According to a recent survey, only 14% of Americans understand all four of these basic health insurance terms: deductibles, co-pays, co-insurance, and out-of-pocket maximums. And yet with the individual mandate, an increase in consumer driven health plans and defined contribution, and the new health insurance exchanges, more consumers than ever will be in the driver's seat with health insurance. While the Affordable Care Act aims to make buying health insurance easier and more transparent, Americans still need to have a base understanding of how insurance works.
Here are the four health insurance terms all Americans need to know.
The deductible is the amount you must pay for covered services before your health insurance begins to pay. Insurers apply and structure deductibles differently. For example, under one plan, a comprehensive deductible might apply to all services while another plan might have separate deductibles for covered services such as prescription drug coverage. Deductibles can significantly affect the price of your insurance premium. Typically, plans with lower deductibles offer more comprehensive coverage but have higher premium costs.
A co-pay, or copayment, is a flat dollar amount you will pay your healthcare provider for a covered service. For example, you may have to pay a $30 copayment for each covered visit to a primary care doctor, and $10 for each generic prescription filled. Copayments vary from plan to plan and are sometimes different depending on the type of covered service you receive.
Co-insurance is the percentage of allowed charges for covered services that you're required to pay. For example, your health insurance may cover 70% of the charges for a covered hospitalization, leaving you responsible for 30%. This 30% is known as the co-insurance. If the plan has a deductible, you usually pay the co-insurance for covered services after your deductible is met. Co-insurance can also significantly affect the price of your insurance premium. Typically, plans with lower co-insurance have higher premium costs.
4. Out-of-Pocket Maximum
An out-of-pocket maximum is the maximum amount of money you will pay for covered services during a benefit period (for example, over the course of a year). The out-of-pocket maximum never includes your premium, balance-billed charges, or services your health insurance plan doesn’t cover. The out-of-pocket maximum will vary from plan to plan but can include copayments, deductibles, and co-insurance. Once you have paid the full amount toward your out-of-pocket maximum, your insurance will pay 100% of the allowed amount for your covered healthcare expenses.
For more health insurance terms, see this list of 73 health insurance terms.
This article was adapted from an article posted on our employee and consumer blog.
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