If your employer is offering a health reimbursement arrangement (HRA), chances are you’re going to be shopping for your own individual health insurance—maybe even for the first time.
After all, the Kaiser Family Foundation finds that nearly half of covered Americans have an insurance plan that’s provided by their employer.
If you’re new to the health insurance market, don’t worry! We’ll walk you through the five most common health insurance terms you need to know when choosing a health insurance plan so you can understand your options.
Your premium is the dollar amount you pay to the health insurance company each month to maintain your coverage. When you’re researching plans, it’s usually the first cost you’ll see and consider when budgeting your monthly health costs.
If you have an HRA, you can get tax-free reimbursements on insurance premiums, so you’ll want to check to see if you’re choosing a plan that qualifies, and if your premium is affordable given your allowance amount.
A deductible is the dollar amount you’re expected to pay on your own for any covered services before your health insurance starts to pay for anything. So if your plan has a $4,000 deductible, you’ll pay $4,000 on your own, then your insurance company will pay for the rest of your expenses, or cover a set percentage.
A plan can have a comprehensive deductible that applies to all services, or separate deductibles for specific covered services, such as prescription drug coverage.
Generally speaking, plans with lower deductibles offer more comprehensive coverage, but have higher premium costs, while plans with higher deductibles have lower premium costs. Evaluating your family’s specific healthcare needs may help you decide what the right deductible amount is for your budget.
A copayment, or copay for short, is a flat dollar amount you’ll pay your healthcare provider for a covered service, even if you’ve already met your deductible. For example, you may have to pay a twenty dollar copayment for each covered visit to a primary care doctor, or ten dollars for each generic prescription you get filled.
Copayments vary from plan to plan, but they’re usually smaller amounts between ten and fifty dollars. However, these small payments can add up over time, so if you visit your doctor often, look for a plan with an affordable copayment.
Coinsurance is the percentage of costs of a covered healthcare service you pay after you’ve met your deductible. For example, if a plan has a 30% coinsurance, that means your health insurance will cover 70% of the charges for any covered services, leaving you responsible for the remaining 30%.
Just like with deductible amounts, usually the higher your coinsurance is, the lower your monthly premium will be.
5. Out-of-pocket maximum
An out-of-pocket maximum is just what it sounds like: the maximum amount of money you’ll pay for covered services during a benefit period. Your out-of-pocket maximum doesn’t include your premium cost, out-of-network services, or any expenses your health insurance plan doesn’t cover.
The out-of-pocket maximum will vary from plan to plan, but it can include copayments, deductibles, and coinsurance costs. Once you’ve paid the full amount toward your out-of-pocket maximum, your insurance will pay 100% of the allowed amount for your covered healthcare expenses.
Shopping for your own individual health insurance plan empowers you to choose a plan that works for your specific budget, healthcare needs, and family situation, rather than being lumped in with a group health plan that may not fit your needs. It’s even better when you have an HRA to get tax-free reimbursements on your premium costs and qualifying medical expenses.
This article was originally published on October 24, 2013. It was last updated June 10, 2021.