Navigating the world of health insurance can be tricky. I know that when I was first trying to sort out my health insurance, I felt very lost, as it wasn’t something taught in school. I didn’t know where to start, and a lot of the definitions that I found online were difficult to understand and lacked helpful examples.
In this article, I’ll be going over the top five health insurance terms that you should definitely know and putting them in simple terms that actually make sense. After you’re done with this article, figuring out your policy will no longer be something that you’re trying to avoid, and you’ll be able to use your policy in a way that works best for you. Let’s get started! 😀
Table of Contents
Insurance Term #1: Deductible
Some insurance plans have a deductible, while others don’t. A deductible is the amount of money you have to pay out-of-pocket for your health expenses, before your insurance starts contributing. In other words, you’ll first need to use your own money to pay for any health services you receive.
There’s a wide range of deductible amounts, but they’re usually a few thousand dollars. Let’s say that your deductible is $2,000. This means that you’ll cover all of your own medical expenses until you hit the $2,000 mark. Afterwards, your insurance will start covering some or all of the costs, depending on your plan.
Regardless of whether you’ve reached your deductible, you’ll still need to provide your insurance information whenever you go to a medical office, pick up a prescription, etc. This way, your insurance can keep track of how much you’ve contributed towards your deductible already and can start covering their share of the expenses as soon as you reach it.
Important note: Only covered expenses count towards your deductible. Covered expenses are any qualifying medical costs that your insurance would cover once you reach your deductible. To ensure that your costs are covered expenses, you’ll need to find providers that are considered in-network for your plan.
If you choose to see a healthcare provider who is out-of-network, then you’ll be stuck with medical bills that not only will you have to cover completely out-of-pocket but also don’t contribute towards your deductible. For more information on what an in-network provider is and how to find one, check out my article “4 Steps to Find the Best Healthcare Provider (For Your Insurance)
.”
Insurance Term #2: Premium
A premium is the amount that you pay each month for having health insurance. Premium amounts can vary greatly. In recent years, health insurance premiums have averaged around $550 per month. Paying your premium each month ensures that you have continued healthcare coverage.
Important note: If you get health insurance through your workplace, then your employer will most likely cover the majority of your premium, while you cover the rest. This is one of the many reasons why people choose to get insurance through their job.
Should I Get a Health Insurance Plan with Lower Deductibles or Lower Premiums?
Deciding whether to choose an insurance plan with lower deductibles or lower premiums depends on your particular situation. Insurance plans with lower deductibles typically come with higher premiums, whereas higher deductible plans usually come with lower premiums.
While it’s not possible to know exactly what kind of healthcare services you’ll need for a particular year, you should have at least a rough idea and be able to pick an insurance plan accordingly. For example, if you’re someone who can be reasonably expected to require a greater amount of medical attention (e.g. dealing with a chronic illness) or can’t afford to pay large amounts up front, then a plan with a lower deductible and higher premium would be better for you. On the other hand, if you’re generally healthy and can afford to pay larger bills in a timely manner, a plan with a higher deductible and lower premium would be the superior option.
Important note: Another benefit of insurance plans with higher deductibles is that you may have the option of contributing to a health savings account (HSA). HSAs are a way of putting away money that can be used to pay for qualifying healthcare expenses.
For more information on health savings accounts, be sure to check out my article “The Ultimate Guide to Choosing the Right Health Insurance Plan: Understanding What Your Work Insurance Is Actually Offering
Insurance Term #3: Copayment (Copay)
A copayment, or copay, is a fixed amount that you pay out-of-pocket for visits with in-network providers. If your insurance plan has a copay, then you’ll be responsible for paying that amount for every visit, and your insurance will cover the rest. Most offices ask you to pay your copay when you arrive, before your visit begins.
Typically, copays range from as low as $15 for routine visits to $300 for emergency visits, given that the healthcare provider or medical facility is in-network. Keep in mind that some plans have both copays and deductibles. For these plans, you pay out-of-pocket until you hit your deductible. Afterwards, insurance covers visits with in-network providers, and you’ll just need to pay your copay.
Insurance Term #4: Coinsurance
Coinsurance is similar to copay. Both are amounts that you’ll need to pay out-of-pocket. The difference is that coinsurance is a set percentage that you pay for covered medical expenses, while a copay is a fixed amount. For instance, if you have a 20% coinsurance, that means you’ll have to pay 20% of your bill, and your insurance plan will cover the remaining 80%. This means that the amount of coinsurance you pay for each service will differ depending on how much that service costs.
Is Copay or Coinsurance Better?
Copays are better than coinsurance because copays are almost always cheaper. With copays, you’ll have to pay less, and insurance will cover more. Additionally, even if your coinsurance percentage was lower, your premium and/or deductible would likely be higher to balance it out.
Insurance Term #5: Out-of-Pocket Maximum
An out-of-pocket maximum is a limit on your annual out-of-pocket contributions, after which insurance will cover one hundred percent of your in-network healthcare costs. Out-of-pocket maximums range from a few thousand for individuals to around $17,000 for families.
As an example, let’s say that the out-of-pocket maximum for an individual plan is $4,000. This means that if the policyholder reaches $4,000 of qualifying out-of-pocket healthcare expenses, then their insurance will start paying for one hundred percent of costs of covered benefits.
Keep in mind that copays, coinsurance, and deductibles contribute towards your out-of-pocket maximum. Premiums, however, do not contribute towards your out-of-pocket max. Also, if you opt for any medical benefit that’s not covered under your plan (e.g. cosmetic surgery, a visit with an out-of-network provider, etc.), then you will end up paying more than your out-of-pocket max.
If you find it beneficial to learn via a video format or are interested in doing a deeper dive into more health insurance terms, check out this comprehensive and downright hilarious video (30:18) 🙂 :
Conclusion
I hope you enjoyed this article and found it helpful! The world of health insurance can be very intimidating, so congrats on taking this major first step.
If you’re looking for articles on health insurance, take a look at my article “The Ultimate Guide to Choosing the Right Health Insurance Plan: Understanding What Your Work Insurance Is Actually Offering.” In it, we’ll go over all the different types of health insurance plans available to you and how you can pick the best plan for your situation. I’ll review the terms mentioned in this article, as well as introduce some new ones. See you there! Stay safe and keep learning. 😀