Understanding Health Insurance Coverage
Your A-Z Guide to Co-pays, Deductibles, and More
Health insurance policy terms and conditions can be confusing. If you are unfamiliar with some of language used in your health insurance policy, it can be difficult to know what is covered and what is not.
Here is a list of common health insurance terms with definitions and examples, so you can better understand your insurance policy and make informed decisions about your care.
What Is Health Insurance?
Health insurance is an insurance policy you pay into that later helps you cover a portion of your medical expenses. You typically pay a periodic premium, and then you or your care provider will remit a claim to the insurance company for care received. The insurance company then pays the claim.
Levels of coverage can vary widely, so it's important to know what your particular policy covers, and how much that coverage costs.
The co-insurance is usually expressed as a split, where the insured pays a certain percentage and the insurance company pays the rest. The most common co-insurance split is 80/20. This means that the insurance company will pay 80% of the procedure and the insured is required to pay the other 20%.
Coinsurance and Your Deductible
An illustration of how co-insurance works with a deductible would be as follows: Take the total cost and subtract the deductible. The amount you are left with is the amount that the co-insurance clause will apply to.
So, for example, say you have a $1200 medical bill with a $200 deductible and an 80/20 co-insurance clause. The amount of the medical services ($1200) minus the deductible ($200) equals $1000. Based on the 80/20 co-insurance, you would cover 20% $1,000 ($200) and the insurance company health benefits plan would cover 80% ($800). All told, you have paid $400 and your health insurance benefits pay $800 to cover the total cost of $1200.
Coordination of Benefits Definition
Coordination of benefits is when health insurance benefits are available to a person from different sources. The health insurance provider will review the various coverages available and then arrange payments accordingly.
If there is only one source of health insurance, then coordination of benefits does not apply, because there is no other health plan to coordinate with.
How Coordination of Benefits Works
To illustrate how coordination of benefits works, say you have a health insurance plan that pays up to a yearly limit of $1000 for physiotherapy. Suppose you are also covered under your partner's plan, which pays up to $500. You are said to be covered by a dual plan. Once your plan's coverage is exhausted and you have hit your yearly limit, you may still be able to get coverage under your partner's plan. The health insurance company would coordinate benefits to make sure each plan pays a portion of the service.
If your primary health insurance carrier has an 80/20 co-insurance clause on dental benefits and you have dual coverage, your primary carrier will pay 80% of the cost of the insurance and you will then get the remaining 20% from your secondary health insurance provider. Because you are covered under the dual pan, thanks to the coordination of benefits between the two plans, you end up paying nothing out of pocket.
However, if both your primary health insurance insurer and your secondary insurer have 80/20 co-insurance, coordination does not apply. After your primary plan pays the 80%, the secondary carrier does not kick in to pay any of the balance because they would have only paid 80% as well.
If your primary carrier had a 50/50 co-insurance and your secondary plan had 80/20 co-insurance, then the coordination of benefits would result in a 50% payment from the primary plan, then the remaining difference of the 30% payment from secondary health insurance. The total you would get always ends up as 80%, and there is no duplication of benefits.
The co-payment is a fixed amount that you are required to pay at the time of receiving certain medical services. Your health insurance policy will define which types of medical services require co-payments. Co-payments do not usually apply to all services covered by a health care plan, which is why you should familiarize yourself with the information about your policy, to know what kinds of costs you will be paying in full and which partially. Co-payments are most commonly associated with doctor visits and when purchasing prescription medications. Co-pays are not the same as deductibles.
The deductible refers to the amount of money that the insured pays before the health insurance benefits will start to cover costs. Deductibles are an out-of-pocket expense when it comes to your healthcare plan.
The higher the deductibles in your health insurance plan are, the less expensive your premiums will typically be. The reason is that when you take a high deductible health insurance plan, you are agreeing to pay more of the medical costs yourself out-of-pocket, and so the insurance company doesn't charge you as much for the premium.
Your Deductible in Action
To illustrate how a deductible works, imagine you have a $50 deductible on the dental benefits portion of your policy. Your dentist bill is $475. When you submit the claim to the insurance company, they only reimburse you $425 because you are responsible for the first $50 of the cost via the deductible.
However, once the deductible is paid, it will not be applicable again until the new policy term. If a month later you have another appointment with the dentist, you will not have to pay the deductible again, as you've already paid it for the policy term with the previous bill.
Deductibles do not apply to all coverages in a health insurance policy in the same way and may vary between coverages on the same policy. For example, a person may have a $10 deductible on vision, but a $50 deductible on dental, and no deductible on medication.
The deductible is usually stated as a yearly amount, so when the policy renews, the deductible would be in effect again. Some services, such as doctor visits, may be available without meeting the deductible first. Usually, there are separate individual deductible amounts and total family deductible amounts.
Dual Coverage Definition
Dual coverage is when you are covered by two health insurance plans or supplemental health insurance plans, such as dental insurance.
A person may be covered under two health insurance plans, but will usually only be the primary enrollee for one of them. The primary enrollee is the main named insured on the policy. The health insurance company that insures you as a primary enrollee is called the primary insurer, or primary provider.
The distinction of who the primary provider is becomes important for coordination of benefits because under the coordination of benefits, the primary carrier will carry the primary obligation of costs. If a person is a primary enrollee in more than one benefit plan, then the rules under the coordination of benefits would apply to figure out the order in which each insurer would pay.
The Advantage of Dual Coverage
If a person is covered under two health insurance plans, they stand to gain because where the primary carrier stops paying, for example with a co-insurance clause, then the secondary carrier may step in and pay the difference. This could leave the enrollee with nothing to pay.
Grace Period Definition
A health insurance grace period is the amount of time an insurance company will give a policyholder to pay their health insurance premium after the due date and before insurance coverage would be canceled.
Each health insurance policy is different, so be sure to check the terms in your contract.
Be aware that the insurance company may elect to withhold claim payments for claims within the grace period until the premium is paid.
Affordable Care Act Grace Period
Under the Affordable Care Act (ACA), people who receive advance premium health credits and have not paid their health insurance premiums in full will enter a 90-day grace period, provided they have paid at least one month of their policy. If they do not pay their premiums in full during the 90-day grace period, then their coverage may be canceled.
Lifetime Maximum Definition
This is the most amount of money the health insurance policy will pay for the entire life of the policy. Pay attention to individual lifetime maximums and family lifetime maximums, as they can be different.
Multi-State Health Insurance Definition
Multi-state health insurance means that the insurance operates a plan in multiple states. It doesn't necessarily mean you are covered in multiple states, however.
Out of pocket refers to the insured's personal cost. An out-of-pocket expense can refer to how much the co-payment, coinsurance, or deductible is. Also, when the term annual out-of-pocket maximum is used, that is referring to how much the insured would have to pay for the whole year out of their pocket, excluding premiums.
Pre-existing Conditions Definition
A pre-existing condition is a medical condition that the insured had before the insurance policy began. Some insurance plans will cover pre-existing conditions while others may completely exclude them.
Health insurance bought on the Marketplace must include treatment for pre-existing conditions.
Exclusions for pre-existing conditions are very common on travel health insurance plans or may apply when traveling.
The Bottom Line
Health insurance policies can be confusing. Always talk to a representative from your company or the insurance company to clarify how it works before you sign up. If you have questions about particular coverages, rules, or unfamiliar terms, they can help you sort it out.