When shopping for a new plan, one of the main challenges people face is understanding health insurance terminology. You’ll find a glossary of health insurance terms in the Resources section of this document, and a larger one online at www.ehealth.com. But before you proceed, here are five key health insurance terms you should understand:
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 plan if you are relatively healthy and want to save money up front. Choose a higher premium/lower deductible plan if you want lower costs when you actually receive medical services.
Your copayment, or "copay," is the specific dollar amount you may be required to pay up front for a specific type of medical service. For example, your health insurance plan may require a $25 copayment for an office visit or brand name prescription drug, after which the insurance company may pay the remainder of the charges.
A good rule: If you make frequent doctors office visits, make sure you choose a plan with an affordable and consistent copayment.
Your annual deductible is the amount you may be required to pay out of pocket before the insurance company will begin paying for your covered 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 if possible.
Coinsurance is the amount that you may be obliged to pay for covered medical services after you’ve satisfied any copayment 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.
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.