If your eyes glaze over at the mention of anything related to health insurance, you’re not alone. In fact, most people in the United States I can’t define the key terms of health insurance..
But understanding health insurance is very important. People who don’t understand health insurance concepts don’t end up either waste more money of what they need in their health coverage or avoiding the care they need.
Whether you get health insurance through a job, the Health Insurance Marketplace (Healthcare.gov), or a government program, arm yourself with basic knowledge so you can make the most of your coverage.
Types of health insurance costs
Unless you have free or subsidized coverage through Medicaid or another government program, you will probably have a few different types of costs no matter what type of health plan you choose. These costs are often called “cost sharing.” Common costs to consider include:
1. Monthly premium
The monthly cost you pay for health insurance coverage.
2. Deductible
The amount you must pay out of pocket before your health insurance begins to pay for any services you use. If you receive health care services before you have met your deductible, you will generally have to pay 100% of the cost, even for services that are covered by insurance.
3. Copayment (Copayment)
The fixed fees you pay each time you use healthcare services. Sometimes copayments, also called copays, are expected when you arrive for your appointment and sometimes they are billed later. Copays may vary depending on the type of health care provider (HCP) you see (e.g., primary care physician (PCP) vs. specialist) or type of service (e.g., emergency room vs. office visit).
4. Coinsurance
The percentage of health care costs you must pay once you have met your deductible. For example, if you have 20% coinsurance for hospital services and you receive a hospital bill for $10,000, you would be expected to pay $2,000.
Other health insurance terms you should know
Health insurance has its own terminology, which can be confusing. Some key health insurance terms you should know include:
1. In-network providers
Many health plans have a set of healthcare professionals with whom they contract. Healthcare professionals who sign up for the plan are called «in-network.»
2. Out-of-network providers
Health care professionals who do not participate in a health plan’s network are considered «out-of-network.» Depending on the type of plan you have, out-of-network providers may be covered at lower rates than in-network providers. That means your insurance covers less of their fees, so you would pay more to see them.
Some plans do not offer any coverage for out-of-network providers, meaning you would pay 100% of the cost to see them.
3. Maximum out-of-pocket expense
Once you’ve spent money on your deductible, copays, and coinsurance, there’s a limit to how much you’ll have to pay out of pocket each year. This limit is called the “maximum outlay.” Once you have reached this amount, you cannot be charged additional fees for covered services from in-network providers.
You may still be charged for care you receive from out-of-network providers or for services that are not covered.
Monthly premiums do not count toward your out-of-pocket maximum.
4. References
In some health plans, you must get a referral (a type of permission) to see specialists or other health care professionals for certain services. Referrals are written orders from your PCP.
5. Prior authorization
To receive certain services or prescriptions, some plans require you to get prior authorization, which is prior permission or approval. Your doctor will usually submit forms to your insurance provider on your behalf, although it is technically your responsibility to make sure you get approval before requesting the service. If you do not obtain prior authorization for services that require it, the health plan may deny your claim and you may have to pay for the entire service yourself, or not receive it at all.
6. Open enrollment
Open enrollment is the set time each year when you can sign up for health insurance or change plans. Open enrollment times vary by company for employment-based insurance and for different programs like Medicare or the Health Insurance Marketplace. Outside of the open enrollment period, you can’t change plans unless you have a change in life circumstances, called «qualifying life event”, which allows you to have a special enrollment period.
7. Special registration period
If you have a change in circumstances, you may qualify for a special enrollment period. That means you can sign up or change insurance outside of an open enrollment period. Circumstances that could qualify you for a special enrollment period include changes in family structure (for example, having a baby, getting married or divorced), moving, or losing job benefits.
8. High-deductible health plans
High Deductible Health Plans (HDHP) They are high-deductible plans, meaning the amount you pay out of pocket before your health insurance begins to cover services is higher than the typical amount. The threshold for an HDHP changes each year. In 2022, HDHPs were defined as plans with deductibles of at least $1,400 for individuals and $2,800 for families. Any of the common types of health plans can be an HDHP.
9. Health Savings Accounts
Health Savings Accounts (HSA) They are savings accounts that allow you to use tax-free dollars for qualified health care expenses. HSAs are often combined with HDHPs to help you pay for healthcare costs before you meet your deductible. Your HSA balance is yours, so unused amounts accumulate and can add up over time.
10. Flexible Spending Accounts
Like HSAs, flexible spending accounts (FSAs) are accounts that allow you to use tax-free dollars for qualified health care expenses. Unlike an HSA, your FSA money is not reinvested, so you lose any unspent money at the end of the year. FSAs are a benefit offered by your employer, not your health insurance plan.
Read: Basic health insurance for women: what you are entitled to as a woman >>
Types of health plans
There are several different types of health insurance plans, with different costs and rules. The most common types of health plans include:
1. Health Maintenance Organizations (HMO)
HMOs typically have the lowest monthly premiums, but they also tend to be the most restrictive. In an HMO, you must have a primary care doctor and get referrals from him to see specialists. An HMO only covers services you receive from health care providers who participate in its network. Outside of that network, HMOs generally do not cover any costs unless it is an emergency.
2. Preferred Provider Organizations (PPO)
PPOs tend to have higher monthly premiums than HMOs because they give you more flexibility. PPOs do not require a member to have a PCP or obtain referrals to see specialists. Like HMOs, PPOs have a network of contracted healthcare professionals. You generally pay more, but not the full cost, to see health care professionals outside the plan’s network.
3. Point of Service (POS) Plans
POS plans are like a cross between an HMO and a PPO. POS plans may require you to have a PCP and get referrals before seeing specialists. POS plans have contracted networks of healthcare professionals, but tend to allow you to see healthcare professionals outside of the network for a higher cost. POS premiums generally fall between HMOs and PPOs.
4. Exclusive Provider Organizations (EPO)
Monthly premiums for EPOs are typically higher than HMOs, but lower than PPOs. Like HMOs, EPOs only cover services you receive from HCPs that participate in their network, unless it is an emergency. Generally, you do not need to have a PCP or get a referral to see a specialist, as long as you are in your plan’s network.
Health insurance
Medicaid is a health coverage assistance program for children, adults, pregnant women, people with disabilities, and seniors who qualify due to low income or other criteria.
State health insurance
Medicare is a national health insurance program provided by the U.S. government for people over age 65 and people with certain illnesses and/or disabilities. There are four different parts of Medicare. Some are free and others require a monthly premium.
