Health Insurance Terminology Basics

So you've been tasked with choosing a health insurance plan for your company. Sounded simple until you looked at the brochures and realized they were written in a foreign language.

Before you can choose a plan, you must understand the terminology. The following is an explanation of basic health plan terms; what to watch for and what to watch out for.

Co-Pay

Co-pays are the up-front fees you pay for visits to primary care physicians or general practitioners. In some cases, larger fees are charged for visits to a specialist such as an obstetrician or a dermatologist. These fees are always due at the time of your office visit. Typical co-pays range from $20-50.

If you receive medical treatment that is not covered by your co-pay, your charges will be subject to your deductible, co-insurance and out-of-pocket maximums. Charges that fall into this category are usually more serious in nature such as hospitalizations, surgeries, and major diagnostic exams such as an MRI or CT.

TIP: Understanding what is covered by your co-pay and what types of charges will be subject to your deductible is critical in understanding what your medical care will cost.

Deductible

This is one of the most important terms in understanding your health plan. The deductible is the amount of money you must pay if you receive medical treatment that does not fall under your co-pay. You are responsible for all charges incurred up to your deductible.

The Doctor is IN

Deductible amounts will be lower if you stay "in-network." In-network doctors have negotiated rates with your insurance carrier. If you go outside of the established network, the insurance company pays a larger fee for service. Out-of-network deductibles are often three times the amount of in-network deductibles. Keep in mind that these two deductibles are independent of each other. That means that if you have satisfied your in-network deductible but then receive treatment from a doctor not in your network, you begin again with dollar one.

All in the family

Deductibles are typically listed for individuals only. Families have larger deductibles; usually three times the amount listed for individuals. So if you choose a plan for your company with a $1,000 deductible, it will have a $3,000 family deductible.

TIP: It is important to know if the family deductible is "embedded" or "aggregate." An aggregate deductible is one lump sum that all family members can contribute towards. If your family deductible is embedded, each family member must satisfy their own deductible. Children count as one family member; so mother, father, plus babies make three times the deductible. Embedded deductibles--the more expensive option--are more common than aggregate deductibles.

"Per Occurrence" Means "In Addition"

Watch out for hidden deductibles listed as "per occurrence" fees. These fees are always in addition to your established deductible. One place these fees can be found is in-patient hospital care. Some insurance plans include a per occurrence fee that can be a one time fee when the insured is admitted into a hospital, or a per day fee for each day a patient is hospitalized.

Co-insurance

Once you have satisfied your deductible, your co-insurance kicks in. Co-insurance is the amount of the medical charge that your insurance company will pay. You are responsible for the remainder of the charge. If you have 80 percent co-insurance, you are responsible for 20 percent of your medical charges.

Example: You are hospitalized and have already satisfied your annual deductible. Your hospital bill is $3,000 and you have an 80 percent co-insurance plan. You would be responsible for $600 of the bill, or 20 percent.

Out-of-Pocket Maximum

The Out-of-Pocket Maximum is the maximum dollar amount you will pay towards your co-insurance. Don't confuse this with the maximum amount of money you could pay in one year. The Out-of-Pocket Maximum comes into play after you have satisfied your deductible. To determine your total possible financial exposure, add your deductible to your out-of-pocket maximum. You should not pay more than the sum of these two amounts.