Understanding Health Insurance
Author: Surabhi Dangi-Garimella, Ph.D.
For a consumer who buys a health insurance policy, understanding how the policy works and what the various terms mean is very important. In the simplest terms, health insurance is a contract to ensure that your health insurance company will pay for some, or all, of your health care costs in exchange for a premium. Health insurance covers both preventive care and wellness visits for enrollees, as well as the costs associated with treatment when a person is sick.
In this article, we define key healthcare-related terms, explain the health insurance options that are available to consumers, and briefly touch on what your plan will cover.
Important Definitions and Key Terms
In addition to the premium and deductible, you may be required to pay a share of the cost of your services and treatment. This may also depend on where you go to seek care. The following terms and definitions help explain and clarify the process.
Allowed Amount: Maximum amount on which payment is made for a covered health care service. Alternative terms used: eligible expense, payment allowance, or negotiated rate. If your clinic charges more than the allowed amount, you will be responsible for paying the difference to the clinic. This is called balance billing.
Balance Billing: As described above, it’s the difference between the ‘allowed amount’ and what the clinic charges. So, if your clinic bills $50 for a service, but the allowed amount is $30, then your clinic will bill you the remaining $20. Preferred providers (definition below) are not allowed to balance bill.
Co-insurance: The enrollee’s share in the cost of a covered health care service after the deductible (definition below) is met. This is calculated as a percentage of the allowed amount. Consider that you have met your deductible and your co-insurance is 20%. If your office visit has an allowed amount of $50, then your share will be $10, and your health insurance will pay the remaining $40.
Co-payment/Co-pay: A fixed amount that you have to pay for receiving a covered health care service.
Covered services: Medical services that are covered by your health plan.
Deductible: It is the amount that you pay for certain covered health care services before your health insurance starts to pay. Deductibles may not apply to all health care services.
Excluded Services: Health care services not covered by your insurance plan.
Health Savings Account: A savings account that lets you set aside money, pre-tax, for qualified healthcare expenses.
In-network co-insurance: This costs less than out-of-network co-insurance. It is the percent of the allowed amount for covered health care services that you have to pay to providers based on their contract with your health plan.
In-network co-payment: It is a fixed amount for covered health care services that you have to pay to providers who contract with your health plan. This usually costs less than out-of-network co-payment.
Network: Providers, suppliers, and clinics/health care facilities that are contracted with your insurance plan.
Non-preferred Provider: Providers who do not have a contract with your insurance plan. You may pay more to see a non-preferred provider.
Out-of-network co-insurance: It is the percent of the allowed amount for covered health care services that you have to pay to providers who do not contract with your health plan. This will usually cost more than in-network co-insurance.
Out-of-network co-payment: It is a fixed amount that you pay for covered health care services from providers who do not contract with your health plan. This will usually cost more than in-network co-payment.
Out-of-pocket maximum: The maximum amount you pay during a policy period before your health insurance plan begins to pay 100% of the allowed amount. This does not include your premium, balance-bill charges, or charges that the plan does not cover.
Pre-authorization/Prior Authorization/Prior Approval/Precertification: The health plan’s decision that a health service, treatment plan, prescription drug, or durable medical equipment is medically necessary. This is not required in case of an emergency health issue.
Preferred (sometimes called Contracted) Provider: Provider who has a contract with your health insurance plan to provide care at a lower cost.
Premium: The amount that you pay for your health insurance plan, either monthly, quarterly, or yearly.
Tiered network: Some insurance companies sort healthcare providers in their network into ‘tiers’ or ranks—you may have to pay more for providers who are lower on the tier.
Types of Health Insurance
You have the option to enroll in either public or private health insurance. Public health insurance options are government-run programs:
- Those ≥65 years
- Those <65 years with certain disabilities
- Anyone with end-stage renal disease (irrespective of age)
For this program, eligibility differs by states, but generally includes:
- Low-income families (income below the federal poverty level)
- Seniors ≥65 years
- A permanent disability as defined by the Social Security Administration
- Being blind
Several states offer Medicaid to individuals enrolled in the Supplemental Security Income (SSI) program.
CHIP (Children’s Health Insurance Program): For children in families whose income is too high to qualify for Medicaid, but who cannot afford private insurance.
Basic Health Program (BHP): For low-income residents whose earnings fluctuate above and below Medicaid/CHIP eligibility levels. States can provide a BHP option.
Private insurance coverage may be offered by your employer or bought in the healthcare Marketplace. Marketplace plans are categorized based on the share of cost for the enrollee versus the insurance company. Usually, the plan with the least expensive premium has the highest deductible.
- Bronze: Plan covers on average 60% of medical costs, enrollee covers 40%
- Silver: Plan covers on average 70% of medical costs, enrollee covers 30%
- Gold: Plan covers on average 80% of medical costs, enrollee covers 20%
- Platinum: Plan covers on average 90% of medical costs, enrollee covers 10%
Insurance companies such as Aetna, Blue Cross Blue Shield, Cigna, UnitedHealthcare, etc. offer plans based on care levels:
- Health Maintenance Organization (HMO): This plan restricts enrollees to visit doctors who work for or contract with the HMO. Out-of-network care is not covered unless it’s an emergency.
- Preferred Provider Organization (PPO): Enrollee pays less if the health care provider is in the preferred network. You can receive care from a doctor or hospital outside of the plan’s network but will have to pay more for using out-of-network care.
- Exclusive Provider Organization (EPO): Services in this managed care plan are covered only if the enrollee uses doctors or hospitals in the plan’s network (except if it’s an emergency).
- Point-of-Service (POS) plans: A hybrid of HMO and PPO, this managed care plan prefers that enrollees visit doctors and hospitals that have contracted with the plan. Visit to an out-of-network specialist requires a referral from your primary care doctor for coverage.
- High-deductible Health Plans (HDHP)/Catastrophic health plans: These plans offer a low monthly premium and a very high deductible. Eligibility is for people under 30 years. Those over 30 years can qualify with a hardship/affordability exemption. Because of the high deductible, the enrollee pays most of the healthcare cost before the plan starts covering 100% of the costs without co-payment or co-insurance. Preventive services are covered. At least three primary care visits are covered before the deductible is met.
Where Do I Buy a Health Insurance Plan?
Employer: For those who work, check if your employer offers a health insurance plan. Employer-sponsored health plan, also called a group plan, is offered to employees and their dependents. Most businesses with >50 full-time employees are required to offer health insurance to their employees or face a penalty.
Health Insurance Marketplace/Exchange: These are organizations that create a competitive market for buying health insurance. They offer a lot of choices on health plans and provide guidance to understand the options as well as assist with purchasing the plan. Along with individuals and families, small business owners (<50 employees) can also buy coverage for their employees through the Marketplace. In each state, the Marketplace may be run either by the state or by the federal government.
Private Insurance: You also have the option to directly purchase a health plan through an insurance company, a broker or agent, or an online insurance seller. Be cautious when purchasing these plans and if needed have a third party help you.
Important Note: Changes to your current insurance plan or purchasing a new plan are possible only during the Open Enrollment (November 1-January 15) period. Outside of this period, changes can be made only if you qualify for Special Enrollment. Qualifying factors include:
* Losing health coverage * Moving * Getting married * Having a baby * Adopting a child * Household income is below a certain amount
You get 60 days before or 60 days after any of the above life-changing events to enroll in a plan or make changes. However, enrollment in Medicaid/CHIP is possible year round.
Understanding Health Insurance Coverage
Once you have reached your deductible (see definition above), the insurance company will pay for a majority of your in-network care, while you may be responsible for the co-payment and co-insurance (definitions above).
The Affordable Care Act (also referred to as Obamacare) requires all plans offered on the marketplace to cover:
Essential health benefits:
- Ambulatory patient services (outpatient hospital care without being admitted to the hospital)
- Emergency services
- Pregnancy, maternity, and newborn care (before as well as after delivery)
- Mental health and substance use disorder services (including counseling)
- Prescription drugs: While all plans are required to cover prescription drugs, the specific medications that are covered will depend on your health plan. You can access this information on the health plan’s website, in the document called ‘Summary of Benefits’ that the plan would have shared with you, or by directly calling your health plan.
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or maintain mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management for adults, women, and children
- Pediatric services, including oral and vision care
Additional health benefits:
- Birth control coverage
- Breastfeeding coverage
Plans may sometimes offer vision and dental coverage, but that may vary by state.
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Signed-off-by: Surabhi Dangi-Garimella