The world of health insurance is a complex one filled with term of art and concepts. No matter if you’re picking a new health plan, using the health insurance you have now or trying to understand what your expenses may be, these key words will make it a lot easier. In this article we will go over some of the most important health insurance terms like deducible, co pay, co insurance, and all of the others so that you can make informed decision about healthcare insurance coverage.
1. Health Insurance Premium
Definition: Premium refers to the amount you pay the health insurance company to have your coverage. It’s usually paid monthly, but it can be paid quarterly or annually, depending on your plan.
Importance: Your premium does not apply towards your deductible or out of pocket maximum. You’re going to need to budget for this cost, because it’s a fixed expense over the course of your policy.
2. Deductible
Definition: Your health insurance pays only after you’ve paid out of pocket for a certain amount of services, and that amount is known as your deductible. For instance, if for example your deductible is $1,000, your plan will not pay a thing until you have spent $1,000 on medical care that meets your deductible.
Importance: Not all services are subject to the deductible. For example, insurance for routine check ups and screenings are paid for prior to the deductible. Knowing how your deductible works will help you plan your medical expenses better.
3. Copayment (Copay)
Definition: A copay is the fixed amount you pay for a covered health care service after you’ve paid your deductible. Or a $20 copayment for a doctor visit or $50 for a hospital stay.
Importance: And you know that rates are predictable because you pay a copay for each time you get a service. If you know what your copay should be for different services, then you'll know what you'll have to pay each time you see the doctor, pick up a prescription, or use any other health care service.
4. Coinsurance
Definition: Your coinsurance is your share of the costs of a covered health care service it is the percent (for example, 20%) of the allowed amount for an expense listed in your policy brochure (for example, $200 of $1000) that you pay. Sometimes, health care coverage includes a copayment. So, let’s say the allowed amount for an office visit is $100, the health insurance company’s allowed amount, and that you’ve met your deductible — in that case, your coinsurance payment of 20 percent would be $20.
Importance: A copay and coinsurance are two different things, because while a copay is always a fixed amount, coinsurance is a percentage. All of this means the cost can fluctuate heavily depending on the kind of services you receive.
5. Out-of-Pocket Maximum/Limit
Definition: The out of pocket maximum or out of pocket limit is the most you will have to pay for your covered services in a year. Once you've paid as much on deductibles, copayments, and coinsurance, the health plan will pay 100% of covered benefits expenses.
Importance: It capping your expenses helps protect you financially. For budget purposes, particularly if you require a lot of care or expensive treatment, it’s very important.
6. Provider Network
Definition: A provider network is the name of a list of healthcare providers who have received specific licensing to provide services to people enrolled in the health insurance provider, at an established rate.
Importance: You usually pay less when you use doctors, hospitals, and other providers that are in the network, rather than using those outside the network. Knowing who is in your provider network can help save you a ton of money on health care.
7. Explanation of Benefits (EOB)
Definition: An Explanation of Benefits (EOB) is a statement from your health insurance company that tells you what it will pay for medical care or medical products you have received.
Importance: It’s not a bill, it’s a useful document that tells you what portion of your medical service was paid by insurance and what portion you owe the providers. By reviewing your EOB, you will know exactly how your benefits apply, and if there are any errors in billing.
8. Formulary
Definition: A formulary is a list of prescription drugs that a prescription drug plan or another plan that provides prescription drug benefits will cover.
Importance: An understanding of your plan’s formulary is important because it will determine how much you will have to pay for your medications. Drugs not on the formulary often cost more money.
9. Prior Authorization
Definition: To quality for payment coverage, your physician has to receive authorization from your health insurance plan, called prior authorization, before a specific procedure or service is delivered to you.
Importance: By knowing the services you need to be approved in advance, you can avoid unexpected medical bills and you know your service will be approved under your insurance plan.
10. Annual Enrollment Period
Definition: This is the timeframe you need to sign up for or change your health insurance plan. Annual enrollment periods are most private employers and Health Insurance Marketplace.
Importance: This is a good time to make any changes you need to your health insurance, as you won't be able to make changes later unless you qualify for special enrollment because of a life event such as marriage, divorce or the birth of a child.
Conclusion
These life's blood terms of key health insurance can demystify the complexities of your coverage and help you make better decisions about your healthcare. Whether you’re choosing a new plan during annual enrollment period, figuring out how much you’ll pay for a visit to the doctor, or making sure that the medications you take are covered under your plan’s formulary, it helps to know what these terms mean. Take advantage of this knowledge so that you can better control expenses of your health and make the most of your health insurance benefits.
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