Guide to Understanding Your Health Insurance Options
Looking at your medical bill can be like looking at an alien language. Health insurance comes in many different forms and with many different types of plans and benefits, so it’s important to understand how health insurance works in order to find the best plan for you and your family. Who wants to be caught unawares should a large medical emergency strike, or charged incorrectly for services? Here is a basic overview of important terms, types of coverage and some questions to help you decide the right direction to go in when looking for the best coverage.
Important Terms
Part of what makes health insurance coverage so confusing is that there is a lot of jargon being thrown around. In order to understand health insurance, it’s helpful to learn a little bit of the language.
Premium:
This is simply the amount of money you pay your insurance company each month for coverage. Some employers cover the monthly premium.
Deductible:
This is the amount of money the insured is responsible for paying before receiving benefits from the insurance plan. A $5,000 deductible, for example, means the insurance won’t start covering benefits until the insured has paid $5,000 for expenses first. A higher deductible generally has a lower premium. Some services, like doctor’s visits, do not require the deductible to be met and may instead have a co-pay. The deductible is annual, so it will start over again every year.
Co-pay:
This is the agreed upon amount that the insured and the insurer split for services like doctor’s visits and prescriptions. For example, a general doctor’s visit could have a flat $40 co-pay.
Co-insurance:
This would be your share of costs for services as determined by the plan’s rules, calculated as a percent. For example, your health insurance company could agree to pay 80% of a doctor’s visit, leaving you responsible for paying the remaining 20%.
Exclusions:
Everything the insurance plan will not cover. Be sure to take note of what is outside the scope of your insurance. For instance, chiropractic, mental health and alternative remedies are sometimes not covered.
Out-of-pocket:
These are all the expenses that you would be required to pay, including exclusions, co-pays and premiums. An out-of-pocket maximum is the most amount of money the insured would hypothetically have to pay on an annual basis.
Lifetime maximum:
This maximum puts a cap on the amount of money the insurance policy will spend on the insured over the course of the person’s life. Individual and family maximums can be different.
Pre-existing conditions:
If you have a disease or health complication before you apply for health insurance, this is known as a pre-existing condition. Heretofore, insurance companies would notoriously deny coverage or spike up premiums for people with pre-existing conditions. However, starting in 2010 under the Affordable Care Act, insurers cannot deny coverage to children with pre-existing conditions, and in 2014 this clause will expand to include adults. Check your state’s policies for information on whether it is currently legal to deny coverage based on pre-existing conditions.
Coordination of Benefits:
This means that if you have two different insurance plans, one personally and one from your employer, you will not get double benefits. The two companies will communicate to split the costs.[1]
Types of Coverage
Not all insurance plans operate under the same rules, and there are a ton of different options out there. This is an arena where it pays to know the basic differences and benefits to the most common types of health plans. There are pros and cons to each.
1. Private Insurance
The most common types of insurance are “managed care” programs like PPOs, HMOs or a combination of the two. These are private insurance plans that provide a network of doctors, hospitals and health care providers to choose from. When employers provide health insurance, it is usually a PPO or HMO. It’s important to know the difference between them.
Preferred Provider Organization:
PPOs are generally more expensive than HMOs because they are more flexible. PPOs offer a wide range of options for care, including a large network and the ability to go out-of-network without a referral from your primary care specialist. With PPOs, your co-payments will be higher than an HMO, and your deductible will usually also be higher. Also, there tends to be more paperwork and a more complex billing process with PPOs, since there are more moving pieces than in an HMO.
PPOs are good for those who prioritize flexibility of options and don’t mind paying more for that freedom.
Health Maintenance Organization:
HMOs are less expensive and more centralized. HMOs offer fewer options for care, have a smaller network and require permission to seek care outside of the network. Co-payments and deductibles are generally lower than PPOs and you won’t usually have to pay co-insurance. Most costs for care are covered under your plan, but your options will be fewer. Generally, you will have one primary care physician and you will need a referral for a specialist. If you do seek care out of network, you may have to pay the full cost.
HMOs are good for people who want to pay less for health insurance, prefer to have more certainty about costs, and would rather have one primary care physician or hospital than a large network of options.
Point-of-Service Plans:
POS plans are a combination of PPOs and HMOs. Generally structured like an HMO with a primary care provider, small network and lower costs, a POS plan is less strict about seeing doctors outside of the network. You may have to pay co-insurance or some part of the deductible, and you will need a referral, but it is a good option for people who primarily want an HMO with the flexibility to go out of network with less hassle if they need to. [2]
2. Government-Funded Insurance:
Medicaid:
This type of insurance covers low-income adults, families and children with limited resources. The Federal government sets baseline rules for Medicaid, but qualifications and benefits vary between states.
Medicare: Established as a complement to Medicaid, Medicare specifically covers low-income elderly adults aged 65 and over. Certain disabilities are also covered. There are two parts to Medicare, Part A, which generally covers hospital stays and Part B, which generally covers physician services. [3]
3. Consumer-Driven Plans:
PPOs, HMOs, Medicare and Medicaid are the most common types of plans you’ll hear about, but there are many other specialized types of plans, and some of these are worth a brief mention. Consumer-driven plans have been getting attention lately as a new option for health insurance that supposedly put the consumer back in control of their money. These are essentially health insurance savings accounts that offer the ability to put aside pre-tax dollars toward medical payments. The benefit of this is the “saving for a rainy day” mentality because funds are already available for medical expenses. Also, the funds can be used for either paying for non-plan services or for paying premiums on a managed care plan; consumer-driven plans can work in conjunction with PPOs or HMOs, or independently. With consumer-driven plans, the deductible is inherently high. There are three types of consumer-driven plans.
- Health Savings Account (HSA): This type must be paired with a high-deductible health plan. This is a personal health account, funded personally by pre-tax funds, and the money rolls over into the next year if it is not used.
- Health Reimbursement Arrangement (HRA): These are generally paired with a high-deductible health plan, but not always. HRAs are employer-funded, so the employer puts away a certain amount of money for the employee’s health expenses, determined by the employer, and the employer can decide whether to rollover funds each year. HRA accounts cannot be transferred to a new employer.
- Flexible Spending Account (FSA): This is an agreement between the employee and employer in which the employee sets aside healthcare funds from their paycheck to cover expenses, but unused savings do not carry over into the next year. FSAs can be combined with any other type of managed health plan. [4]
What’s NOT Health Insurance
During the process of searching for the right healthcare plan, be sure to stay away from gimmicks and scams.
Dread Disease Policies:
These plans only cover specific diseases like cancer, and are not comprehensive insurance plans. They are usually of poor quality and feed on people’s fears of getting cancer or other diseases. In some states, they are illegal.
Accident-Only Policies:
These are not a good value because they only cover medical emergencies related to non-illness accidents. It’s better to get a comprehensive plan that will cover both accidents and illness.
Supplemental Policies:
If you already have a good insurance plan, you can add on supplemental policies to cover anything not insured in the basic plan. MediGap is one example; the insured can buy options that are not in the original Medicare plan. However, realize these are not full insurance plans and are only supplementary. Additionally, be careful not to add supplemental policies if you don’t really need them; you might end up paying too much if you are over-insured.
“Discount” Plans:
These plans are all-around scams. They are not insurance plans at all, though they may fraudulently market themselves as such. Discount plans often offer similar-looking deals, like a membership card, a monthly premium and 25-30% off health services, however, they offer little to no follow-through on services, over-promise the availability of doctors in the network, and sometimes may even be completely fake. Discount plans prey on the uninformed, elderly and poor, so be sure not to fall into one of these traps. Make sure to verify that the insurance plan you are looking at is a well-known, legitimate company before buying in.
Stacked Policies:
These occur when a company offers a package of any aforementioned health insurance look-alikes, like a dread disease policy combined with an accident-only policy. These are not comprehensive insurance plans.[5]
How To Decide What’s Best For You
Everyone has different needs, different health concerns and different levels of income. Here are some basic questions to ask yourself when deciding on the right type of health insurance:
Affordability:
How much can you reasonably spend each month on health insurance? What’s your minimum? What’s the most you would be willing to spend? Premiums are not the only factor to consider when shopping for affordable insurance. Also consider how much you think is reasonable to co-pay for a doctor’s visit, and how much you would be able to spend in an emergency situation to reach your deductible. Higher deductibles generally have lower premiums.
Coverage and Benefits:
Not all plans are created equal. You’ll want to make sure preventative care, annual checkups and routine screenings are covered or affordable. Then, take stock of what you can expect for you and your family. Are you expecting a pregnancy? Do you need regular prescriptions? Are you predisposed and at high risk for a certain condition? Will anyone in your family need surgery? You can’t always anticipate which direction your health needs will go, but you can plan ahead with integrity.
Exclusions and Limitations:
In addition to looking at what your plan does offer, take into consideration what is missing. If acupuncture is important to your health and a plan does not offer it, consider going with one that does. Common exclusions include mental health, alternative medicine, substance abuse programs and cosmetic surgery.[6]
Summary of Benefits and Coverage
If, up to this point, your medical bill has confused you, you’re not alone. Health insurance companies are notorious for being unclear with the aforementioned jargon and the complicated medical billing and coding process. Starting in 2012 under the Affordable Care Act, health insurance companies are required to provide a clearly worded and understandable summary of benefits and coverage to all plan holders. Job-based plans must also adhere to these rules.
What’s in it:
A Summary of Benefits and Coverage (SBC) statement will include information like costs for common medical services, exclusions and limitations, how to contest a service charge, answers to frequently asked questions, explanations of terms and your rights for continuing or disputing coverage.
How to obtain an SBC statement:
You will receive an SBC statement every time you start a new policy, at every annual renewal and whenever you request one. This makes it easier for consumers to know exactly what they are receiving from their health policies.
Starting in 2014, certain health options will be required by law to be covered by all plans, including doctor services, hospitalizations, rehabilitation and mental health, pregnancies, prescription drugs and newborn care. Until then, make sure to read the fine print in your policy and don’t let any complicated medical billing and coding jargon keep you from understanding your options and rights. [7]
The Bottom Line
No one should have to wonder what they’re paying for in their health insurance bill, or be paying for services they either don’t need or can’t afford. Because there are a myriad of different options for health insurance on the market, and the healthcare arena is constantly shifting, it’s important to understand what options are available to suit your specific needs. Be sure to ask all the right questions and don’t worry if there’s something you don’t understand – most likely, it’s not you, it’s them! Informing yourself is the best thing you can do to get the best and most appropriate deal on health insurance, so be sure to spend the time to research your options and don’t forget to read the Summary of Benefits and Coverage.
[1] http://www.healthcare.gov/using-insurance/understanding/options/index.html
[2] http://www.consumerreports.org/cro/2012/09/understanding-health-insurance/index.htm
[3] http://www.asha.org/public/coverage/
[4] http://www.uhc.com/source4women/understanding_health_coverage/basics_of_health_coverage.htm
[5] http://www.healthcare.gov/using-insurance/understanding/basics/index.html
[6] http://www.uhc.com/source4women/select_a_plan/evaluate_plan_options.htm
[7] http://www.healthcare.gov/using-insurance/understanding/services/index.html