These 9 Health Insurance Terms Confuse You … and Everybody Else

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:

  • Premium.
  • Deductible.
  • Co-pay.
  • Coinsurance.
  • 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.

1. Premium

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.

2. Deductible

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.

3. Co-pay

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.

4. Coinsurance

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.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

Have You Heard of This Best Place to Retire in 2020?
Have You Heard of This Best Place to Retire in 2020?

The best place to retire in America is one you likely are not familiar with.

13 Smart Tricks to Organize Every Room of Your Home
13 Smart Tricks to Organize Every Room of Your Home

Get your household organized with these brilliant and inexpensive tricks.

17 Items Under $40 That Will Organize Your Home
17 Items Under $40 That Will Organize Your Home

These clever products on Amazon can help transform a messy nest into the pristine home of your dreams.

20 Surprising Things You Can Sell for Extra Money
20 Surprising Things You Can Sell for Extra Money

From your closet to the beach, the trash you find may be someone else’s treasure.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.