Whether you’re applying for health insurance through your job or signing up via the Affordable Care Act, choosing your health insurance is a major decision. Here are some health insurance terms you should know to help you make an informed decision.
Health Insurance Terms
It’s crucial you understand some of the key terms you’ll come across when researching and comparing different health insurance companies. The more informed you are about which benefits you will (and won’t) receive, the less likely you’ll be caught off guard when it comes time to make your choice.
A deductible is the amount you need to pay on your own before your health insurance kicks in. For example, if you have a $1,000 deductible, this means you’ll need to pay $1,000 before your health insurance covers the rest. Deductibles will work differently depending on your insurance plan.
A co-pay is an amount you need to pay to see a doctor and may not count towards your deductible. In some cases it does, so check your health plan to make sure. Depending on your healthcare plan, emergency room, urgent care, out-of-network doctors, and specialists tend to have higher co-pays.
Your co-insurance is a percentage of what you pay for healthcare services after paying your deductible. Let’s say your co-insurance is 10% and your deductible is $1,000. You end up in the emergency room and the bill comes to $2,000. If you already met your deductible, then you’ll need to pay $100 and your insurance company covers the remaining $900. If you have met the deductible, then you’ll need to pay whatever amount to meet that, then 10% of the remaining balance.
Your premium is the monthly amount you need to pay to purchase a health insurance plan.
Yes, there’s a limit on how much you have to pay for healthcare services in a year, and it’s called the out-of-pocket maximum. This cost includes your co-insurance, co-pay and deductible. If you have additional people on your plan, you’ll have a family out-of-pocket maximum instead of an individual one.
Once you reach your out-of-pocket maximum, your insurance company will pay 100% of your costs. Keep in mind that whatever you pay for things not included in your health plan won’t count towards your out-of-pocket maximum and dental plans may differ.
A health insurance plan network is a group of clinics, doctors and hospitals that agree to provide members with healthcare services. When you use an in-network healthcare provider, you may not pay as much as you would for doctors out of network. Usually, the larger the network, the higher your monthly premium will be.
Exclusions in terms of health insurance is basically anything that your plan won’t cover. They can vary wildly, so it’s important to read the fine print to see what they are. Some of the more common exclusions include cosmetic surgery, alternative medicine, home care, and private nursing expenses. Some healthcare providers lifted exclusions for pre-existing conditions, but you may be subject to a longer waiting period before you can receive care.
The ACA stands for the Affordable Healthcare Act, which was a healthcare reform law enacted in March 2010. It aims to make health insurance more affordable by providing subsidies that result in lower costs, depending on your household income. You can purchase healthcare insurance through the health insurance marketplace on Healthcare.gov. Before enrolling in any plan, you can preview price estimates through their website.
HMO stands for health maintenance organization. It’s usually known to have a more restricted network, and therefore also lower premiums. In other words, with an HMO you’ll pay less up front, but you could be sacrificing choice and flexibility in your care. You’ll also need to name a primary care provider (PCP) who will then be the person who can refer you to see a specialist.
HMOs usually have either no deductible or a very low one. Instead, you pay co-pays for doctor visits, prescriptions and tests. You typically won’t be covered for out-of-network care for any healthcare needs unless it’s deemed an emergency, so you’ll need to pay out of pocket for that as well.
PPO stands for preferred-provider organization. Its premiums tend to be higher than a HMO, but you get more flexibility since you don’t need to select a PCP and the networks tend to be larger. You can use both in-network and out-of-network care, though out-of-network providers will cost more. You’ll also need to pay a deductible and will have an out-of-pocket maximum for in-network care.
HDHP stands for high-deductible health plan. It is a plan that has a higher deductible than a traditional healthcare plan and typically has a lower monthly premium. However, as the name implies, you will need to pay more out of pocket than traditional healthcare plans before insurance and out-of-pocket maximum will kick in.
The IRS defines a high deductible health plan as having a deductible of at least $1,350 for an individual plan and $2,700 for a family.
A HDHP usually allows you to open a Health Savings Account, which lets you save pre-tax dollars in a special account to pay for qualified medical expenses. Some employers also pay into the account, so if your employer is one of them, you may want to take advantage of that.
EPO stands for exclusive provider organization. The plan is restrictive in that you need to use in-network doctors and hospitals and you’re not allowed out-of-network care unless it’s deemed an emergency. You don’t need referrals for specialists, but you will need permission from your provider before getting what it considers an expensive service.
POS stands for point of service plan and are a cross between PPO and HMOs. This means you can choose between using HMO or PPO services each time you go visit a doctor. You’ll typically need to choose an in-network physician as your primary care provider but you can choose to see an out-of-network for a higher fee.
Choosing the Right Health Insurance Plan
When it comes to choosing the right health insurance plan, remember that everyone’s situation different. The plan you choose will depend on how often you’ll visit the doctor, available networks in your area, and overall costs of a health insurance plan, among other things.
For example, if you visit your doctor pretty regularly and anticipate that continuing in the future, you may be better off with an HMO or PPO, depending on how much flexibility you want in choosing doctors. On the other hand, if you don’t go to the doctor that often, a HDHP might be a better choice since you could pay much less overall.
One strategy to try is to compare and calculate the costs of different plans to see how each would impact your monthly budget in terms of its deductibles or monthly premiums. Choose the one that has a monthly cost you can afford, with the lowest possible deductible.
But cost isn’t the only factor – you’ll also need to factor in how much you’re willing to pay for greater flexibility and wider access to more doctors and facilities.
Only you know your situation and needs, so do you research by reading reviews on health insurance providers, and comparing plans. If you are choosing a plan through work, meet with your HR representative and let them help you make sure you get the right coverage for you.