Heath insurance terminology can be very confusing. It is important to understand these definitions when choosing a policy or understanding coverage.
What is a Deductible?
The health insurance deductible definition, quite simply, is the amount of money the insurance company requires the subscriber to pay before the health insurance starts to pay claims. This money is called out-of-pocket money. Insurance companies also have maximum out-of-pocket costs (out-of-pocket max), which is the maximum amount of money each year that subscribers may have to pay. This out-of-pocket money, however, does not count towards premiums or balances billed from out-of-network healthcare providers. Providers who are not preferred providers of the insurance company may not even be covered by the insurance, or they may be covered for a reduced amount. That would leave patients responsible for the balance due. The insurance premium is what subscribers (and/or employers) pay to the insurance company for the coverage. Some subscribers may be enrolled in a high deductible health plan (HDHP) that “requires greater out-of-pocket spending, although premiums may be lower”.1 It is important to note that insurance companies separate out-of-pocket expenses based on the individual and the family. For example, an individual may have to pay $1000 out-of-pocket expenses, but the whole family may have a maximum of $11,000, after which the insurance company would pay 100% of covered expenses.2
What is Coinsurance?
Coinsurance, or co-insurance, is the shared cost of a service. It is a percentage of the allowed amount for that health care service. Coinsurance is paid in addition to deductibles. If the deductible has been met, then only the coinsurance would need to be paid (20%, for example), and the insurance covers the rest.3 Coinsurance is different from a copay, which is the “fixed amount you pay for a health care service, usually when you receive the service”. A doctor visit may cost $30, and a hospital visit may have a copay of $250, for example. A plan with a lower monthly payment will generally have higher coinsurance. For patients who use the pharmacy or doctor often, they might want a plan with a low copay for prescriptions and office visits.4
HMO vs. PPO and HSA vs. FSA
An HMO (Health Maintenance Organization) is an insurance plan where the patient receives healthcare from a network provider. A primary care physician (PCP) is the gateway to coordinate the care with specialists. The primary provider referrals to other care providers, if necessary. With a PPO (Preferred Provider Organization), there is a network of preferred providers, and referrals are not needed. If a patient sees an out-of-network provider, however, the services may not be covered, or the coverage may be less. Sometimes the patient will have to “pay the provider in full and then file a claim with the PPO to get reimbursed”.5 An HSA (Health Savings Account) “lets you designate a certain amount of your paycheck to be funneled into the account pretax” to be used for medical expenses that qualify. The policy also always includes a high deductible insurance plan. Additionally, the funds can roll over to the next year, so the money is not lost. It is like “a medical IRA”. The FSA (Flexible Spending Account) does not roll over, but it “offers the same savings and pretax benefits as an HSA”; however the maximum dollar amount allowed to be contributed to this is much lower. Both offer tax savings, allowing taxable income at the end of the year to be reduced. It is important to save receipts and keep good records with these savings plans.6
Learn about the Affordable Care Act (Obamacare).