Understanding Your Insurance Policy
Author: Surabhi Dangi-Garimella, Ph.D.
Once you have familiarized yourself with the various terms associated with health care and your health insurance plan, it is important to dive deeper into what your health plan actually covers and what your cost-sharing will be. The following information guides you through your benefits coverage and explains the various aspects of out-of-pocket costs/cost-sharing, which can vary depending on whether your healthcare provider is within or outside of your plan’s network. We also explain how prescription drug coverage works for both private and government health plans.
Summary of Benefits and Coverage
According to the Affordable Care Act (ACA), all group insurance plans and health insurance companies are required to provide a summary of benefits and coverage (SBC) to its enrollees.
The summary of benefits and coverage (SBC) of your health insurance policy is an overview of:
- Covered health services
- Benefits
- Costs that you may incur
- In-network costs
- Out-of-network costs
- Cost-sharing by the enrollee
- Coverage limits
- Exceptions to coverage
Additionally, the SBC will include:
- A glossary of terms related to medical and health coverage
- Information on the health plan’s prescription medication coverage
- Examples of how the health plan covers common medical scenarios
- Your rights including grievance and appeals
- Information about compliance with the minimum essential coverage and minimum value standards requirements under the ACA
- Details on where to access the complete health plan documents online
- A number to call if you have questions
Things to look for in your SBC (definitions of the terms below can be found here):
- Coverage period, plan number, and plan type (HMO, PPO, etc.).
- Overall deductible for an individual or for a family: the enrollee has to pay all the costs for providers till the deductible is reached, after which the plan starts to pay. In case of a family plan, each family member has to meet their own deductible till the amount paid by all members reaches the overall family deductible.
- Services covered before the deductible is met (this may include certain preventive care services).
- The out-of-pocket cost limit.
- Out-of-network providers: Check what you may need to pay if you use an out-of-network provider. Does the plan require a referral to see a specialist?
- Co-payment and co-insurance costs (which apply after the deductible is met) for common medical events.
- Services that your plan typically does not cover (excluded services)
- Other services that are covered (e.g., visit to a chiropractor)
How Do I Know How Much Deductible, Co-payment, and Co-insurance I Have to Pay?
Because determining how much insurance will pay and how much the patient is supposed to pay can be complicated, providers send reports of what they did, called claims, to the insurance companies to figure out the details each time a patient uses healthcare. In general, though, the policy will help you estimate the amount you have to pay.
Allowed Amount
This is the amount that an insurance company negotiates for a covered service with a health care provider or a hospital that is within its network. Also known as the “negotiated rate” or “eligible expense”, this amount determines the cost-sharing that you will be responsible for. Out-of-network providers may charge beyond the allowed amount for a specific service and may bill you, the enrollee, for the balance. This is where the provisions of the No Surprises Act can protect you. (More about that in the next section.)
Deductible
This is the amount you pay before your insurance plan starts paying for the medical services and treatment you seek.
For example, if your annual deductible is $1,500, your plan will start paying only after you have paid $1,500 for doctor’s visits, lab work, imaging, etc. At that point, you will be responsible for paying the co-payment or co-insurance for covered services.
- Some plans may have a separate deductible for medical versus pharmacy services.
- Preventive care services (e.g., immunizations, screenings for certain diseases) are not subject to deductible or other cost sharing for Medicare and most private health plans.
- If you have a family plan, there may be a deductible for the entire family and for each individual on the plan.
- Typically, plans with a low deductible have higher premiums.
Co-payment
This is a fixed amount (e.g., $25) that you pay for each covered medical service after your deductible has been met and the plan starts paying for medical services and treatment. For example, if your plan has negotiated a charge of $100 for a visit to your primary care physician (PCP):
You pay $25 if your deductible has been met and the plan pays $75.
You pay $100 if the deductible has not been met.
Your co-pay amount will vary based on the service, such as visit to a PCP versus visit to a specialist or lab testing. Your insurance card will usually list the co-pay amount for various services.
Co-insurance
This is a percentage of the cost of a covered medical service that you are responsible to pay after the deductible is met. For example, if your co-insurance for a $200 lab test is 20%:
- You pay $40 if your deductible is met and the plan pays $160.
- You pay $200 if the deductible has not been met.
In-Network and Out-of-Network Providers
“In network” refers to health care providers and hospitals that have a contract with your health insurance plan—this contract is a negotiation of the prices for certain services. Other terms that may be used for in-network providers are “preferred” or “participating” providers.
Doctors or hospitals with whom the plan does not have a contract are deemed “out-of-network” providers. Enrollees will usually shoulder higher cost-sharing for these providers.
The contract drawn between an in-network provider and your health insurance company is designed to lower the cost of care for medical enrollees. So, if you visit an in-network provider, your out-of-pocket (OOP) costs (deductible and co-insurance) will be lower. Further, the provider cannot charge you more than the “allowed amount” on the plan. Preventive care services will be completely covered by the plan.
On the other hand, if you visit an out-of-network provider, your OOP costs (deductible and co-insurance) will be higher. Preventive services may not be completely covered by the plan, and you may have to share in the cost, unlike with an in-network provider. Additionally, if the provider charges above the plan’s allowed amount, you will be responsible for paying the balance bill.
An important note for those enrolled in private insurance: if you seek emergency care services with an out-of-network provider, you should be responsible for paying only your in-network cost-sharing amount. Per provisions within the No Surprise Act, those who are enrolled in individual and group health plans can no longer receive a “surprise medical bill” for emergency services received at an out-of-network provider or hospital, non-emergency care received from an out-of-network provider at an in-network hospital, or services from an out-of-network air ambulance provider.
Medicare and Medicaid enrollees have always been protected from surprise medical bills. If you are self-paying for your care, you are entitled to receive a “good faith estimate” of the cost you may incur prior to receiving care.
The Kaiser Family Foundation has created a detailed FAQ document on what to expect if you visit an out-of-network provider.
Navigating Prescription Drug Coverage
In order to understand coverage for your prescription drug(s), it’s important to look at your plan’s formulary, the tiers within the formulary, and your share in the cost of the covered drugs in the formulary.
Every health plan has a formulary, which is the list of drugs that your plan covers. How much you pay out-of-pocket for that drug depends on the formulary “tier”, which may be determined by the drug cost. Patient cost-sharing usually increases with higher drug tiers. Drug placement in these tiers is determined by:
- Drug cost and how it compares to other drugs for the same condition
- Clinical efficacy and how it compares to standard of care, among other things
Tier 1 drugs: Usually generic products; lowest co-payment
Tier 2 drugs: Brand name drugs that may be affordable; medium co-payment
Tier 3 drugs: Brand name drugs that have a generic version; highest co-payment
Tier 4 drugs: Very expensive specialty drugs, usually for serious conditions, are in the highest tier
You can request your health plan for an exception to get a lower co-payment if your prescriber thinks that a drug from a higher tier will work better for you. You can also ask for an exception if a drug you need is not on the formulary or if the drug needs pre-authorization.
*Pre-authorization or prior-authorization is an additional step that health plans may sometimes require to deem a drug treatment or medical service as being medically necessary. Your doctor’s office or hospital are the ones who have to send the prior-authorization request to the plan.
Medicare
Prescription drugs for Medicare enrollees are covered under Medicare Part D. Similar to private plans, Medicare has a formulary of covered and tiered prescription drugs that includes at least two drugs from the most commonly used drug categories. There is provision to ask for an exception if you or your doctor think that the drugs on your plan’s formulary will not work.
Important note: If a generic drug for your prescription medicine is available, and is offered by your plan, your co-payment/co-insurance may increase if you continue on the prescription drug and don’t switch.
The actual cost of coverage for your drug will depend on the drug benefit phase you are in—meaning if you have met your deductible or are in the catastrophic coverage phase. Additionally, an in-network pharmacy will charge less than an out-of-network pharmacy.
Medicaid
Medicare prescription drug coverage will vary by state. Prescription drugs are included in the formulary, but the preference is for enrollees to use equivalent generic drugs, if available. You can apply for an exception if your needed drug does not have a generic version or if your doctor feels the brand name drug is medically necessary.
What Are My Options If I Lose Employer-Based Coverage?
If you and /or your family have been insured through a group or employer plan and if you are to lose this coverage, you have two options:
Consolidated Omnibus Budget Reconciliation Act (COBRA): A temporary option—if you change jobs, lose a job, are reducing your work hours, or have life events such as death or a divorce—COBRA allows you to continue on your job-based group health plan for up to 18 months. You are, of course, responsible for paying 100% of the premium and some administrative fees. Enrollment should be within 60 days of losing your employer coverage.
With COBRA, you can:
- Avoid a gap in healthcare coverage
- Keep the same coverage as your current group plan and continue with the same providers and plan benefits
- Enroll your dependents (spouse, former spouse, or children) even if you choose not to
If you are Medicare-eligible, picking Medicare as your primary insurance instead of COBRA may be advantageous. Medicare allows an eight-month special enrollment period that starts with whichever is earlier: the month after your employment ends or the month after your employer-based current group health plan ends. However, consider other options for insurance coverage that may be more affordable, such as a Marketplace Plan or your spouse’s employer-based plan.
Healthcare Marketplace Plan: A special enrollment period of 60 days (after losing your employer-based coverage) qualifies you to enroll in a Marketplace plan. Based on certain eligibility criteria, you may be able to lower your spending on insurance through:
- Tax credits
- Cost-sharing reductions
- Savings on premium or qualify for Medicaid/CHIP
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License (CC-BY-SA-4.0), available at https://creativecommons.org/licenses/by-sa/4.0/. SPDX-License-Identifier: CC-BY-SA-4.0
Signed-off-by: Surabhi Dangi-Garimella