When looking at health insurance, it can feel like you’re learning a new language with all of the different terminology. Whether you’re looking at different health insurance plans as a first-time subscriber or are considering switching to a new plan to better suit your circumstances, this is the article for you. Here, we’ll be going over what common insurance terms like premium, deductible, copay, and coinsurance mean, as well as the differences between different types of plans (HMO vs. PPO). Finally, stick around until the end to find out the answers to common health insurance questions that you’ll need to be prepared to answer. Let’s dive right into it!
Table of Contents
Why Get Health Insurance?
Becoming sick or injured is an unavoidable part of life, even for those who are young and healthy. Health insurance not only helps cover routine medical expenses but also provides financial protection in the event that you’re faced with an unexpected, large medical bill. Simply put, it’s important to get health insurance because it can help you save a significant amount of money.
To get a better idea, treatment for a broken leg can cost $7,500, and a three-day hospital stay can cost $30,000. Even basic medical expenses and simple checkups can be much more costly than you’d expect. For instance, a doctor’s visit typically costs a few hundred dollars without insurance, and this excludes any additional testing, scans, and prescriptions. Without health insurance, you’d be solely responsible for paying the full amount due out-of-pocket. With insurance, you’d most likely still need to cover any copays or coinsurance, but your health insurance company would contribute a significant amount, decreasing the overall financial burden.
Having health insurance isn’t just about preparing for the worst case scenario but also making medical care more affordable. More affordable healthcare costs enable you to stay on top of your health instead of waiting and treating issues once they become unavoidable, which actually helps you avoid more serious and costly health issues in the long-run.
Most health insurance plans cover a wide range of services, including:
- Preventative care (e.g. annual physicals, immunizations)
- Emergency care
- Outpatient care
- Prenatal care
- Pediatric care
- Prescription medications
- Laboratory services
- Mental health benefits
Another, less-obvious benefit to keep in mind is that, for many, having health insurance provides a peace of mind. Knowing that you have options as well as some form of financial protection in the event of a medical emergency is reassuring. More importantly, it allows you to make important decisions firstly based on your medical needs instead of financial cost.
Why Do People Choose to Get Health Insurance Through Their Work/Employer?
Health insurance offered through employment is usually significantly less expensive than insurance that is purchased individually, which is why getting insurance through work is usually the more cost-effective option. Reasons for lower coverage costs include risk pooling, special tax treatment, and the fact that those most expensive to insure (e.g. elderly) tend to use public health insurance (Medicare and Medicaid).
When Can I Enroll in a Healthcare Plan?
Enrollment for health insurance plans typically opens in the fall and ends on December 31st of each year.
What Is a Deductible?
Some health insurance plans have deductibles. A deductible is the amount of out-of-pocket money you have to spend towards health expenses, before your insurance starts contributing. When it comes to deductibles, you’ll need to pay completely out-of-pocket, until you’ve reached your deductible amount.
There’s a wide range of deductible amounts, but they’re usually a few thousand dollars. Let’s say 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.
Keep in mind that only in-network providers and services that follow your specific plan’s guidelines will count towards your deductible. (Otherwise, you’ll be stuck with medical bills that you not only have to cover completely out-of-pocket but also don’t contribute towards your deductible.)
What Are Premiums?
A premium is the amount that you pay for health insurance each month. In other words, it’s the price that you’ve selected to pay for insurance on a monthly basis. 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.
Should I Pick a Health Insurance Plan with Lower Deductibles or Lower Premiums?
This depends on your particular situation. Insurance plans with lower deductibles typically come with higher premiums, whereas higher deductible plans usually come with lower premiums. This is one of the ways that insurance companies try to maintain profit.
Now, it’s not possible to know exactly what kind of healthcare services you’ll need for a particular year, but you should pick an insurance plan based on your best estimate. 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.
Another benefit of higher deductible plans is that you can contribute to a health savings account (HSA). HSAs are a way of putting away money that can be used to pay for qualifying healthcare expenses. This money is untaxed, and you can use it to cover medical expenses that your plan doesn’t cover, as well as deductibles, copays, and coinsurance (not premiums).
What Is a Copay?
A copayment, or copay, is a fixed amount that you pay out-of-pocket for qualifying health visits. If your insurance plan has copays, you’ll have to pay the copay amount, and your insurance will cover the rest. Most offices ask you to pay your copay before your visit begins; some offices will send you a bill afterwards with the copay amount due that you can pay either online or via check.
Copay amounts vary from plan to plan. Typically, copays range from as low as $15 for routine visits to $300 for emergency visits, assuming that the healthcare provider or medical facility is in-network. In-network providers are healthcare professionals or health systems that have a contract with your insurance to offer care at a discounted rate. Basically, people purchase insurance to get access to in-network providers so they can get the same healthcare for cheaper than it would otherwise be. To know whether or not a provider is in-network, you can search for a provider on your insurance’s website or directly call your insurance company.
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.
Warning: When looking for medical services, it’s important to find an in-network provider so that insurance can help cover some of the costs. (That’s the whole point of having health insurance!) If you see a provider that is out-of-network, then you’ll have to cover most or all of the expenses.
What Is Coinsurance?
Coinsurance is similar to copays. 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 almost always cheaper than coinsurance so copays are better because they mean that 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.
What Is an 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. Let’s say that the out-of-pocket maximum for an individual plan is $4,000. This means that if the policyholder hits $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.
What Is an HMO Plan?
HMO, or Health Maintenance Organization, is one of the most common types of health insurance plans and is the most budget-friendly option. HMO plans require patients to have a primary care physician, who will coordinate all pertinent care. HMOs require referrals to see a specialist and typically do not provide any coverage for out-of-network providers (with the exception of HMO-POS plans). Overall, HMO plans offer less flexibility compared to other plan options but have the benefit of being a lower cost option.
What Is a PPO Plan?
PPO, or Preferred Provider Organization, is another common type of health insurance plan that is a good option for those willing to pay more for options and convenience. Unlike HMO, a PPO does not require patients to have a primary care physician nor a referral to see a specialist. Additionally, PPOs often provide some level of coverage for out-of-network care. A PPO plan may be a great option for those who are anticipating greater medical attention in the near future (e.g. pregnancy), as copays and coinsurance rates with PPO plans are relatively low. Compared to others, PPO plans allow for greater range and flexibility when choosing care but are typically more pricey.
What is an EPO Plan?
EPO, or Exclusive Provider Organization, is a health insurance plan that is somewhere in between HMO and PPO. EPOs are similar to HMOs, as they only cover care with in-network providers. However, a perk of EPO plans is that the networks are usually larger than those of HMO plans, which means you’ll have more options when choosing providers. Like PPOs, most EPO plans do not require patients to have a primary care provider nor a referral to see a specialist. Accordingly, EPO plans are more pricey than HMO plans but less expensive than PPO plans.
What is a POS Plan?
POS, or Point of Service, is a health insurance plan that is similar to HMO but includes some out-of-network coverage. Like HMOs, POS plans require you to have a PCP, as well as a referral to see a specialist. While sticking with in-network providers would be more cost-effective, POS plans do give you the option of seeing out-of-network providers with a limited amount of coverage. Overall, the increased flexibility of POS plans makes them more costly than HMOs but less expensive than PPOs.
What are HDHP, HSA, and HRA?
Last but not least, HDHP, HSA, and HRA may be acronyms you come across when looking at health insurance options. HDHP stands for High Deductible Health Plan; HSA stands for Health Savings Account; HRA stands for Health Reimbursement Arrangement. An HDHP is usually combined with either an HSA or HRA.
An HDHP can be any of the insurance plan types explained above. HDHPs have high up-front out-of-pocket expenses but low premiums, which makes them a good option for people managing chronic health conditions and expecting frequent, expensive medical bills. With an HDHP, those dealing with chronic health issues can quickly reach their deductible and expect health coverage with a low premium each month.
HDHPs are often paired with HSAs – a special type of savings account that you can withdraw money from for your deductible and eligible medical, dental, and vision expenses. Contributions to an employee’s HSA may come from the employee, employer, or both. However, there is a limit on how much can be contributed to an HSA. The main benefit of an HSA is that the money you deposit is untaxed and earns interest, which can help save on medical expenses long-term.
HDHPs can also be paired with HRAs – an employer-owned account that also helps employees cover eligible medical expenses. Unlike HSAs, HRAs are only funded by the employer once the employee has a qualified claim; the employee cannot contribute to the account. Additionally, there is no contribution limit, and no interest accumulates over time. With an HRA, it’s important to keep in mind that any funds that are not used by the end of the plan year or upon leaving the company are forfeited.
What is the difference between Medicare and Medicaid?
Unlike employer-provided health insurance, both Medicare and Medicaid are public (government-funded) health insurance programs. The difference between Medicare and Medicaid is the different qualification requirements; Medicare is an option for seniors, disabled individuals, and patients with kidney failure, while Medicaid is available to low-income individuals.
Medicare
Medicare is a public health insurance available to those who fall into any of the following categories:
- Ages 65 or older
- Younger people with disabilities
- People with end-stage renal disease (ESRD) who require dialysis or kidney transplant
There are three parts of Medicare (Parts A, B, and D), each of which covers different services.
Medicaid
Medicaid is a public health insurance program for low-income individuals. The following groups listed are eligible for Medicaid:
- Low-income families or individuals
- Pregnant women and children
- Individuals receiving Supplemental Security Income (SSI)
Other groups may be covered, depending on the state. More information can be found here.
Other Facts About Health Insurance to Keep in Mind (FAQ)
- Does health insurance include dental coverage?
Dental coverage is not included in your health insurance policy. While there are some plans that include dental coverage, they are uncommon and not typically the plans that are offered by employers. Most likely, you’ll need to purchase separate insurance for dental care, which would cover preventative care, routine cleanings and exams, X-rays, etc.
- Does health insurance include vision coverage?
Most health insurance plans offer limited vision coverage. Some health insurance policies provide partial coverage for vision. This might mean that your health insurance will cover a portion of the costs of annual eye exams and glasses or contacts. However, the extent of vision coverage varies from plan to plan. This partial coverage may suffice for some, but those who may be more prone to eye conditions may opt to purchase a separate vision plan in addition to their health insurance plan.
- Can I be covered under my parent(s)’ health insurance plan?
In general, if you are under the age of 26, you may be covered under one or both parents’ health insurance plan(s). A few states – including Florida, Illinois, Pennsylvania, and New Jersey – have extended this age cap to 30. Be sure to check your state’s laws and with the insurance plans you’re considering to see what the cutoff age is for children.
- Can I add my children onto my health insurance plan?
If you are a parent, you can have all of your children (dependents) covered under the same insurance plan as you. There is usually an additional cost for each individual added to the plan.
- Can I add a spouse onto my health insurance plan?
Most health insurance plans offer spousal insurance. You and your spouse can be under one plan together. The specifics depend on the employer, but this is usually a good option when only one spouse is working. Oftentimes, this option helps save couples money in the long run.
- Can I add my parents onto my health insurance plan?
You probably won’t be able to add your parent(s) onto your plan. At this time, California is the only state that will allow children to add their parents onto their insurance plan, starting in the year 2023. If your insurance plan is based in California, check to see if adding parents onto your plan is a possibility. Otherwise, you’ll have to get a separate, independent plan for your parent(s).
Conclusion
Great work on making it to the end of this article! I know it was a lot, but I hope you found it super helpful in deciding what type of health insurance plan is best for you. Navigating the complicated health insurance world can be daunting, but you’ve already taken the first step so you should be very proud of yourself! Remember, gaining an understanding of health insurance early on is vital for both your health and your wallet.
Now that you’ve chosen the perfect health insurance plan, the next step is to find an in-network provider! Check out my article on how to find the best healthcare provider for your healthcare needs. In this article, I break down the process of finding an in-network provider and scheduling an appointment into four easy steps.
Finally, feel free to share this article with someone you know – a friend, family member – who’s also looking at different health insurance plans. You’d be surprised; many parents and even healthcare providers aren’t as informed about health insurance as you’d expect, and you could help them out!
Until next time – stay healthy and keep learning! 😀