Nobody likes to think about health insurance. But taking a few minutes now can help you understand your choices. That way, when you or someone in your family needs medical care, you’ll know how to get the most from your health plan.
Let’s start by looking at some health insurance terms.
You don’t have to be an economist to know that everything has a price. The price that you or your employer pays for health insurance is called a premium.
If the company you work for offers health insurance as a benefit, you and your company will probably share the premiums. Most companies deduct your part of the premium from your paycheck.
If you don’t have insurance through your employer or you are self-employed, you pay the entire premium on your own.
In exchange for premiums, the insurance company covers a range of health care services. These services include doctors’ visits, hospital stays, prescription medications, many outpatient treatments, laboratory tests, and other medically necessary services.
The amount that your health insurance plan will pay for a service is called the allowed amount.
An in-network provider is a doctor or health care facility who has agreed to accept the allowed amount as payment in full. This means that you will never have to pay more than the allowed amount when you see an in-network provider. The allowed amount is usually lower than the doctors’ or facilities’ regular charge.
You save money when you seek care from providers in your network. In fact, that’s one of the biggest advantages of health insurance plans.
Depending on your plan, an in-network provider may be called a participating provider or preferred provider.
What happens if you go to a doctor or facility that is not in your network? Doctors and facilities that are not in your network are known as out-of-network providers. Out-of-network providers have not agreed to accept your health plan’s allowed amount as payment in full. If you seek care from an out-of-network doctor, you may be responsible for up to the doctor’s charge, called the billed amount.
If you are in a health plan that includes out-of-network benefits, such as a PPO plan, your plan will pay up to the allowed amount. You may be responsible for the difference between the doctor’s billed amount and the amount paid by the plan
Not all health plans provide benefits when you use an out-of-network provider. For instance, many HMO plans do not include benefits if you see a doctor who is out-of-network. If your plan does not cover out-of-network providers, you will be responsible for the doctor’s entire billed amount.
Besides your premium, many health plans require that you pay a deductible before the insurance company begins to pay for your care. The deductible is a set amount, but not every charge you pay out of pocket counts toward your deductible. To make sure you know what counts and what doesn’t, please read your insurance plan’s benefits summary with care.
Since the main goal is keeping you healthy, some plans offer certain preventive services at little or no cost to you. You receive these services without having to pay a deductible first.
Each time you receive certain medical services or fill a prescription, you pay a fixed amount called a copayment, or copay. Copays tend to vary depending on the service. For example, you might have a $20 copay each time you visit your primary care doctor, but your copay may be higher when you visit a specialist. An emergency room visit or a hospital stay may have higher copays.
When you fill a drug prescription, your copay for a generic medication is usually lower than your copay for a brand-name drug.
Some health plans require that you meet your deductible before your copay applies.
You have to pay your copay at the time you receive services. So don’t forget to bring cash, a checkbook, or a credit card when you visit a doctor, hospital, or pharmacist.
In some cases you’re responsible for a percentage of the cost of your care. The percentage you pay is known as coinsurance. How does this differ from a copayment? While a copayment is typically a set dollar amount that applies to each service, coinsurance is a percentage of the total cost.
Different plans have different coinsurance percentages. Ten percent or twenty percent coinsurance is common for in-network services. Higher coinsurance is often required for out-of-network services.
The deductibles, copayments, and coinsurance you pay are based on your health plan’s rules. Your insurance plan benefits summary will tell you which types and levels of payments apply to your plan.
Let’s look at an example.
Here’s an example of the way coinsurance works.
Let’s say that you have already met your deductible when you need to see your cardiologist. Your in-network benefit for seeing a specialist is 80 percent after you’ve met your deductible. If the allowed amount of the cardiologist visit is $100, your health plan will cover 80 percent, or $80. You will be responsible for the remaining 20 percent, or $20.
Each time your plan pays a claim on your behalf, you may receive an explanation of benefits, or EOB. The EOB shows the amount paid by the plan, the amount applied to your deductible, and your share of the cost. With some plans, such as HMOs, you may not receive EOBs.
When you sign up for a health insurance plan, be sure to read the plan benefits summary. It’s important to understand your deductibles, copayments, and coinsurance. It’s a good idea to take another look at your benefits summary when the time comes for you to use your plan, too.
If your employer offers health insurance, make sure you understand how much money you will contribute toward the cost of your plan.
In this section, we’ve covered a lot of information to help you understand the basics of health insurance. This knowledge will leave you better prepared to select a health insurance plan or use your existing plan wisely.
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Return to Index
Intro to CDH
High Deductible Health Plans
Health Savings Accounts
HSA Tax Benefits
How HSAs Work
Health Reimbursement Arrangements