Photo (cc) by CJ Sorg
Now that we’re all being required to buy health insurance thanks to the Patient Protection and Affordable Care Act, it would be nice if we understood what we’re getting, right?
Unfortunately, a study published last month in the journal Health Affairs raises some serious doubts about whether we really understand what the insurance companies are selling us.
Researchers from the Urban Institute surveyed more than 7,000 people between the ages of 18 and 64 and found that not quite half said they weren’t even somewhat confident they knew the meaning of nine common health insurance terms. Among the uninsured, fewer than 1 in 4 said they knew the meaning of all these common words and phrases.
These are the terms that tripped them up:
- Maximum annual out-of-pocket spending.
- Provider network.
- Covered services.
- Annual limits on services.
- Excluded services.
In case you’re scratching your head over some of these terms too, here’s a handy guide to help clear the confusion.
The premium is the amount you pay to the health insurance company to keep your policy in effect. Think of it as your membership fee. Premiums are often assessed on an annual basis but may be paid monthly, quarterly or biannually depending on your insurer.
More than three-fourths of those surveyed by the Urban Institute said they were somewhat or very confident they understood what a deductible meant. That’s good, because a deductible can add up to some serious cash coming out of your pocket.
However, less than half of those who are uninsured understood deductibles. If you fall into this category, pay close attention.
A deductible is the annual out-of-pocket cost you pay before your health insurance coverage kicks in. So if your deductible is $1,000, your insurance company will not pay for a dime of your care (other than for some preventive services mandated by the health reform law) until you pay $1,000 out-of-pocket in medical costs. And no, your premium payments don’t count toward the deductible.
Here’s an example: Let’s say you have a policy with a $5,000 deductible, and you need an MRI. Other than one doctor office visit, you haven’t had any other medical care for the year. The MRI costs $3,000. Now, how much is the insurance company going to contribute toward that $3,000? Zero. That’s right. Zip. Zilch. Nada. It’s all on you.
Understanding your deductible is crucial because in order to keep premiums low, some insurance companies are raising deductibles. A high-deductible plan can make perfect sense for some people, but if you have a chronic condition or need regular medical care, you might want to keep shopping.
Co-pay is the most widely understood health insurance term, according to the Urban Institute survey. A co-pay is your portion of the bill after the deductible has been met. Co-pays are fixed rates, such as $20 per office visit.
While most people are confident they know what a co-pay is, coinsurance is the least understood term. Only 57 percent of all survey respondents said they felt somewhat or very confident they knew what the word meant, and less than a third of those uninsured said the same.
However, coinsurance is almost the same thing as a co-pay. It’s your portion of a medical bill. The only difference is that coinsurance is a percentage while a co-pay is a fixed amount.
You might see coinsurance referred to in terms of 80/20 or 70/30 coverage. Those numbers mean you pay for 20 percent or 30 percent of the bill, respectively. Then, your insurance company will pick up the tab for the rest of the approved amount.
5. Maximum out-of-pocket annual spending
You want this number to be as low as possible. Maximum out-of-pocket annual spending means that once you have paid a certain amount for the year, your insurance company will begin paying 100 percent for all covered services. Your co-payment and coinsurance requirements essentially disappear at that point.
In 2014, health insurance sold on the government exchanges cannot have out-of-pocket spending limits higher than $6,350 for individual plans or $12,700 for family plans. Be aware that premiums and some costs you may have to pick up for out-of-network care do not count toward this out-of-pocket maximum.
6. Provider network
It’s unusual to find a health insurance plan that doesn’t include a provider network nowadays. The network includes all the providers who have an agreement in place with the health insurance company to accept patients from their plans. The agreement typically also stipulates an acceptable price for the provider to charge for certain services.
If you use a provider outside your health plan’s network, your insurer could charge you a higher co-pay or coinsurance or they could refuse to pay your bill altogether. Before switching plans, always check to see if your preferred health care professionals and facilities are in the provider network.
7. Covered services
Just like it sounds, covered services are those your health insurance plan will pay. Under the Affordable Care Act, there are 10 essential health benefits all plans must cover. These range from mental health services to prescription drug coverage.
For everything else, it’s up to the insurer to decide what’s offered in the plan. If it’s important that you have a certain benefit, such as chiropractic care, make sure it is in a plan’s covered services before signing up.
8. Excluded services
After coinsurance, excluded services got the second lowest vote of confidence in the Urban Institute study. However, excluded services are just the opposite of covered services. They’re items your health insurance plan specifically says it won’t cover. Examples of commonly excluded services may include cosmetic surgery or weight loss regimens.
9. Annual limits on services
Health insurance companies sometimes limit how much they will pay for some covered services. Going back to chiropractic care as an example, a health plan might include coverage but limit you to 20 visits per year. Once you hit the limit, you have to pay 100 percent out-of-pocket for future chiropractic care.
Annual limits on services can also be dollar amounts. Once a company has paid a certain amount, they may stop paying for that particular service.
Congratulations! You made it to the end. Reading about health insurance may be about as much fun as studying for college final exams, but your wallet will thank you when you pick a plan that covers the care you need and doesn’t leave you to foot the bill.