As a “finance guy”, one of the core products that my company offers is individual and group health insurance for corporations. I talk about this all day and everyday with my clients. The biggest barrier to understanding their plans I’ve found is their unfamiliarity with the terminologies. So I thought I’d post a blog explaining some of the more important and often times misunderstood terms in health insurance. I’m not going to discuss simple ones like “Premium” and “Prescriptions Coverages”. Most everyone knows that. I’ll discuss the more confusing ones here.
Getting health insurance is one of the most critical decisions you’ll make. It is also extremely expensive. Health care costs and the insurance that covers it has risen at an accelerated pace over the 25 years I’ve been in the business. Unfortunately, I’m coming across more situations wherein my clients complain that their premium is even higher than their mortgages. So making sure you choose the right one for you and your family by understanding how your plan works is crucial.
While the benefits and importance of health insurance is well-known, very many people do not understand how it works. A little understanding of your plan documents can help you avoid unnecessary expenses and problems later.
BASIC HEALTH INSURANCE TERMS
When thinking of getting insurance, the premium is usually the first one that comes to mind. However, in my opinion, the more significant terms associated with health insurance are listed below. After all, what’s the point of having “cheap” insurance premiums if you’re getting hammered on the back-end by having to pay for everything else.
Co-payment simply refers to the fixed sum that you are required to pay when you are in receiving medical services. For example, you might pay $50 each time you visit your family doctor. Your insurance policy will let you know which types of medical services need co-payments. Co-payments are not applicable to all services covered by the plan which is a good reason to read the fine print.
Co-payments are most associated with doctor visits and when purchasing medications.
Some people think that co-payment is the same as a deductible, but the way the co-payments and deductibles work are different.
The deductible is known as the amount of money that the insured pays before the health insurance benefits will start to cover costs. So if your plan says you have a $2000 deductible, then that means you must pay the first $2000 of covered medical services. Some plans only apply the deductible to major medical situations like hospitalizations. However some plans will include simple things like doctor visits.
Please note that you rarely pay the “retail” rate for services while you’re in the deducible stage. As an example, if your doctor would normally charge $350 for a consult with someone without insurance, he would bill you for the negotiated rate as dictated under the agreement he signed with the insurance company. Say for example, $75.
This is a percentage of a covered service that consumers must pay. As the name implies, you are “co-insuring” the cost of your care. For instance, if you have a 20% Co-insurance on your plan, then you will have to pay 20% of a laboratory test in the hospital. This 20% formula continues until you’ve met your “Out-of-Pocket Maximum”.
4. Out-of-Pocket Maximums
The total amount consumers must spend for services covered in a plan year. Once you meet your out-of-pocket maximum, your insurance company pays any additional services at 100% for the remainder of your plan year. Once you’re plan renews, the figure resets back to zero.
5. High Deductible Health Plan
A high deductible is a plan that offers low monthly premiums but will not pay your medical services bills until a relatively high deductible is reached. An increasing number of employers offer high deductible plans to their employees to reduce insurance costs. I’ve seen deductibles as high as $14,000 for a family on a bronze plan. So check before you sign on the dotted line.
6. Coordination of Benefits
Coordination of Benefits is defined as when health insurance benefits are available to a person from more than one source (e.g. insurance through a job and medicare) The insurance provider will review the various coverages available. Then, they arrange payments accordingly. In most cases, there is only one health insurance in place. Coordination of benefits is not applicable then since there is no other health plan or alternative to coordinate with.
Exclusions are simply the medical procedures and test that the insurance policy will not cover. They are usually elective or cosmetic in nature.
8. Grace Period
Grace period in the world of health insurance is simply the amount of time an insurance company will give you to pay your premium after the due date. This is usually 30 days. If payment is not made by then, they will cancel your policy and you will no longer be covered. The end result of this of course is you will bear the financial burden for all future health care services.
9. Pre-existing Conditions
A pre-existing condition occurs when there is a medical condition that the insured may have had before the insurance policy starts. Under the Affordable Care Act, health insurance companies are no longer allowed to deny coverage for pre-existing conditions.
10. Outpatient Coverage
It is the type of care you receive without being admitted to the hospital. Checkups, doctor visits and even some surgeries that allow you to go home on the same day would be considered outpatient procedures.
The law prohibits you from changing plans unless you have what’s called a “qualifying event”. It’s a short list.
a. Job change
e. Any involuntary loss of coverage
One last tip, when getting prescriptions, I use this fabulous website to help me determine where I can get my medications at the lowest price. Even with my insurance, since I pay a deductible, I want to make sure I get the best price since each pharmacy is different.
In conclusion, health insurance policies are legally binding contracts, which can have a significant impact on both your health and finances, so taking the time to understand your coverage is crucial. Waiting until you are ill or involved in an accident before you investigate your health plan could be disastrous. With this basics knowledge of health insurance, you will find it easier to make the right decisions at the right time.