Health Insurance Terms 101

When planning to invest in health insurance, there might be confusing terms that you have not heard before. Insurance in general can be a puzzle as it involves legal terms that may be unfamiliar. Whether it’s Medicare insurance or just traditional health insurance, both can be bewildering for some people. 

If you don’t know where to start, this article is exactly what you need. In this blog, we will discuss the most common health insurance terms you need to know. This glossary will help you better understand your coverage and clear up some of the confusion.

1. Premium

Whether you get a health maintenance organization (HMO) or preferred provider organization, all health insurance plans have one thing in common—a premium. Your premium is the amount you pay to the insurance company in exchange for coverage. 

The insurance premium can vary based on different factors like age, type of insurance, medical history, location, tobacco use, and more. No two policyholders will pay the exact premiums. Most people pay their premiums monthly, but you can save money by paying quarterly or annually.

2. Deductible

This is the amount you pay before your health insurance plan starts to pick up the tab. Put simply, deductibles are out-of-pocket costs that you must pay before your coverage kicks in and covers part of your health care bills.

For instance, your insurance plan has a $5,000 annual deductible, which means this is the amount that you’ll pay out of pocket. After settling the deductibles, your insurance company will pay for the rest of your expenses. 

Insurance plans with lower deductibles offer more coverage but have higher premium costs. Conversely, policies with higher deductibles tend to have lower monthly premiums.

3. Copayment

A copayment or copay is a flat fee that you’ll pay upfront for covered services. The most common medical services that ask you for a copay are doctor visits and prescriptions. 

Copayments vary from plan to plan, but the average costs are $25 or less. For example, you may need to pay a $25 copay per doctor visit or a $10 copay per prescription. Although copayments are lower than the premiums, they can be expensive when added up over time. Always make it a habit to read your plan details to determine how much your co-pay will be.

4. Coinsurance

This is the amount that you need to pay toward a covered claim once you’ve paid your deductible. A common coinsurance breakdown goes by the rule of 80/20, where the insurance company pays 80% of the total cost while the insured pays the remaining 20%.

Let’s assume that your policy has an 80/20 coinsurance and you’ve already paid your deductible for the year. Each doctor visit costs $100, which means your policy will pay $80, and you will cover the remaining 20%.

Coinsurance is similar to a copayment in a way that you split the costs with your insurance provider. Some insurance plans might not cover a service provided by an out-of-network, so it's best to check your in-network providers to avoid paying more. 

5. Out-of-Pocket Maximum

An out-of-pocket maximum refers to the cap on the amount you’ll have to pay for covered services in a year. This often includes copays, deductibles, and coinsurance costs in your health insurance policy. When this limit is reached, your policy will cover 100% of your healthcare expenses and prescriptions for the rest of the year. 

For the 2022 plan year, the out-of-pocket limit is $8,700 for individual coverage and $17,400 for a family plan. Out-of-pocket maximum amounts help you to control the cost of your healthcare costs and avoid significant financial hardships.

6. Claim

An insurance claim is a formal request for payment sent to your insurance provider. For health insurance plans, claims are typically handled by the hospital or doctor on your behalf. Health insurance claims can be filed for doctor visits, emergency medical treatment, and lab work. 

Once your healthcare provider has filed a claim, your insurance company will process it and pay the claim amount. 

Conclusion

Now that you know these basic health insurance terms, it’s easier to shop around for the best coverage. Let our agents at Local Retirement Group guide you as you choose your own health insurance plan. We are licensed and skilled to compare affordable plans for you or your family. To request a free consultation, contact us today!