Enrollment season for health insurance is underway. And millions of Americans are attempting to make important decisions about healthcare plans. But for most people, choosing the best plan that covers all of their needs is a chore. Not only are there choices to be made, but there are also a host of terms or understand.
This article covers 10 of the more common health insurance terms. Before you make any decisions about your health insurance coverage, it can help to familiarize yourself with them.
A deductible is what you have to pay each year for health care services before your health insurance company steps in to pay its share to your health care provider. Deductibles are applicable to covered services only. Consider this—if you have a deductible of $500 with your health coverage, your insurance company may not begin to cover its share of your bills until you’ve paid your deductible in full for that year. Although, some plans fully cover the cost of some items, like preventive care doctor’s visits, before you pay your full deductible.
2. High Deductible Health Plan (HDHP)
With a high deductible health plan (HDHP) is one where you pay a higher deductible than with a traditional health plan. With an HDHP, your insurance company doesn’t pay anything toward your medical expenses until you’re paid your deductible in full. Many preventive services are paid at 100% though and are covered at anytime during the year regardless of whether you’ve paid your deductible off or not. Consider this; if you have a deductible of $2,500, your insurance company won’t begin to cover its share of your bills until you have paid your deductible in full for that year. You do, however, only pay the amount to the doctor that your insurance company has contracted to pay. If the insurance company has contracted to pay 80% of a $500 office visit, you only pay 80% even if you haven’t yet paid your deductible down.
HDHPs quality for health savings accounts (HSAs). An HSA is an account you own and can take with you from employer to employer. You can put pre-tax dollars into your HSA and use the money to pay health costs.
Even though, a HDHP has a higher deductible, typically your out-of-pocket expenses are actually lower overall. Why? Because these plans have lower monthly premiums. So the total you’ll spend each year is actually less than with a traditional plan. The catch is that you have to foot the larger deductible upfront.
For 2019, HDHPs have minimum annual deductibles of $1,350 for individuals and $2,700 for families—the same as in 2018.2 The annual contribution you can make to an HSA is $3,500 for yourself and $7,000 for a family in 2019. The most you can pay out of pocket before your insurance has to pay for all expenses is $6,750 for yourself and $13,500 for a family.
3. Health Savings Account (HSA)
As stated above, an HSA is an account you own. It’s portable from employer to employer. And funds roll over from year to year, allowing you to use the money whenever you want. You put pre-tax dollars into your HSA and use the money to pay for eligible medical care costs. HSAs are available only to people with an HDHP. Many HSAs earn interest. The contributions you make are done before your taxes are taken from your paycheck—pre-tax—and reduce your taxable income. And, when you use the money for eligible medical costs, you don’t pay taxes on the money at all.
The difference between an HSA and a flexible spending account (FSA) is that an FSA account is tied to your job and the year. An FSA lets you save pre-tax money to use to pay medical costs, but the money must be used in the same calendar year or is forfeited. You can’t take an FSA with you if you leave an employer.
Premium is one of the more common health insurance terms you’ll hear. Your premium is the amount you pay the health insurance plan provider for using their plan. If you have insurance through your employer, you likely split the premium cost with your employer. For example, if your total premium is $200, you may pay $25 of that and your employer pays the rest. Payments are typically made monthly or per paycheck.
As with an HSA or FSA contribution, premiums are taken out of your pay pre-tax when you have employer-sponsored health-insurance coverage.
Copayment refers to the amount you have to pay for a visit to a medical office. This amount is part of your insurance plan. Copayments are made at the time of the visit for most doctors. For example, a doctor’s office visit may have a copay of $25. Once your insurance is billed, the copay is deducted from that amount of the total bill. Note that most HDHPs don’t use copays. Usually, but not always, copays aren’t used to satisfy your deductible. And you will likely have a copay for any type of medical care, including doctor’s visits, medications, and emergency room visits.
Coinsurance as another cost that is passed on to you, the insured. However, you won’t likely have both a copay and coinsurance. Usually you’ll have one or the other. If you so have coinsurance, each visit or procedure you have will include a coinsurance amount. Coinsurance amounts are usually a percentage, such as 20%. Your health plan will pay 80% and you pay 20%. Co-insurance amounts kick in after you’ve satisfied your deductible. And even once your deductible is paid, you still pay a portion of your costs up to your maximum out-of-pocket expense limit.
With an HDHP, you’ll almost always have coinsurance, but not a copay. And HDHPs often have lower co-insurance amounts than traditional plans.
7. Out-Of-Pocket Maximum
Your out-of-pocket maximum is the maximum amount you have to pay each year towards your medical bills, including your deductibles, copay and coinsurance. Once you’ve paid your out-of-pocket maximum, for the year, you won’t pay anything more for health insurance costs with the exception of your premium. The maximum out-of-pocket limit for group health plans for 2019 is $7,900 for individuals and $15,800 for families. For HDHPs, the maximum are $6,750 for individuals and $13,500 for families
So, if you have and HDHP with 20% coinsurance and a surgery that costs $40,000 in May, you’ll pay only $6,750 for the surgery, even though 20% is $8,000. You also won’t pay anything further for health costs the rest of the year.
HMO stands for health maintenance organization. An HMO is a network of doctors, hospitals and other healthcare providers who have contracted to accept set amounts for medical services. This helps your insurance plan keeps costs down, but can limit the number of doctors and hospitals where you can get care. You will hear terms in-network and out-of-network. In-network providers are in the HMO. Often, if you choose an out-of-network provider, you may have to pay a higher deductible and more of the cost—sometimes you’ll have to pay the total cost.
HMOs also require that you choose a primary care physician (PCP). You must see your PCP first for all medical needs. The PCP will then connect you with a specialist as/when needed.
HMOs are typically confined to a given city or state, so needing care while traveling can put you at financial risk.
A PPO is a preferred-provider organization. A PPO eliminates the need to go through your PCP for care for most services. These plans typically offer a greater choice of healthcare providers and extend benefits to out-of-network providers. However, costs and deductible for out-of-network providers are typically higher. And often there are separate deductibles to be met for in-network and out-of-network providers.
POS stands for point of service plan. A POS is a combination of an HMO and PPO in that it has a network of doctors who’ve agreed to a set amount for medical services and make up the plan’s network. Like an HMO, a POS also requires that you get a referral from your PCP to see a specialist. If you seek medical help from a doctor who isn’t covered by the network, you can expect a higher bill. On the bright side, there are more doctors to choose from here than with an HMO.
That’s 10 common health insurance terms in a nutshell to equip you to make more-informed decisions for your health and the health of your finances. Learn more in “Top 10 Health Insurance Considerations” and “10 Common Mistakes to Avoid When Buying Health Insurance.”