Demystifying Health Insurance
Health Insurance Basics
The Language of Health Insurance
Health insurance can feel like a puzzle. It has its own vocabulary, and the terms can be confusing. But once you understand a few key concepts, you can see how the pieces fit together. This helps you choose the right plan and know what to expect when you need care.
Becoming familiar with the following terms will help you understand how your health plan works, what you will have to pay, and what your insurance will pay.
Your Share of the Costs
When you have health insurance, you and your insurance company share the cost of your medical care. Let's break down the different ways you contribute.
Premium
noun
A fixed amount you pay regularly (usually monthly) to keep your health insurance plan active. You pay this whether you use medical services or not.
Deductible
noun
The amount you must pay out of your own pocket for covered health care services before your insurance plan starts to pay.
Think of the deductible as the first hurdle. Once you've paid that amount in a given year, your insurance kicks in to help with the bills. After that, you'll likely pay a copayment or coinsurance for your care.
Copayment
noun
A fixed amount (for example, $25) you pay for a covered health care service after you've paid your deductible. This is often called a copay.
Coinsurance
noun
The percentage of costs of a covered health care service you pay (for example, 20%) after you've paid your deductible.
So, how does it all work in practice? Let's say you have a minor surgery that costs $5,000. Your plan has a $1,000 deductible and 20% coinsurance.
- You pay the deductible first: You pay the first $1,000 of the bill.
- Calculate the remaining cost: The cost left is $4,000 ($5,000 - $1,000).
- Apply coinsurance: You pay 20% of that $4,000, which is $800. Your insurer pays the other 80%, which is $3,200.
In total, your cost for the surgery is $1,800 (your $1,000 deductible + your $800 coinsurance).
There's a safety net for your expenses called the out-of-pocket maximum. This is the most you'll have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance, your health plan pays 100% of the costs of covered benefits. Your monthly premiums do not count towards this limit.
Types of Insurance Plans
Not all insurance plans are structured the same way. The main differences come down to cost and freedom of choice. Plans use a network of doctors and hospitals to help control costs. Going "in-network" means using providers who have a contract with your insurance company, which is always cheaper. Going "out-of-network" means using providers who don't, which costs more or may not be covered at all.
Here's a quick comparison of the most common plan types:
| Plan Type | Network Rules | Referrals Needed? | Best For... |
|---|---|---|---|
| HMO (Health Maintenance Organization) | You must use doctors in the plan's network. Out-of-network care is generally not covered, except in emergencies. | Yes, you need a referral from your Primary Care Physician (PCP) to see a specialist. | People who want lower premiums and are comfortable with a limited network and getting referrals. |
| PPO (Preferred Provider Organization) | You can see both in-network and out-of-network doctors. You'll pay less if you stay in-network. | No, you don't need a referral to see a specialist. | People who want more flexibility and are willing to pay higher premiums for it. |
| EPO (Exclusive Provider Organization) | You must use doctors in the plan's network. Out-of-network care is not covered, except in emergencies. | No, you don't need a referral to see a specialist. | People who want a middle ground: lower premiums than a PPO but more freedom than an HMO (no referrals). |
| POS (Point of Service) | A mix of HMO and PPO. You can choose to stay in-network or go out-of-network for care, but you'll pay more for out-of-network services. | Yes, you typically need a referral from your PCP to see a specialist to get the lowest cost. | People who like the idea of a PCP coordinating their care but still want the option to go out-of-network. |
Choosing the right plan depends on your personal situation. Consider your budget, how important doctor choice is to you, and whether you have any chronic conditions that require specialist care. Understanding these basic terms and plan types is the first step toward making an informed decision about your health.
In health insurance, what is a "deductible"?
Your health plan has a 2,500. How much will you have to pay in total?