If you've ever started a new job or joined a different health plan, you may remember being confused by all the various healthcare terms.
So let's break down the terms you need to make the most of your health plan. By understanding your options, you can minimize your out-of-pocket spending and find the one that best fits your lifestyle and budget.
Healthcare terms: Plan types
The two primary health plan types are HMOs and PPOs, both network provider plans.
An HMO (Health Maintenance Organization) is a network of doctors, hospitals, and other medical service providers. On an HMO plan, you choose a primary care physician who manages your healthcare needs and recommends specialists and other services (like labs for blood tests).
On a PPO (Preferred Provider Organization), you're also part of a network, but one with a greater choice of doctors and other healthcare service providers. You don’t need a referral to see other doctors on a PPO plan; however, a PPO is generally more expensive than an HMO.
Payments
Your monthly premium is the amount you pay each month for your health benefits policy. Oftentimes that cost is shared between you and your employer.
That premium amount depends on the specific health insurance plan you choose within the HMO or PPO network. For example, say you decide to join an HMO. You must then decide what type of policy works best for you within that HMO network. There may be half a dozen options. Make sure you consider the cost of the monthly premium, the annual deductible, the coinsurance, and the copayment.
A deductible is a fixed dollar amount you must pay upfront for medical services before your health plan starts paying benefits. The copay is a set dollar amount that you pay each time you receive care. For example, your copay for visits to your primary care doctor may be $25. Coinsurance is your share of costs for services after you have paid your plan’s deductible.
Your plan in action
Still a bit confused by these healthcare terms? Here’s an example to help you picture how this all works:
Say you tore cartilage playing soccer and now need knee surgery. The surgery costs $50,000. Your plan’s annual deductible is $2,500. Your coinsurance is 10%. This is not the first time you are using your plan, as you have already paid $500 for several office visits and prescriptions.
Therefore, for your knee surgery, you will pay the $2,000 remaining on your deductible ($2,500 - $500), plus the 10% coinsurance on the cost of the surgery. This works out to $5,000, so you will end up paying $7,000. The healthcare policy covers the remaining $43,000.
This example is based on one of the several options within a network. If you instead choose a plan with a higher monthly premium, your annual deductible and coinsurance for the knee surgery would likely be lower.
Keep in mind, your monthly premium, annual deductible, coinsurance, and copayment perform a balancing act with each other. If one goes up, often another goes down.
Why medical insurance is so important
At some point in our lifetime, there is a high likelihood that we will need major — and often very costly — medical treatment. A major surgical procedure can cost hundreds of thousands of dollars. No one who is facing such a difficult procedure wants to also have to worry about paying for it.
That’s why healthcare plans have out-of-pocket maximums. These are the annual limits federal law sets for how much you have to pay for medical care, including the amount you spend on deductibles, copayments, and coinsurance.
For the 2017 plan year, the out-of-pocket limit for a Marketplace plan is $7,150 for an individual plan and $14,300 for a family plan. After you reach these amounts, your health plan pays 100% of the cost of the remainder of the covered benefits.
