Health Insurance 101

If someone stopped you on the street and asked you what an HRA was, could you define it? How about PDL? Do you know the difference between brand name and generic drugs? With the passing of the Affordable Care Act, the upcoming presidential election and open enrollment season in full swing, health insurance is a hot topic these days. Everyone seems to have an opinion on the issue, but how many of us really know what insurance is all about? When UHC-TV interviewers took our cameras to the streets it was clear that lots of people aren’t really sure what many health care terms mean and how they impact their wallets.

Spending more time to better understand health insurance terms is key to determining the best plan for you and your family. You wouldn’t cast a vote for president without first researching the candidates, so why would you just pick a plan without really knowing what it means? Take a minute to “attend” my Health Insurance Terms 101 crash course below and brush up on some basic health insurance terms. A deeper knowledge of these terms will help you better understand your financial responsibilities and benefits under each plan offered by your employer or, if you’re a small business owner, by your broker:

• Premium: the amount you pay each month to have health insurance coverage. This amount is usually taken out of your paycheck.
• Deductible: your portion of the costs before insurance kicks in. Preventive care, such as annual screenings and physicals, do not apply to the deductible.
• Copay: a fixed amount that you pay each time you see a doctor or fill a prescription. The amount of your copay may vary depending on whether you are seeing a primary care physician or specialist, or seeking emergency care.
• Coinsurance: a predetermined percentage of the total cost you pay for medical services, such as office visits, lab work and emergency room care. Coinsurance will apply up until you hit your out-of-pocket maximum.
• Out-of-pocket Maximum: the maximum amount you have to pay for health services every year. Once you have paid this amount, your insurance company usually pays 100% of your health care costs, subject to any policy limitations.

So that’s what the basic terms mean, but how do they translate to real life and your pocket book? Say you enroll in a traditional health plan with a monthly premium taken out of your paycheck. The plan has a $500 deductible, 20 percent coinsurance and a $2,000 out-of-pocket maximum.

If your doctor refers you to a dermatologist after finding a suspicious mole on your back during your annual physical, the physical is free because it is preventive care, but you have a $25 copay at the dermatologist’s office (considered a specialist visit) - which counts toward your deductible.

The dermatologist removes the mole, a procedure that costs $1,475. You pay the remaining $475 of your deductible first. After that, your insurance kicks in to apply to the remaining $1,000 balance. Because your coinsurance rate is 20 percent, the insurer will pay $800 and you will be responsible for $200 of that portion. Your total cost would be the $25 copay, plus the remaining $475 deductible, plus the $200 coinsurance rate, for a total of $700.

Then suppose that later in the year, you end up in the hospital for 4 days with an illness.  Your total bill from the hospital is $20,000.  Your coinsurance rate means that you are responsible for $4,000, but your maximum out-of-pocket for the year is $2,000.  You’ve already paid $700 earlier in the year, so you would only have to pay the remaining $1,300. 

Once you hit the $2,000 maximum out-of-pocket, all of your eligible medical expenses for the rest of the year will be covered 100% by your insurance.

Whew, that's a lot of numbers!  But don't rely on my math - check out the video below and tune into UHCTV to find out more about various aspects of health insurance.