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Helping Your Clients Understand How Insurance Works

Diagram that can be used to explain deductibles, copays and coinsurances, and out of pocket maximum to patients.

One of the biggest struggles in private practice is not knowing how insurance works or navigating the complex world of insurance, but helping your clients understand how their insurance works. In some ways it is unfortunate that the general public is largely uneducated on how third-party insurance operates, but in other ways who better to equip the public with an essential element of society than the therapist. Ignorance is common when it comes to understanding insurance and how insurance works simply because it is difficult to understand and can be frustrating to navigate.

We would like to help you help your clients with this blog post by explaining the key elements of insurance so that the barrier to entry for you and your clients is lowered. Our goal is to help you enable mental healthcare where you are through clear and concise education.

In order to understand how insurance works, imagine a lake full of money. There is this giant pond of bills floating around. Let’s call this Money Lake. This lake belongs to the insurance company and they are willing and able to give you a direct pipeline from this pond of money to you. However, there are three stages of payment for your patient with two gates between them that prevent money from flowing freely into your practice.

Stage 1: Paying The Deductible

The first gate that must be unlocked to enable the insurance company’s money to flow into your practice is meeting the client’s deductible. Before the insurance company unlocks the first gate into your practice the client must pay their portion first. The deductible is a set amount of money that the client, and only the client, must pay in full before the insurance company allows money to flow into your bank account.

This amount is determined by the specific plan that a client has. If the client has a high-deductible health plan (HDHP), then they are going to owe your practice anywhere between $2,000 and $5,000 before the insurance company opens the first gate from Money Lake. In this stage your client is paying 100% of the cost of the session according to your fee schedule or contracted rate. Once your client has paid for enough sessions, either with you or in combination with other healthcare visits, to meet their deductible in full, the insurance company unlocks the first gate and allows some money to flow from the lake to your practice.

Check out our other blog post about why you need to know your contracted rates to learn more about what a contracted rate is, and how to find them.

Stage 2: Cost Sharing with a Copay or Coinsurance

After passing through the first gate of meeting the patient’s deductible, the patient enters into a stage of paying a copay or coinsurance.This is the cost-share amount that is usually represented in a percentage or flat dollar amount. Some common examples of a copay are amounts like $25.00 per visit or $50.00 per visit. Some common examples of a coinsurance are amounts like 20% of the visit or 35% of the visit cost. In the event that your client owes you a coinsurance, they will calculate their amount by multiplying the contracted amount by their coinsurance amount. This will give them the cost of the session when they visit you.

But what about the other portion of the visit?

The remainder of the cost of the session is paid by the insurance company. That is why this amount is often called a cost-share. This is the stage where the insurance company is sharing the cost of the session. A patient can only reach this stage by paying 100% of the deductible. At this point the client has paid more for counseling than the insurance has, but most healthcare costs apply to the deductible, not just counseling sessions.

After reaching the deductible, the client and the insurance are collectively paying for counseling services. The insurance company has allowed some money to flow from Money Lake to your practice, but there is one more gate that, if unlocked, will allow more money to flow from Money Lake into your practice. This gate is the Out of Pocket Maximum.

Stage 3: 100% Insurance Coverage

The final gate that must be unlocked to enter stage 3 and enable the insurance company’s money to flow completely from Money Lake to your practice is called the Out of Pocket Maximum. This term is pretty self explanatory, but we want to take a moment and clarify exactly what this means.

The Out of Pocket Maximum is the maximum amount of money that your client will pay in a plan year for healthcare expenses. This means that the deductible, copay, and coinsurance go toward meeting the out of pocket maximum amount determined by the insurance plan that your client has. What happens when this amount is met?

This is the best part! When the out of pocket maximum is met the client pays $0.00 for your services and the insurance company opens the floodgates and pays 100% of the cost of your session. The insurance company won’t just cover 100% of your sessions, but any healthcare expense for your client for the remainder of the plan year.

Once your client meets this amount, you have the opportunity to tell them that sessions are free and the insurance company will pay the total cost of the session. This doesn’t usually happen until closer to the end of the calendar year, but when it does happen it can mean great things for that particular client.

Once your patient has met the requirements for gates one and two the money from Money Lake will flow to your practice without hindrance and you can continue to see your client. It is important to note that you should be paid for the cost of sessions from one party or the other or both at every point in the process. There should never be a time when you are not paid for your services. If you are experiencing a blockage in payment, we may be able to help and we would love to help you unlock those gates or at least understand how to unlock them better.

Feel free to give us feedback if you found this helpful. We would love to hear from you!


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