How to Use the Summary of Benefits & Coverages

Many people choose a health insurance plan based on how much the premium for that plan is. While that strategy works fine if you never go to the doctor, it's not always the best approach if you actually will use your health insurance. That's why the second thing you need to look at the Summary of Benefits & Coverages.

What is the Summary of Benefits & Coverages?

The Summary of Benefits & Coverages is a tool you can use to get an idea of the amount you'll have to pay out of your own pocket when you use your health insurance for things like going to the doctor, getting prescriptions or going to the emergency room for example. It outlines in more simple and plain language what the actual insurance policy says it will pay for.

What You Want to Look For

Your premium is the absolute minimum you'll have to pay during your plan's year. But, if you are like my family, we always use our health insurance each year. That means we pay more than just the premium. So what I do is look at the Summary of Benefits & Coverages to identify exactly what these other charges will be and how much.

These are the areas that I focus on:

• Network vs Non-Network Coverage On a summary of benefits, there are usually two columns. One is for in network providers and one for non-network. Your plan will always pay the most benefits for in network benefits. So, an important first step then is choose a plan that has your providers in it. There's no sense in going outside your network unless it's an emergency and you have no choice.
• Out-of-Pocket Limit The out-of-pocket limit is the most you'll have to pay of your own money before the plan pays for everything after that. This is the worst case financial scenario if you get a major medical problem. For most of us, that means that our annual cost will fall somewhere between the premium we pay for the year and the out of pocket limit. All things being equal, you'd opt for the plan with the lowest out of pocket limit.
• Deductible The next thing I look at is the deductible. The deductible is how much you have to spend out of your own pocket before the health insurance plan begins paying. That means that if you have a $2,000 dollar deductible, you'll have to pay that $2,000 for any service subject to your deductible before the insurance company will pay anything. A lower deductible is good but you'll have to look at your deductible in relation to all of the other aspects of the plan. Some plans have separate deductibles for individuals and for families. Some have separate deductibles for prescriptions and for other services. 
• Copayment A copayment is an amount you'll have to pay to access certain services like going to the doctor or buying prescriptions. It can be a flat dollar amount or a percentage. Some plans make you pay your deductible first before copayments kick in while others don't. 
• Coinsurance Coinsurance is your share of the cost of a covered service after you meet your deductible. Coinsurance is most commonly a percentage like 10%, 20% or 30% for example. After you meet your deductible, you share the cost with the insurance company at the percentage listed.

These are the most important areas you'll want to look at to help you determine which plan is best for you in your situation.

Review The Prior Plan Year To See Where You Spent Money

What I like to do at the end of a plan year is add up my premium, my deductible, copayments and coinsurance amounts I spent for all of my services.

One year I added this up and it was over $22,000 dollars. It's hard to imagine that crazy amount because it is such a burden but you have to look at your total outlay and where you are spending it. Only then can you figure out what plan will be best based on how it works.

Make an Estimate of What You Think You'll Spend Next Plan Year

After you review the prior year, give some thought to what next year will look like. Are you expecting to have to pay for any planned procedures? Do you expect next year to be like this year?

While you can never know for sure what the year will bring, make your best guess and choose the plan that allows you to minimize your out of pocket expenses. This might mean you'll choose a plan with a higher premium to reduce your deductible, copayments and coinsurance.

Carefully Review the Summary of Benefits & Coverages Each Plan Year and Every Time You Change Plans

One plan year, I had four different health insurance plans. Each of those plans had a different coinsurance amount. The coinsurance on these plans ranged from 10% to 30%. You have to keep an eye on these back end charges because the insurance companies will sneak them in there to reduce their costs if you aren't paying attention.

Conclusion

Consider yourself lucky if you never have to go the doctor. That makes choosing a plan easy. You just choose the one with the cheapest premium.

If that isn't you, make sure you look beyond the premium you have to pay and don't forget about the other ways you'll have to pay once you start using your plan.

Your total cost will be your premiums, deductibles, copayments and coinsurance. Do everything you can to limit your out of pocket even if it means choosing a plan with a higher premium.