What the Health? Understanding common insurance terms
We're committed to helping readers understand their benefits and the potential of tax-free health care accounts. But, before you can do any of that you have to understand the “language" of health care. To simplify things, we've put together the top terms you'll need to know to make educated decisions with your health benefits. Check them out!
These two terms are usually confused, but there's a clear difference. A benefit is the amount the insurance company pays on your behalf. A benefit level is how much the insurance company is willing to pay for a specific service.
Simply put, a "claim," as it relates to health insurance, is a request for insurance coverage. "Claims" for health insurance plans are typically submitted automatically to an insurance carrier when a qualified medical service has been performed. However, with an FSA or HSA, the claims process is not automatic.
Today, most FSA- and HSA-enabled plans utilize FSA/HSA cards that automatically approve purchases when you buy them. If you don't have one of these cards, FSA/HSA users who pay for qualifying expenses can submit a claim to their benefits administrator so they can be reimbursed for the cost of that expense with their funds.
Coinsurance is a cost-sharing arrangement in which the plan holder will pay a percentage of the costs of a medical service, often after a deductible has been met. As an example, if an individual's insurance plan offers a 70/30 split for medical expenses after the deductible is met, an expenditure of $100 would mean that the insurance company would pay $70, while the account holder pays $30.
Depending on the structure of the health care plan, coinsurance percentages may also vary if a patient goes outside of their physician network.
Many health plans will offer a type of cost-sharing arrangement called a co-payment where the plan holder will pay a fixed portion of the overall cost of the health care service. In the case of copayments, these are flat amounts (not percentages like coinsurance) that are paid for a health care service.
An insurance plan's deductible is the amount that a plan holder must pay out-of-pocket before the insurance company will begin to pay its portion. For instance, if you are enrolled in a plan with a $1,500 deductible, you will have to pay for your medical expenses in full until you meet the $1,500 threshold. At that point the health insurance plan will begin its coverage.
A dependent is any person that you list on your health plan, including children, a spouse or an adult relative that is covered by the primary insured member's plan.
Explanation of benefits
An explanation of benefits is the fine print that dictates how a medical claim is paid. It's usually received by the plan member following a qualified medical service or expense and contains detailed information about the total cost of the service, what the health plan paid and what portion of the costs the plan holders are responsible for, including any remaining copay, coinsurance or deductible amounts.
Health insurance premiums are the regular amounts paid to an insurance company to be considered “covered" under a health insurance plan. These amounts can be paid out biweekly, monthly, quarterly or annually.
Every insurance plan contracts with a network of doctors, hospitals, and other health care providers to provide medical services at discounted rate to its members. On the other hand, out-of-network providers are those medical providers that fall outside the insurance plan's network of preferred providers. So, their services will typically cost more than those in the plan network.
The out-of-pocket maximum is the most a person will pay toward their health insurance over the course of a year and is usually a combination of deductibles, copayments and coinsurance. Once you have spent your out-of-pocket maximum, the insurance company will pay 100% of all covered health expenses for the rest of the year.
A rider is a legal term that refers to an additional condition added to a contract. In the health insurance world, a rider usually refers to an additional level of coverage that is added to a health insurance plan and paid for with an additional premium. One example of this is a maternity rider, which provides additional pregnancy coverage that standard plans may not completely cover.
Of course, there's a lot of other terms to know. But these definitions should get the ball rolling for a bigger discussion with your insurance provider or FSA administrator.