What Is Health Insurance?
Health insurance is a type of policy or agreement between you and a financial institution—called an insurance company—that pays a portion of your medical or healthcare costs. In return, you are responsible for paying a monthly premium or fee to the insurance provider. The monthly payment is pooled into a fund that the company uses to pay claims. When you need to schedule medical expenses, you or your care provider will remit a claim to the insurance company for the service you received. The insurance company pays the claim to the hospital or medical provider to the degree stated in your contract. You may also receive a bill for a portion of the amount owed. Your insurance contract will have many rules, which may include the doctors or providers you can visit, how much you must pay upfront, the portion of total costs the insurer will cover, and the portion that is yours to cover. There are a vast number of healthcare plans out there, each with a wide range of features that may differ from one to the next. Levels of coverage can vary a great deal as well, so make sure you know what types of care your own policy covers and how much it will cost you at each step.
Coinsurance
Coinsurance is the cost you share with your healthcare insurer. It is a percent of the full payment of the service after the deductible. In some cases, it applies across the board, but most often, it will differ depending on the type of service. For instance, you may pay only 10% for a standard check-up but 50% for a complex service. Coinsurance coverage is typically expressed as a split percentage with you owing a portion and the insurance company owing the remaining percentage. For example, a common coinsurance split is 80/20, meaning the insurer will pay 80% of the medical cost and you must pay the other 20%.
Coinsurance and Your Deductible
Coinsurance works in tandem with your deductible in your final bill. Take the total cost and subtract the deductible. The amount you are left with is the amount that the coinsurance clause will apply to. So, for example, say you have a $1200 healthcare bill with a $200 deductible and an 80/20 coinsurance clause. The full amount of the service ($1200) minus the deductible ($200) amounts to $1000. Based on the 80/20 coinsurance, you would cover 20% (or $200, which is 20% of $1,000). The insurer would cover 80% ($800). All told, you have paid $400, and your health plan pays $800 to cover the total cost of $1200.
Copayment
The copayment (or “copay”) is a fixed amount that you must pay at the time you receive certain medical services. Your health plan will define which types of services come with copays. Copays may or may not apply to the full scope of services under a healthcare plan in the same manner. This is one of the many reasons you should become familiar with the details of your contract. You’ll want to know what kinds of costs you will be paying in full and which you will only need to pay a part of. Copays are most common with standard doctor visits and if you need to purchase medications. Copays are often confused with deductibles, but they are not the same.
Deductible
The deductible refers to the amount of money that you must pay each year before your health plan will kick in and cover any medical costs. Your annual deductible is an out-of-pocket expense that is usually a fixed amount. Typically, the higher the deductible, the cheaper your monthly premium. The reason is that when you take a high deductible health plan, you are agreeing to pay more of the medical costs yourself out-of-pocket, and so the insurer doesn’t charge you as much for the premium.
Your Deductible in Action
To explain how a deductible works, let’s say you have a $50 deductible on the dental portion of your policy. Your dentist bill is $475. When you submit the claim to the insurance company, they only reimburse you for $425 because you are responsible for the first $50 of the cost via the deductible. The good news is that once the deductible is paid, it will not apply again until the new term, which is most often a full year. If a month later you have a second visit with the dentist, you will not have to pay the deductible again, as you’ve already paid it for that term with the former bill. You will most often see the deductible stated as a per-year amount. This means when your plan renews, the deductible would be in effect again. You may be able to receive some services, such as standard doctor visits, without meeting the deductible first. If your health plan covers you as well as your family, you may have a separate deductible for each member.
Dual Coverage
Dual coverage is when you are covered by two health plans or when you have an extra supplemental health plan. This is common in cases where you enroll in the healthcare plan through work. They may offer many options for one main health plan, as well as extra options for dental and vision. A person may be covered under two health plans but will 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 way you are defined on these contracts matters when it comes to the coordination of benefits. Your primary provider will carry the bulk of the costs of a service and will be charged first. If you happen to be a primary enrollee in more than one 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 plans, they stand to gain and can save a lot of money on healthcare. This is because where the main plan stops paying, such as with a coinsurance clause, then the second plan may step in and pay what’s left. This could leave the enrollee with nothing to pay.
Coordination of Benefits
Coordination of benefits happens when your doctor or another provider can draw from more than one plan to cover the cost of a service. In other words, it is when you can receive health plan benefits from more than one source.
Example of Dual Coverage
Suppose you have a health plan that pays up to a limit of $1,000 per year for a certain service, but you’re also covered under a second plan that belongs to your partner, which pays up to $500 per year for that same service. Once the funds in your main plan have been exhausted or you hit your annual coverage limit, the remaining costs may still be covered under your partner’s plan. The health provider would coordinate benefits to make sure each plan pays a portion of the service.
Dual Coverage and Coinsurance
If your main health plan has an 80/20 coinsurance clause on a given type of service and you have dual coverage, it would pay 80% of the cost, and the 20% would be paid from your second health plan. Because you are covered under the dual pan, the coordination of benefits results in you paying nothing out of pocket. On the other hand, if both your main plan and your second plan have 80/20 coinsurance, the process does not apply. After your main plan pays the 80%, the second plan does not kick in to pay any of the balance, as they would have only paid 80% as well. In other words, the total coverage you would receive would always be 80%, and there is no chance to double up on benefits. However, if your main plan had a 50/50 coinsurance and your second plan had 80/20 coinsurance, the coordination of benefits would result in a 50% payment from the main plan and 30% from the second plan.
Grace Period
When speaking about healthcare, a grace period is the amount of time an insurance company will give you to pay your health premium after the due date. If you don’t pay on time and still have not paid after the grace period has passed, your plan might be canceled. Each health plan is different, so be sure to check the terms in your contract.
Affordable Care Act Grace Period
Under the Affordable Care Act (ACA), people who receive advance premium health credits and have not paid their monthly premium bills in full will enter a 90-day grace period. This applies only if they have paid at least one month of their policy. If they do not pay in full during the 90-day grace period, then their coverage may be canceled.
Lifetime Maximum
Just like it sounds, the lifetime maximum is the most amount of money the health plan will pay for the full life of the policy. Look closely at your contract because there may be two: one for you and one for your family, and they may not be the same amount either.
Multi-State Health
Multi-state health insurance means that the insurer operates a plan in many states. But it does not always mean you are covered in all these states. Again, read your contract closely for details before you receive healthcare in a place other than the state in which you reside (and is listed in your contract).
Out-of-Pocket
Out of pocket refers to the cost you must pay on your own, without help from your insurer. An out-of-pocket cost can describe the amount of the copay, coinsurance, deductible, or all three, based on each bill and where you fall in the progress of the plan’s payment scheme. Also, when the term annual out-of-pocket maximum is used, that refers to how much you would have to pay for the whole year on your own, except for premiums.
Pre-existing Conditions
A pre-existing condition is a medical condition that you had before the insurance policy began. Some plans will cover pre-existing conditions while others may exclude them in full. Exclusions for pre-existing conditions are very common on travel health insurance plans or may apply on standard plans when you are traveling.
The Bottom Line
Health insurance can be confusing. Always talk to an agent from the insurance company to explain how it works before you sign up. If you have questions about new terms, rules, or whether the plan will cover something, they can help you sort it out.
