When speaking with our prospective clients, oftentimes there is confusion as to the meaning of certain insurance terms.
Consumers want to understand health insurance terminology. They also want to learn how it affects not only the cost of their health insurance policy, but also their out of pocket exposure.
Listed below are explanations of common terms associated with most individual and family health insurance coverage.
The deductible is the amount the insured must pay before the insurance company provides most benefits. Deductibles can range from a very small amount, such as $250, to much larger amounts, like $10,000 or $20,000. Insurance providers keep a running total of all claims in a calendar year until the deductible has been satisfied.
The insured is not responsible for paying the deductible until there is a claim. The insured only needs to pay the premiums. If there is not claim against the policy in a given year, the insured does not also have to pay the deductible amount.
It’s important to note that some benefits are not subject to the deductible like preventive care for instance. In other words, the insured has access to preventive care at a $0 cost and the deductible will not come into play.
Family plans will usually double the deductible amount from an individual plan. If the individual deductible is $2500, then the family deductible is $5000. A family must reach the increased amount before the insurance pays toward any claims.
For example, if a family selects a $5000 deductible, then the policy would not pay benefits until the family had collectively reached $10,000 in covered out of pocket expenses.
Family policies with an embedded deductible will require that at least two family members meet the deductible in a calendar year before the entire family has satisfied the policy requirements.
For example: If a family selects a $3000 deductible, the policy would pay benefits to the individual who reaches $3000 in out of pocket expenses. An additional family member would also have to reach the $3000 amount in the same year to obtain benefits from the policy. Once two family members have reached the deductible, the entire family would be eligible for immediate benefits from the policy.
It is difficult to say whether a traditional or embedded deductible is more advantageous to the insured. Depending on the situation, one plan might be better for one family and another plan will be more favorable to another. It really depends on what the family is most comfortable with in the long run.
Coinsurance is the percentage of the bill the insured is responsible for after the deductible has been reached. The most common percentage is 80/20 and it usually applies to the next $10,000 of the health related bill. The insurance provider would be responsible for 80% of the bill and the insured would be responsible for 20% of the medical bill up to $10,000. Then the coinsurance cost-sharing ends and the policy pays 100% of the covered bill.
For example: An insured with a $500 deductible and an 80/20 to $10,000 plan has medical bills totaling $7,000. The insured would be responsible for the first $500 (the deductible amount) and 20% of the next $6,500 of the medical bill or $1300. The insured would be responsible for a total of $1,800 and the health insurance provider would pay the remainder.
[$500 (deductible amount) + $1300 (coinsurance) = $1800]
After the coinsurance has reached its maximum, the insurance company is responsible for the remainder of the bill at 100%. It is important to note, that coinsurance amounts will cover wide ranges with different carriers. If the insured opts to be responsible for a larger coinsurance percentage, generally the policy will cost less. Additionally, some policies will offer a zero percent coinsurance option such as plans coupled with health savings accounts.
This is the maximum amount the insured is responsible for in a calendar year. Insurance companies arrive at this number by adding the deductible to the insured’s coinsurance percentage.
For example: An individual who purchases a health plans with $500 deductible and 80/20 coinsurance to $10,000 will have a maximum out of pocket expense of $2500.
[$500 (deductible amount) + $2000 (or 20% of $10,000 coinsurance) = $2500]
Another example: A family who selected a $1000 traditional deductible and 80/20 coinsurance to $15,000 will have a maximum out of pocket of $5000.
[$1000 x 2 plus ($2000 family deductible amount) + $3000 (or 20% of $15,000) = $5000]
The maximum amount the health insurance company will payout in the insured’s lifetime is referred to as the lifetime maximum. The amount varies based on the type of policy you choose, but insurance providers will cover a wide expanse here as well.
Typically, coverage mounts will range from one to two million with most short term health insurance plans. Should the insured reach their lifetime maximum, then the remainder of the expenses will not be covered by the insurance company.
Editor’s Note: All Affordable Care Act policies sold today do not have a lifetime maximum. They can theoretically pay-out tens of millions of dollars to the insured.
This amount is the insured’s responsibility for a routine visit to the doctor. Co-pays usually range from $25-$50 for a visit depending on the policy provisions. It is an optional feature on most health insurance plans and will increase the overall cost of the coverage.
Most clients request this feature as they do not want to pay the entire amount for an office visit. An office co-pay falls under a broad category of policy provisions referred to as first dollar benefits. In many cases, the copay amount for your primary doctor is less than for a specialist.
These are the benefits that are usually not subject to the deductible and/or coinsurance amounts. Preventive care, doctor’s office visits, child wellness visits, immunizations, OBGYN appointments, prescriptions and other policy specific provisions fall into this category. Certainly, the more first dollar benefits a policy contains, the better off the insured will be as he/she will have less in out of pocket expenses.
In summary, consumers in search of health insurance quotes and coverage have several options available to them. Deductibles, coinsurance, and first dollar benefits are three of the most important factors that determine the cost of the insurance as well as the strength of the benefits provided by the carrier.
Category: Health Insurance