Whether you have health insurance through your employer or choose your own plan through the health insurance marketplace, you can’t choose the best plan for your needs — and budget — without understanding all the terms (and there are a lot).
Don’t get overwhelmed. Just master these health insurance terms to help you choose the plan that gives you the biggest bang for your buck.
A premium is the set amount you pay monthly to have health insurance. This is the figure that typically jumps out first, and it can vary widely from less than $100 to several hundred dollars a month.
Keep in mind: Plans with lower premium payments often come with higher out-of-pocket costs, such as deductibles and coinsurance rates. For someone with greater medical needs, a plan with a higher premium might save money in the long run, because it typically means paying less out of pocket for doctor’s visits and prescriptions.
This is the amount you are responsible for paying before the health insurance plan kicks in. For example, if your plan has a $2,000 deductible, you pay the first $2,000 before your plan will pick up part of the tab.
Under the Affordable Care Act (ACA), all plans sold in the marketplace cover preventive care, such as well-checks, immunizations and mammograms, at no cost, regardless of whether the deductible has been met. The deductible comes into play for additional health care services such as meeting with a specialist or undergoing surgery.
Coinsurance refers to the percentage of a covered health care service you will pay after your deductible has been met. A common coinsurance rate for many plans is 80/20, meaning the plan will pick up 80% of the cost, while the consumer pays the remaining 20%.
For example, say you already met your deductible and need an outpatient procedure that costs $4,000. Your insurance company is billed first, and they pick up 80% of the tab, so $3,200. You are then responsible for the remaining 20%, or $800.
A copay is a fixed amount that you pay. Copay charges are standard for many plans and often accompany doctor’s visits or prescription drugs. In contrast to coinsurance charges, a copay is a specified dollar amount usually paid at time of service rather than a percentage of the bill you're responsible for.
This is the most you will pay for your health insurance plan in a calendar year. If your plan has a $6,000 max out-of-pocket limit and you hit this limit, then you will have zero out-of-pocket costs for the rest of the year, aside from your premium payments.
For example, say your plan has a $3,000 deductible, an 80/20 coinsurance rate and a $5,000 max-out-of-pocket limit. After you meet your $3,000 deductible, you then pay 20% of health care costs until you reach $5,000. At that point, you are only responsible for the monthly premium payment, while your plan picks up the rest of your health care costs.
A high-deductible health plan is just what it sounds like — you’ll have a higher deductible than with other plans, but your premium will be lower. If you only see a doctor once a year for an annual physical (which, as standard preventive care, is free), this plan could be the most cost-effective. However, if your health insurance needs go beyond the bare minimum, the cost for any non-preventive services will fall to you — until you meet your deductible, which will likely be a few thousand dollars.
If you go with an HDHP, a health savings account can help you offset some of the costs (and is only available to HDHP participants). This account lets you set aside pre-tax dollars to help pay for out-of-pocket medical expenses, and some employers will also contribute to these on your behalf. There are annual limits to how much you can contribute — for 2019, it’s $3,500 for an individual.
A flexible savings account is similar to an HSA in that it lets you set aside pre-tax money from your paycheck to cover health-related costs. But unlike an HSA, you’re not required to pair it with an HDHP, the contribution limits are lower and what you don’t use in a year will not roll over to the next, meaning if you don’t use it, you lose it. You get this through your employer.
One of the most common types of health insurance plans, a health maintenance organization is typically considered one of the most affordable options, because of its low premiums. However, if you choose an HMO, you’ll only have coverage in-network, meaning if you go out of network (say, for a specialist) you’re responsible for 100% of the cost.
The other most common type of plan is a preferred provider organization, which offers more flexibility than an HMO, but usually higher premiums. With a PPO plan, services are cheaper if you stay in network; out-of-network services are typically covered, but usually at a much lower rate than if you stay in network.