Shopping for the best health insurance plan seems like an overwhelming project. You have to meet certain deadlines, such as the six-week window typically established for the open enrollment period that is part of the Affordable Care Act. Searching for the right health insurance plan gets even more complicated if you do not understand the meaning of the most common terms. If you do not understand the meaning between a premium and deductible, we are here to clarify 8 health insurance terms you should know when finding a plan.
1) Premium
A premium represents the payment you send to your health insurance provider to receive coverage over a designated period. Most health insurance plans set up monthly premium payments, but you can find a plan that allows policyholders to pay a quarterly or an annual premium. Keep in mind that setting up a monthly premium policy makes it easier to budget for healthcare expenses.
If you enroll in a health insurance plan offered through the marketplace managed under the ACA, you might qualify to reduce your monthly premiums by taking advantage of one or more tax breaks. Enrolling in an employer-sponsored health insurance plan usually means your employer pays at least a percentage of your monthly premiums.
2) Deductible
A deductible is the value of health insurance that you pay before your coverage kicks in. For example, if you have an annual deductible worth $5,000 per year, you pay for the first $5,000 of medical bills until your plan provides coverage. However, many plans cover the cost of preventive healthcare services regardless of the annual deductible, such as when you visit your physician for a semi-annual physical examination.
Part of determining the value of your premiums is a function of the amount of your annual deductible. The higher your annual deductible, the lower your health insurance premiums. Young policyholders in excellent health are the best candidates for choosing a higher annual deductible.
3) Copayment
Also referred to as copay, copayment is the amount you owe each time your receive a type of healthcare service. An example of a copay concerns the difference between visiting with a specialist and a general practitioner. The copayment for visiting with a general practitioner should be lower than the copay charged for consulting with a specialist. Most health insurance plans prohibit policyholders from using a copayment towards meeting the annual deductible threshold.
4) Coinsurance
Just because you meet the annual deductible threshold before the end of the year does not mean you are off the financial hook. Your health insurance plan might contain a coinsurance provision, which is the percentage of medical bills you pay after meeting the annual deductible threshold. Let’s assume you meet the $5,000 annual deductible threshold in late July and your coinsurance is 10 percent. This means you pay 10 percent of every medical bill after meeting the annual deductible threshold.
Learn more in How Do Deductibles, Coinsurance, and Copays Work?
5) Health Maintenance Organization
A health maintenance organization (HMO) is a type of network that limits your options for choosing a healthcare provider. If you decide not to receive healthcare services from an employee of an HMO or a healthcare provider that does contract work for the HMO, you can expect to pay the full cost associated with healthcare services. HMO members that change jobs in a new city might lose their HMO coverage.
6) Preferred Provider Organization
Enrolling in a health insurance plan offered through a preferred provider organization (PPO) gives you more flexibility to seek medical care from a healthcare provider that is outside the PPO network. You can expect to pay more for healthcare services outside of a PPO network, but you should have more healthcare providers to choose from than the number of healthcare providers listed in an HMO network.
Learn more in Choosing Your Health Insurance Network: HMO or PPO?
7) Point of Service
When you enroll in a point of service (POS) health insurance plan, you cannot receive healthcare services from a specialist unless you get a referral from your primary healthcare provider. For example, if a primary healthcare provider diagnoses early-stage cancer, the primary healthcare provider must refer the patient to an oncologist for the patient to receive healthcare coverage.
8) Health Savings Account
Opening a health savings account (HSA) allows you to deposit up to $3,350 annually in pre-tax dollars to have money available to pay for healthcare expenses. If you are at least 55 years old, you can place up to $4,350 into an HSA. Not only does an HSA lower your tax liability, but you also create a type of rainy day fund to pay for unexpected medical bills.
The Bottom Line
Understanding the most common health insurance terms can help you choose the right policy for your unique healthcare circumstance. It pays to have someone in your corner who can help you understand this terminology.
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