for part of the layman’s bills.

The health insurance company does this through a copayment and/or coinsurance.

Copayment: A fixed amount the layman pays for health care services AFTER the layman has hit the deductible (the amount the layman had to pay solely from his/her pocket).

These definitions are quite wordy, which is why I’m about to provide a simple description:

The layman’s medical bills costs $100 (let’s pretend it’s that cheap. In the layman’s dreams…)

The layman’s deductible is $30 and the layman’s doctor appointment costs $100. The layman has hit the deductible amount-$30 (paid fully by the layman himself) and now has $70 worth of bills to pay.

Let’s say the health plan has a copayment (fixed amount paid by layman after deductible) of $10.

The layman so far has paid:

-$5 (monthly premium)

The layman so far has paid:

-$30 (deductible: pay out of own pocket) of the $100 bill

________________________________

-$35 <-This is when the health insurance plan kicks in to help pay the remaining $65 of health care fees

The layman’s health insurance plan will pay any amount past $10 (the fixed amount post-deductible the layman pays).

-$10 (copay: fixed amount layman pays of the remaining $65 fee)

+55 (the rest of the amount the health insurance company pays)

Because of the layman’s health insurance plan, he has saved $55 this month on this hospital bill for a broken arm.

Luckily for the layman, his plan has an out-of-pocket maximum/limit.

An out of pocket maximum is the maximum amount the layman will pay for the plan’s services in a year.

Do not fear, laymen, the out of pocket maximum includes deductibles/copayment/coinsurance, etc. Please note that it is typically a high value, meaning the layman must pay a lot from his own pocket before the insurance plan covers additional costs.

After the layman has hit this typically high amount (out of pocket max) , the plan pays 100% of costs for plan services.

 

Any questions, confusion about definitions and examples, as well as comments? Please write me a note below.

My job is to clarify typically arcane health definitions and concepts!