If the thought of health insurance makes your eyes glaze over, don’t feel bad; most Americans can’t define key terms either.
Understanding health insurance concepts is vitally important. People who don’t grasp them may find themselves spending too much on coverage or forgoing care that would otherwise be provided.
No matter where your health insurance comes from – be it through work, healthcare.gov, or government programs – arm yourself with basic knowledge so you can maximize the effectiveness of your coverage.
Types of Health Insurance Costs
Without receiving free or subsidised health coverage through Medicaid or another government program, most types of health plans typically entail some cost sharing expenses – sometimes known as cost sharing costs. Some common examples may include:
1. Monthly Premium
Wages or fees can vary widely according to age, location and other factors.
2. Deductible
This amount represents what you owe out-of-pocket before your health insurance starts paying for any services you use. If you obtain healthcare prior to meeting your deductible, typically 100% of costs must be covered, even for services covered by insurance.
3. Copayment (Copay)
This set fee you pay every time you use healthcare services is called copayment and may vary depending on the healthcare provider and/or service provided (i.e. primary care physician (PCP) vs specialist) as well as type (e.g. emergency room visit vs office visit).
4. Coinsurance
Coinsurance refers to the percentage of healthcare costs you must cover once your deductible has been met; for instance, if you have 20% coinsurance for hospital services and receive a $10,000 bill with 20% coinsurance applied, $2,000.
Health insurance jargon can be complex. Here are a few key health insurance terms you should familiarize yourself with:
1. In-Network Providers
Health plans often contract with certain healthcare professionals for services. Those enrolled as “in-network” providers are known as such.
2. Out-of-network providers
Out-of-network HCPs, who do not participate in your health plan’s network, are known as out of network providers. Depending on the plan type you select, coverage rates for out-of-network providers could be lower – meaning less of their fees would be covered and that you would pay more out of pocket to see them.
Some plans do not cover out-of-network providers at all, meaning you would bear 100% of their costs to see them.
3. Out-of-Pocket Maximum
Once you’ve paid for a deductible, copayments and coinsurance costs in one year, there is a cap to what will come out of your own pocket each year; this limit is known as your “out-of-Pocket Maximum”. Once reached, additional fees cannot be charged from in-network providers.
Care provided from out-of-network providers or services not covered may still incur fees.
Monthly premiums don’t count toward your out-of-pocket maximum;
4. Referrals
Some health plans require you to get permission — in the form of a referral — in order to see certain specialists or healthcare providers, including HCPs such as dentists. Referrals come directly from your PCP.
5. Prior Authorization
Some health plans require you to receive certain services or prescriptions with prior authorization, which is similar to permission or preapproval. While your HCP will submit forms on your behalf to your insurance provider for approval before seeking out services that require prior approval, ultimately it’s your responsibility to ensure you secure it before seeking these services out – otherwise your claim could be denied and leave you paying all or part of the service yourself – or worse yet not getting it at all!
6. Open Enrollment
Open enrollment is the annual period during which anyone can enroll or change plans in health insurance plans offered through work, Medicare or the Health Insurance Marketplace. Unless an “qualifying life event” triggers special enrollment periods outside the open enrollment window, switching plans cannot occur unless taking action during that special enrollment period.
7. Special enrollment period
Change in circumstances could qualify you for a special enrollment period – meaning you can sign up or change insurance outside of an open enrollment period. Qualifying circumstances might include changes in family structure (i.e. having a child, marriage or divorce), moving locations and/or losing job-based benefits.
8. High-deductible health plans
High-deductible health plans (HDHPs) are health plans with high deductibles, meaning the amount you must pay out-of-pocket before health insurance begins covering services is more than usual. Each year the threshold changes; in 2022 they were defined as plans with at least $1,400 individual deductibles or $2,800 family deductibles, although any of the more common health plan types can also qualify as HDHPs.
9. Health Savings accounts
Health savings accounts (HSAs) are tax-exempt savings accounts that allow individuals to use tax-free dollars towards qualified healthcare expenses. HSAs are often combined with HDHPs in order to help pay healthcare costs before reaching your deductible threshold, with any remaining funds rolling over and building over time in your balance.
Types of Health Plans
There are various kinds of health insurance plans with various costs and rules attached, with the most popular types including:
1. Health maintenance organizations (HMOs).
HMOs may offer lower monthly premiums than their counterparts, yet are generally the most restrictive. With an HMO plan you must have a Primary Care Physician and get referrals to specialists from this PCP before being seen by specialists outside your network unless it’s an emergency situation.
2. Preferred provider organizations (PPOs).
PPOs typically charge higher monthly premiums than HMOs due to the additional flexibility they offer members. PPOs do not require members to have a primary care physician (PCP), obtain referrals for specialists, or go through referral processes before seeing specialists. Similar to HMOs, PPOs also maintain networks of contracted HCPs – although you typically incur additional charges outside the plan’s network of healthcare providers.
3. Point-of-service (POS) plans
POS plans represent an alternative to HMOs and PPOs, offering coverage with some elements from each. Like HMOs and PPOs, they require having a PCP as well as getting referrals before seeing specialists; some plans offer contracted networks of HCPs but allow you to visit those outside their network at an increased cost; premiums typically fall somewhere in between HMOs and PPOs.