Common Health Insurance Terms Explained
Understanding health insurance terms is essential for making informed decisions about healthcare coverage. We have defined some of the most used terms for you below in order to help you navigate your health insurance quote or policy.
Deductible: A deductible is the fixed amount you must pay out of your pocket for covered medical services before your health insurance starts contributing to the costs. For instance, if your policy has a $1,000 deductible, you'll be responsible for paying the initial $1,000 of covered medical expenses. After meeting your deductible, your insurance will typically begin to cover a portion of the remaining costs.
Copay (or Copayment): A copay is a fixed amount you pay for a specific healthcare service, such as a doctor's visit or prescription drugs. Unlike a deductible, a copay is usually a set fee (e.g., $25 for a doctor's office visit) that you pay each time you receive that service. Copays may vary depending on the type of service, and they don't count towards your deductible but do often count towards your out-of-pocket maximum.
Out-of-Pocket Maximum (OOPM): The out-of-pocket maximum is the limit on the total amount you may pay for covered medical services during a specific period, usually one year. Once you reach this limit, your insurance plan will cover 100% of the covered expenses for the remainder of that year. The out-of-pocket maximum includes deductibles, copays, and coinsurance payments but typically excludes premiums.
Coinsurance: Coinsurance is the percentage of the cost of a covered healthcare service that you are responsible for paying after you've met your deductible. For example, if your coinsurance is 20% for a particular service, you will pay 20% of the service's cost, and your insurance will cover the remaining 80%. Coinsurance is applicable until you reach your out-of-pocket maximum.
Premium: Premium is the amount of money you pay monthly for your insurance policy.
Network: A network is the list of doctors and hospitals that have agreed to work with your insurance plan. Some health insurance plans do not cover out of network services so it is important to know your network.
To illustrate these terms, let's consider an example: Imagine you have a health insurance plan with a $1,500 deductible, a $25 copay for doctor visits, and 20% coinsurance for hospital stays. Your plan also has an out-of-pocket maximum of $5,000.
If you visit your in network doctor for a routine checkup, you'll pay the $25 copay at the time of the appointment.
Now, suppose you have an accident and need to be hospitalized, incurring a medical bill of $10,000. You would first pay the $1,500 deductible. After that, your coinsurance comes into play. Since it's 20%, you would pay 20% of the remaining $8,500 (after the deductible), which amounts to $1,700. So, your total expenses for the hospitalization would be $1,500 (deductible) + $1,700 (coinsurance) = $3,200.
Once you've reached $5,000 in out-of-pocket expenses, your insurance will cover 100% of any additional covered medical costs for the rest of the year.
Understanding these terms will help you make informed decisions about your health insurance and effectively manage your healthcare expenses. Always review your policy documents or contact your insurance provider if you have any questions about specific coverage details.