When shopping for a new plan, one of the main challenges people face is understanding health insurance terminology. To shop smart, you should understand the basic differences between the top four types of Individual and Family plans, and the basic definitions of five key terms.

Top four health plan types

 

1. PPO

PPO or "Preferred Provider Organization" plans are the most popular in the Individual and Family market. Like the name implies, with a PPO you'll need to get your medical care from doctors or hospitals on the insurance company's list of preferred providers if you want your claims paid at the highest level. It's up to you to make sure that the health care providers you visit participate in the PPO. Services rendered by out-of-network providers may not be covered or may be paid at a lower level.

A PPO plan may be right for you if:

• Your favorite doctor already participates in the PPO: you can sort for plans accepted by your doctor after getting quotes at eHealthInsurance
• You want some freedom to direct your own health care but don't mind working within a list of preferred providers

2. HMO

HMO means "Health Maintenance Organization." HMO plans offer a wide range of health care services through a network of providers that contract exclusively with the HMO, or who agree to provide services to members. As a member of an HMO, you will need to choose a primary care physician ("PCP") who will provide most of your health care and refer you to HMO specialists as needed. Health care services obtained outside of the HMO are typically not covered, though there may be exceptions in case of an emergency.

An HMO plan may be right for you if:

• You're willing to play by the rules and coordinate your care through a primary care physician
• You value preventive care services: coverage for checkups, immunizations and similar services are often emphasized by HMOs

3. HSA-eligible Plans

These are usually PPO plans with higher deductibles, designed specially for use with Health Savings Accounts ("HSAs"). Similar to a 401(k), an HSA is a special bank account that allows you to save money - pre-tax - to be used specifically for medical expenses in the future. Unlike a flexible spending account, the money in your HSA rolls over every year and can also gain interest. By pairing a qualifying high-deductible health plan with an HSA, you can save money on health care and earn a tax write-off. You'll find more information about HSAs online at www.eHealthInsurance.com/hsa.

An HSA-eligible plan may be right for you if:

• You would like to pay for health care expenses with pre-tax dollars
• You're relatively young and healthy and don't often visit the doctor
• You prefer a cheaper monthly premium even if it means having a higher deductible in case of unexpected injury or illness

4. Indemnity

Indemnity plans allow you to direct your own health care and visit most any doctor or hospital you like. The insurance company then pays a set portion of your total charges. You may be required to pay for some services up front and then apply to the insurance company for reimbursement. Because of the freedom they allow members, Indemnity plans are sometimes more expensive than other types of plans.

An Indemnity plan may be right for you if:

• You want the greatest level of freedom possible in choosing which doctors or hospitals to visit
• You don't mind coordinating the billing and reimbursement of your claims yourself

Five Health Insurance Terms You Must Know

1. Premium:

Your premium is the amount you pay to the health insurance company each month to maintain your coverage. When trying to understand the cost of a health insurance plan, the premium is the first thing to consider. But make sure to balance it against other costs, such as copayments, deductibles and coinsurance. A good rule: choose a lower premium/higher deductible if you want to save money now, and a higher premium/lower deductible if you want to be more financially prepared for unexpected medical expenses later.

2. Copayment:

Your copayment, or "copay," is the specific dollar amount you may be required to pay up front for a specific type of service. For example, your health insurance plan may require a $15 co-payment for an office visit or brand-name prescription drug, after which the insurance company pays the remainder of the charges. A good rule: if you make frequent doctor's office visits, make sure you choose an affordable and consistent copayment.

3. Deductible:

Your annual deductible is the amount you may be required to pay out-of-pocket before the insurance company will begin paying for your medical claims. Keep in mind, your monthly premiums and copayments will often not count toward your deductible. Not all plans require a deductible, but choosing a plan with a higher deductible can keep your monthly premiums lower. A good rule: keep your deductible to no more than 5% of your gross annual income.

4. Coinsurance:

Coinsurance is the amount that you are obliged to pay for covered medical services after you've satisfied any co-payment or deductible required by your health insurance plan. Think about it this way: the insurance company may limit coverage for certain services to, say, 80% of charges. So, for example, if your insurance benefits cover 80% of x-ray charges, you will need to pay the remaining 20%, even if your annual deductible is already met. That 20% is considered coinsurance.

5. Maximum Out-of-pocket Costs:

Pay attention to this amount when considering a new health plan. Your maximum out-of-pocket cost sets a limit to your annual financial liability. Once you have paid out of pocket (typically through deductibles, copayments or coinsurance) to the "maximum" amount, the insurance company pays the full charges for any additional covered medical services rendered that year. Your monthly premium will not count toward your maximum out-of-pocket costs.