How insurance premiums and deductibles work

[Music] why health insurance can get pretty complicated but typically the point is to pay some money every month so that when you have an accident or sickness strikes your medical costs aren't so expensive that they bankrupt you two of the most important terms in health insurance are premiums and deductibles your premium is that monthly cost for many people who work for companies that offer health insurance this premium comes out of your paycheck automatically your deductible is very different it's a

number that signifies an annual threshold and it's distinct for every plan let's say it's 1,000 that's the amount of money that you need to spend out-of-pocket on health care each year before your insurance starts covering your bills deductibles range from a couple hundred dollars to several thousand these terms are related in one simple way usually plans with higher monthly premiums meaning you're paying more every month often have a lower deductible meaning your insurance company will start paying sooner you might want to pick a plan like this if

you know you will have significant medical costs next year and the reverse is usually true to lower monthly premiums usually mean a higher deductible this is probably better for healthy people who are willing to take a little more risk with their costs here's how that works in practice let's say you pay a $100 premium every month and you have a $1,000 annual deductible you hurt your knee go to the doctor and find out you need to prepare a torn meniscus the surgery cost $5,000 you pay the first

thousand and so long as it's a network your insurance then starts to kick in most plans pay a percentage of the remaining balance typically around 80% so of the $4,000 you still owe your insurer will cover 3,200 that brings your total medical bill up to 1,800 even though the whole surgery costs 5,000 of course there are other costs and terms to keep in mind when talking health insurance like co-pays and coinsurance out-of-pocket limits and knowing how your plan differs for providers in network versus out of network but that's

for another video in the meantime here's to a healthier you [Music] invest in you ready set grow CNBC and acorns [Music] you