Health insurance is a staple of modern life, but for many people it is a confusing set of concepts made even more undecipherable by a host of poorly understood terms. Not only does this confusion often make it difficult to find a health plan that is right for your needs, but it often breeds misunderstandings and conflicts with your insurer.
That is why you should learn and understand many of the most important terms describing health insurance and the concepts they represent. Once you understand the fundamental terms and ideas, you can build on them to get a more comprehensive understanding of how health insurance operates.
Here are some of the most basic health insurance terms:
- Premium: This is likely the first major concept that you will run into when shopping for a health insurance policy since it describes how much you must pay each month. Unlike other products where you pay only once to purchase it, health insurance is something you must continue to pay for to keep it “in force.” As a financial protection plan, you must pay into it on a monthly basis, i.e. the premium, in order to maintain health coverage. Like many other goods, a higher premium may be something to avoid if you want to save money, but it usually signifies more plan benefits; in other words, the lower the premium, the more likely you are to pay for other expenses.
- Claim: A claim is a request by you or your physician to pay for the services you received. In some cases, your physician may not ask you to pay for a visit, instead choosing to bill your insurer directly. In other cases, your physician may ask you to pay up front; it then becomes your responsibility to get reimbursed from your insurer for those charges. How much of a medical bill will be paid by your insurer is dependent upon the extent of your policy benefits.
- Deductible: No health insurance policy covers 100 percent of the medical bills for an entire year. There is an annual amount that you must pay on your medical expenses before your health insurer will start paying out, and that annual amount is called a deductible. If your health plan premiums are higher, your annual deductible tends to be lower, and vice versa. For many people who see a doctor often, a higher premium plan with a lower annual deductible is usually a wise choice because it means that the insurer is likely cover more expenses over the course of the year.
- Copayment: When you visit a doctor or purchase a prescription medication, you must usually pay a standard fee. This is often only a few dollars, but you must continue to pay it even after you have paid up your annual deductible. The amount you pay for various services will depend on your plan benefits, so look closely at them before you get any medical services.
- Coinsurance: Another feature of some health insurance policies is coinsurance. Coinsurance, like copayments, is something that you will be responsible for even after you fulfill your annual deductible, but coinsurance is a percentage of the bill rather than a set fee. Coinsurance is usually higher for services obtained outside of your network.
- In-network provider: When you enroll in a health plan, you are signing up for a select network of doctors, hospitals and pharmacies. These in-network providers have entered into a contract with your insurer to provide goods and services at a reduced rate to policyholders. Most insurers encourage you to only see in-network providers by raising the amount you pay for out-of-network visits. The amount increase for out-of-network providers depends on the type of plan you have; cheaper health plans tend to be the most restrictive, while higher premium plans offer minimal cost increases to see providers outside your network.
- Out-of-pocket maximum: Most health insurance policies have a limit on how much you must pay through deductibles, copayments and coinsurance in any given year. The annual cap on how much you pay is called the out-of-pocket maximum. Once you reach the out-of-pocket maximum, your insurer will pay 100 percent of your medical bills for the rest of the year. Once again, it may be advisable to get a policy with a lower out-of-pocket maximum and a higher premium, if you see the doctor often or plan on a pricey procedure in the coming year.
- Explanation of benefits: With every health insurance claim by you or your doctor there is an Explanation of Benefits which details how much of a medical bill is your responsibility and how much is your insurer’s. When your insurer issues the EOB, it is usually in advance of a bill from your doctor, and the EOB should mirror exactly the medical bill. If you have questions or doubts about your insurer’s financial determination, you should contact them as soon as possible once you receive the Explanation of Benefits.
- High deductible health plans: Although this term describes only a small subset of health insurance policies, this phrase may help you understand some important concepts that you should be familiar with. First of all, if you are looking to save money on medical expenses, then you first need to understand your own health situation. Paying a low premium for a health plan with limited benefits and a high deductible may be wise for someone with little chance of getting sick or seriously injured, but it may cost you more in out-of-pocket payments if you are chronically ill. Health plans are generally structured to offer more protection if the premium is higher; so you are taking your chances if you opt for a low premium-high deductible plan.
Health insurance can be a confusing topic, even for fairly savvy consumers. If you find yourself asking a lot of questions about terms and topics while shopping for a health plan, you should visit Boost Health Insurance and speak with one of our independent brokers.
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