I have a confession. I never fully understood how health insurance works until I became a health care provider. As a consumer I often relied on my providers to tell me what was my responsibility to pay, or I just waited to receive my bill and be surprised (usually not in a good way). I now realize how important it is for consumers to learn about their insurance benefits so they can make more informed decisions about their healthcare. This post will be the first of several to help you more effectively use your benefits and advocate for yourself with your insurance company, and with your healthcare providers.
In order for you to understand your benefits, you need to understand the language that insurance companies use. I will share what I consider to be the most important terms for you to know, and provide you with information about an often underutilized tool to help you pay your out-of-pocket health care costs.
[DISCLAIMER: I strongly encourage you to verify your benefits with your insurance company before seeking health care or making important decisions about your plan. I am not a health insurance benefits specialist, nor a representative of your insurance company.]
Premium. This is a flat amount that you must pay each month for the duration of your coverage period, which is usually one year. If you do not pay this amount each month, your insurance company will end your coverage. If you receive health insurance through your employer, this cost is shared between the two of you. Generally, the lower your monthly premium, the more you’ll pay in out-of-pocket costs such as deductibles, copayments, and coinsurance – however, choosing in-network providers can significantly reduce your out-of-pocket costs (see below).
Deductible. This number is arguably the most important to determining whether you can afford a given health care service. It is the amount that you must pay out-of-pocket before your insurance company will provide coverage for the services that you receive. Your plan will have a deductible amount if you are an individual. If your spouse and/or family are also covered under your plan, there will be additional deductibles for them or one higher family deductible amount. If this number is greater than you can afford to pay out-of-pocket, then it can be a significant deterrent to you seeking healthcare (read about possible solutions to this below). When it comes to your deductible, you want to read the fine print and the footnotes. On the negative side, your prescription drug coverage may also be subject to your deductible, and some expenses that you pay may not count toward paying your deductible. On the positive, there may be services for which the deductible is waived such as preventative services and in-network physician and mental health office visits. If you have immediate coverage for some services, you may as well use them because you are paying that monthly premium amount no matter what.
Out-of-Pocket Maximum/Limit. This is the amount that is designated as the most you will be required to pay out-of-pocket during your coverage period (usually one year). After you have paid this amount, your insurance company will cover 100% of your healthcare costs. This provision is put in place (theoretically) to protect you from financial ruin if something catastrophic happens, such as an accident or serious illness, if you require an expensive surgery, or if you develop a chronic health problem. Needless to say, this number can be quite high for many plans. Note that not all of your expenses will count toward the out-of-pocket maximum; your premiums do not count. Important: Pay attention to the difference between your deductible amount and your out-of-pocket maximum amount. I have noticed that these two amounts on some low-premium plans are very close and very high. If your deductible is almost as high as your out-of-pocket maximum, you are essentially paying for the majority of your health care expenses out-of-pocket barring a catastrophic occurrence.
Copayment. Copay for short. This is a set amount that you will automatically pay when you receive certain health care services, such as office visits, emergency services, or admission to a hospital. You will be asked to pay this amount at the time of services. Be aware that if you have not paid the full amount of your deductible, you may also have to pay for additional charges beyond your copay. Your insurance company does not pay for most services until you’ve met your deductible (see above).
Coinsurance. This refers to the shared costs of services between you and your insurance company, expressed as a percentage or a ratio. For instance, if you see “35% coinsurance” on your benefits summary, it means that you are responsible for paying 35% of what a provider charges and your insurance company pays 65%. If you see “50/50,” it means that the fees are split equally between you and your insurance company. Sometimes coinsurance and copay are combined, such that you pay your set copay amount ($35 for instance) and then you pay your coinsurance percentage of the additional fees. Again, be aware that your insurance company will not pay their portion of coinsurance until after you’ve met your deductible for most services (see above).
In-Network. This refers to providers and facilities who have contracted with your insurance company, often at a rate lower than what they usually charge, in exchange for increased access to you and other members. It is a way for insurance companies to control costs. Your insurance company creates incentives for you receive care from in-network providers by offering lower deductibles and better coverage than they do for out-of-network providers. Some plans waive the deductible entirely for certain in-network services, such as physician and mental health office visits. Beware that some plans do not offer out-of-network benefits at all, so if you are in a position to choose between insurance companies you will want to select one that has enough available in-network providers in your area.
Out-of-Network. These are providers and facilities who have not signed a contract with your insurance company. If you have out-of-network benefits, your insurance company may cover your services with these providers. Your out-of-pocket expenses will likely be greater, however, you may be willing to pay more if working with a particular out-of-network provider is in your best interests. If you’d like to work with a provider who is out-of-network, I encourage you to inquire with them directly about your options. They may be willing to work with you by reducing fees or creating a payment plan.
Covered vs. Non-Covered. Insurance companies designate whether or not they cover certain conditions and whether or not they cover certain types of services. There are several factors that determine this. First, there may be services that your specific plan does not cover. For instance, some plans do not cover alternative health care, such as chiropractic and acupuncture. Similarly, there are some conditions or diagnoses that an insurance company may not cover, such as conditions that they consider to be cosmetic. Often they base their decisions on whether or not they deem that there is medical necessity (see below). Fortunately there are federal and state laws that dictate that certain conditions and services must be covered. However, if your situation falls outside of those parameters, your coverage or lack thereof is dependent upon your insurance company’s policies and your specific plan. You are responsible for paying for non-covered services, and for services received for non-covered conditions and diagnoses. When in doubt, contact a member representative to verify whether a service is covered or you may be responsible to pay for it out-of-pocket.
Medical Necessity. This concept is applied to whether or not an insurance company chooses to cover a particular condition or service. If they deem a condition or service not medically necessary, and there is no law requiring them to provide coverage, they may choose not to cover your costs. Important: Even if you have a covered condition or diagnosis, there may be services that you receive from a provider that are not covered and therefore will not be reimbursed by the insurance company. The insurance company also designates which services are medically necessary treatments for a given covered condition or diagnosis. When in doubt, contact a member representative to verify whether you will receive coverage or you may be responsible for paying out-of-pocket.
Prior Authorization. Your insurance company may require you to essentially get their permission ahead of time for certain services and procedures. This will be designated in your plan benefits summary, and usually applies to surgeries, hospital stays, and inpatient mental health and substance abuse treatment. If you fail to obtain prior authorization, your insurance company may refuse to cover your costs or may impose a penalty which will result in you having to pay more out-of-pocket. Often, your health care provider will be aware of prior authorization and will even call your insurance company on your behalf to obtain it. However, it is ultimately your responsibility to make sure that this is done. Fortunately, prior authorization does not apply to services and procedures that you may receive in emergencies. However, your insurance company’s opinion of an emergency may differ from yours. When in doubt, contact a member representative.
HSA’s, FSA’s, and HRA’s. I don’t like acronyms myself, but our health care system loves them. Health Savings Accounts, Flexible Spending Accounts, and Health Reimbursement Accounts are becoming a MUST HAVE in my opinion to offset the high deductibles that are becoming commonplace these days. FYI, a high deductible is considered to be $1,300 or more. You read that right. Who has a deductible below $1,300 anymore? Opening one or more of these accounts is a way for you and/or your employer to save money to help you pay your out-of-pocket health care costs before you have met your deductible. Money that is deposited into these accounts directly from your paycheck is not taxed. HSA’s seem to have some significant benefits over the other two – you can open them through your employer, your health insurance company, or even a bank; you own the account so you decide how you use the funds; unused funds roll over at the end of your coverage period into the next. Read more about all three types of accounts here and here.
If you’ve made it this far, I commend you on your fortitude. It is overwhelming and sometimes distressing to navigate our health care system. However, I hope that this information will help you feel more empowered to take control of what you can control. If you are a consumer of mental health services, you may be interested in reading my post about Mental Health Parity. It will help you determine if your plan is in compliance with state and federal laws that require insurance companies to provide equal coverage for mental health and substance abuse treatment with medical/surgical treatment.