If you don’t understand common health insurance term, you may choose the wrong plan for your needs or lose out on benefits. Here’s run-down with definitions taken from a mix of health insurer websites, health.com and Money Under 30.
Premiums – The monthly fee for your insurance. If you belong to an employer-sponsored plan, the premium is likely deducted from each paycheck as pre-tax dollars. If you purchase your own healthinsurance plan, you may have the option to pay your premium annually, quarterly, or monthly.
Co-pays – A fixed amount you pay for a health care service. The amount can vary by the type of service. You may also have a copay when you get a prescription filled.
Co-insurance – Your share of the costs of a health care service. It’s usually figured as a percentage of the total charge for the service. Typically, the lower a plan’s monthly payments, the more you’ll pay in coinsurance. Co-insurance is in addition to your deductible. So if your plan has a $100 deductible and 30% co-insurance and you use $1,000 in services, you’ll pay the $100 plus 30% of the remaining $900, up to your out-of-pocket maximum. I don’t think I’ve ever had a plan with co-insurance, hence my confusion.
Deductibles – Amount you pay for health care services before your health insurance begins to pay. Let’s say your plan’s deductible is $1,500. That means for most services, you’ll pay 100% for most of your medical and pharmacy bills until the amount you pay reaches $1,500. After that, you share the cost with your plan by paying coinsurance and copays.
To add to the confusion, your insurance often covers preventative health services from the get-go, meaning you don’t have to meet the deductible to get the benefit of lower co-pays. In other words, your insurer will cover most of the bill and you just pay the co-payment.
Out-of-Pocket Maximum – It is the most you will ever have to pay out of your own pocket for health care during the year, not including premiums, but definitely including the deductible AND the copays and coinsurance you will continue to pay after you hit the deductible. If you hit your OOP for the year, your insurance will pick up 100 percent of costs thereafter. The trick is: You are responsible for letting the insurance company know when you meet or exceed the deductible.
Finally, my Woman/Man on the Street thoughts and revised definition of the above terms.
Premium – First, why is this called a Premium? That makes it sound like a privilege or reward. No, it’s just money you pay to get insurance in the first place.
Co-pays – In addition to premiums, you also pay co-pays for doctor visits, hospitalization, medication and other medical-related services and supplies.
Co-insurance – In addition to premiums and co-pays, you may also have to pay co-insurance. I don’t know why.
- Co-pays and Coinsurance seem like the same thing but they’re not! Does it really matter if you call it a co-pay or co-insurance if you’re paying?
Deductibles – After paying premiums, you pay X-amount in deductibles BEFORE you can even get the benefits of having insurance. That’s right. You pay for insurance premiums which are not cheap, and then you have to keep paying 100% until you reach that magic deductible amount. I’ve been fortunate to have zero deductible plans but if you don’t, you probably have to track of your spending and let the insurance company know that you met the deductible amount.
Out-of-Pocket Maximum – If you’re “lucky” enough to rack up tons of medical bills in one year, you may meet the out-of-pocket maximum. After you hit this magic number, you are not responsible for any co-pays or co-insurance.
- Deductibles and Out-of-Pocket Maximum seem like the same thing, but they’re not!
Do you have a headache yet? No wonder we can’t solve world hunger. We’re too busy trying to figure out health insurance. If you can come up with better definitions, please do so in the comments.