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Top seven health insurance terms to know

Written by: Elizabeth Walker
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Published on August 12, 2022.

If you’re new to health insurance policies or shopping for a plan on the individual market for the first time, understanding health insurance terminology is one of the first challenges you may face. For instance, choosing the best health insurance coverage can be tricky if you don’t know the difference between a premium and a deductible.

But don’t worry! In the guide below, we’ll walk you through the seven most common health insurance terms you need to know to understand your health insurers’ options during your annual enrollment period.

Find out how the individual coverage HRA (ICHRA) can reimburse your health insurance premiums in our guide

1. Premium

There are many different types of health insurance plans, such as a health maintenance organization (HMO), preferred provider organization (PPO), or high-deductible health plan (HDHP). But there’s one thing all health coverage has in common—a premium.

Your premium is the dollar amount you pay to the health insurance company to maintain active coverage. Most people pay theirs monthly, but depending on your type of health plan, your payments could be once a quarter or once a year.

When you’re researching plans, it’s usually the first cost you’ll see and consider when budgeting your monthly medical costs. However, it’s best to consider all costs when choosing a health plan.

For instance, a plan with a low monthly premium might have a higher deductible or copayment, which could increase the amount of your total out-of-pocket cost if you frequently see primary care physicians.

Luckily, there are a few ways you can control premium costs. Federal programs and subsidies, like premium tax credits, are available for eligible lower-income individuals and families to offset the costs of health insurance premiums for plans purchased on the marketplace.

If you have an HRA health benefit, you could get tax-free reimbursements on insurance premiums. You’ll want to check if the type of health insurance you choose qualifies and if your premium will be fully or mostly covered with your given allowance amount.

2. Deductible

A deductible is the dollar amount you’re expected to pay on your own for any covered medical services before your health insurance company starts to pay. For instance, if your plan has a $4,000 annual 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 for the rest of the year.

A plan can have a comprehensive deductible for all services or a separate deductible for specific essential coverage, such as prescription drugs. However, plans often cover the cost of things like network doctor’s visits even before you’ve paid your full deductible amount.

Generally speaking, plans with lower deductibles offer more comprehensive health insurance coverage, but have higher premium costs. Plans with higher deductibles tend to have lower premium costs. Evaluating your individual or family coverage needs and specific medical conditions may help you decide the right deductible amount for your budget.

3. Copayment

A copayment, or copay, is a flat dollar amount you’ll pay your primary care provider for a covered service. Generally, copays won’t count toward your deductible. However, this depends on your plan, so you should read your plan details carefully or call your health insurer to find out what your specific tier of coverage allows.

Copays can vary depending on the kind of service you’re getting and what network providers you choose. For example, you may have to pay a $250 copay for emergency room care, a $20 copay for visits to primary care physicians, and a $10 copay for each generic drug you get filled at your pharmacy.

Copayments vary from plan to plan, but even though they’re usually smaller amounts, these payments can add up over time. If you visit your network doctor often, you should look for a plan with an affordable copay amount to maximize your overall health savings.

4. Coinsurance

Both copayments and coinsurance are ways for health insurance companies to spread risk among their plan participants. Coinsurance is the percentage of costs you pay each year toward covered health services, including your deductible, copay, and coinsurance.

For example, if a plan has a 30% coinsurance payment, health insurance companies will cover 70% of the charges for any covered medical services, leaving you responsible for the remaining 30%. Until your deductible is met, you must typically pay 100% of these expenses.

Coinsurance can also significantly affect the price of your insurance premium. As with deductible amounts, health insurance plans with low premiums have higher coinsurance, and health coverage with higher premiums has lower coinsurance.

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 period of time, typically a full benefit year.

Out-of-pocket maximum amounts can help an insured person avoid significant financial pitfalls associated with high medical costs in years when they need a lot of treatment because they’ll know what their set out-of-pocket limit will be ahead of time.

There are some limitations on what can count toward out-of-pocket maximums, though. The maximum will vary from plan to plan, but it includes copays, deductibles, and coinsurance costs. However, your out-of-pocket maximum doesn’t include your premium cost, out-of-network services, or any medical expenses your plan doesn’t cover.

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 medical expenses, as long as it’s considered essential coverage and in your network of providers.

For 20221, the out-of-pocket limit for a health insurance marketplace plan is $8,700 for individual coverage and $17,400 for a family plan.

6. Pre-existing condition

A pre-existing condition is any disease, disability, or health condition you have before enrolling in health coverage with an insurance company.

Before the Affordable Care Act (ACA), health insurers in the individual market used medical underwriting in nearly every state to examine individuals’ medical histories. This meant they could reject applications altogether, charge higher monthly premium costs, deny services, or institute a waiting period for people with pre-existing conditions. Today, denying coverage for pre-existing conditions reflected in your medical records is illegal in most cases, although there are a few types of health insurance where it’s still allowed.

If you’re on a short-term health plan or have to renew your individual plan every 3-6 months, you should confirm your covered benefits. Your insurance company may be able to deny you coverage based on your previous medical history or pre-existing condition.

7. Medicare

Medicare is a federally funded health insurance program for people age 65+ or people with disabilities. The original Medicare plan has two parts. Part A is hospital insurance plan that covers hospital services, hospice, inpatient care, and skilled nursing care. However, Part A doesn’t cover custodial or long-term care.

Medicare Part B is medical insurance coverage for physician services, medical supplies, and clinic care. Remember that you may have to use the plan's medical provider and hospitals to get medical attention.

There are also Medicare Advantage health insurance programs that Medicare approved, but run by private health insurance companies.

With this type of plan, you typically will receive:

  • All your Medicare-covered healthcare through the plan
  • Prescription drug coverage
  • Extra benefits without additional charges, such as medical transportation, vision, hearing, and dental coverage, or health and wellness programs
  • Lower out-of-pocket medical expenses than the original Medicare plan

Conclusion

With a good understanding of common healthcare lingo, you should be able to shop for a health insurance plan without added stress. Choosing your own health insurance plan empowers you to control your budget and medical care, rather than being lumped in with a group insurance health plan that may not fit your needs.

Health insurance shopping is even better when you have an HRA to get tax-free reimbursements on your premiums and medical expenses to allow for flexible spending. If your employer offers an HRA as a health benefit, check out the HRA’s summary plan description for details so you can choose the right plan.

This article was originally published on June 10, 2021. It was last updated on June 2, 2022.

1https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/

Originally published on August 12, 2022. Last updated August 12, 2022.
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