If you’ve ever been confused by a health insurance term such as coinsurance, deductible, or premium – to name a few – you are not alone.
Health insurance is complex and can be confusing. Case in point: A recent survey of 2,000 people in the United States found that the vast majority are confused by basic health insurance terms, which could cost people money and prevent them from getting the care they need.
Below, we take a look at some of the most common health insurance terms, what they mean, how insurance works, and the differences in the types of coverage out there.
Health Insurance Premium
A health insurance premium is the fee you pay each month for your health insurance coverage. If you have employer-sponsored health insurance, your employer might pay a portion of your premium each month.
Your deductible is the amount of money you need to pay for medical care before your health plan starts sharing costs. For example, if your deductible is $1,500 for the year, you will pay out of pocket for all care (except for preventive care) until you’ve spent $1,500.
Coinsurance and Copays
Some plans use copays to share in the cost of covered expenses, and others may use a combination of copays and coinsurance.
A copay is a flat fee that you pay when you visit the doctor or get your prescription at the pharmacy. For example, if you hurt your knee and go see a doctor, or if you need a refill of your medicine, the amount you pay for that visit or medicine is your copay. Your copay amount is listed on your health plan ID card. Copays cover your portion of the cost of a doctor's visit or medication.
Coinsurance is when you pay a percentage of the costs for covered services, and your health plan pays the rest. Depending on your plan, your coinsurance usually kicks in after you meet your deductible.
Health Maintenance Organization (HMO) Plans
A health maintenance organization (HMO) health plan gives you a local network of doctors, hospitals, and other health care professionals and facilities to choose from. These types of health insurance plans require you to select a primary care provider (PCP) from within the network. Your PCP is at the center of your medical care, getting to know you, helping coordinate all your care, and providing referrals to see in-network specialists. The costs for an HMO plan – copays and coinsurance – are typically lower than for other types of health plans, as long as you stay in network.
Preferred Provider Organization (PPO) Plans
A preferred provider organization (PPO) health plan offers a larger network, so you have more doctors, hospitals, and other health care facilities to choose from. Your out-of-pocket costs are usually higher with a PPO than with an HMO or with an exclusive provider organization (EPO) plan. If you're willing to pay a higher monthly premium to get more flexibility in choosing your physician and health care options, a PPO health plan might be a fit for you.
Exclusive Provider Organization (EPO) Plans
An exclusive provider organization (EPO) health plan offers a local network of doctors and hospitals for you to choose from. An EPO usually has lower out-of-pocket costs than a PPO plan. However, if you choose to get care outside of your plan’s network, it may not be covered (except in an emergency). If you’re looking for lower monthly premiums and are willing to pay a higher deductible when you get care, an EPO plan might be right for you.
For more on the differences among HMO, PPO, and EPO plans, click here.
Health Savings Account (HSA)
A health savings account (HSA) is a bank account you own that you can use to pay for eligible health care expenses or to save and invest for retirement. HSAs are offered with qualified High-Deductible Health Plans (HDHPs), which typically have lower premiums/plan contributions and higher deductibles than traditional health plans. The account is opened through the HSA provider chosen by your employer. You, your employer, and others can put money into your HSA up to a certain yearly limit set by IRS guidelines.
Supplemental Health Insurance
Supplemental insurance policies can be purchased in addition to your primary health insurance. These policies provide coverage for certain kinds of illnesses, accidents, and injuries, as well as life insurance. Supplemental health insurance policies are different from traditional health plans in that the benefit is paid directly to you to help cover expenses that your health plan may not include, making it a cost-effective option for some people to help with out-of-pocket costs like insurance deductibles, as well as other costs like transportation, rent, childcare, utilities and groceries. For example, if you have a family history of certain types of disease such as cancer, heart disease, or stroke, and you want to have additional financial protection in the case of an unexpected health event, accident, or injury, like a broken bone, then supplemental health insurance could be a good option for you.
Original Medicare: Part A and Part B
Original Medicare is a federal health program that is available to people 65 years and older, those with qualifying disabilities, and people with end-stage renal disease/kidney failure. Original Medicare has two parts: Part A and Part B. Part A is hospital insurance and covers hospital stays, skilled nursing facilities, hospice care, and some home health care. Part B is medical insurance and covers doctor visits, outpatient care, medical supplies, and some preventive services. Medicare is a fee-for-service plan, which means you can go to any doctor, hospital, or other facility that’s enrolled in and accepts Medicare and is taking new patients. You’ll also pay a premium for Part B; Part A does not charge a premium.
Medicare Advantage Part C
Medicare Advantage Part C plans offer the same hospital and medical benefits as original Medicare, often in combination with prescription drug coverage, and other programs. To enroll in a Medicare Advantage plan, you must already have original Medicare Part A and B coverage. Many Medicare Advantage plans do not charge an additional premium.
Medicare Part D
Medicare Part D prescription drug plans are part of the government’s Medicare program, but they are available and managed through private health insurers, like Cigna. These plans help lower the cost of prescription drugs that can prevent complications from disease and help keep you healthy. If you are on original Medicare, you’ll pay an additional premium for a Part D plan.
Open Enrollment is the period of time when individuals and families can enroll in a new health plan or make changes to their current plan directly through their insurer or via the Health Insurance Marketplace. Commercial and Marketplace plans that are effective on January 1 have an Open Enrollment period from November 1-December 15 of the previous year. If you want to enroll or make changes to a plan with an effective date of January 1, 2023, your period to do so would be November 1-December 15, 2022.
Medicare offers a variety of enrollment periods, each governed by specific requirements. For example, people who are turning 65 have a seven-month window to sign up for Medicare without the risk of future penalties. Those already enrolled in Medicare can select a new Medicare Advantage plan each year during the Annual Election Period, which runs from October 15 through December 7. If they decide their Medicare Advantage plan is not a good fit, they can choose a different plan during the annual open enrollment period, January 1 through March 31.
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