Individual Health Basics
Individual health insurance can be very complicated and confusing. If you are in the market to purchase an individual health insurance plan or have already purchased one, knowing the basic terminology used in the health insurance industry is a must. In this article we will try to put the terminology into clear English. We will also provide examples of how each item works, which should help you when shopping for a health insurance plan for you and/or your family.
The premium is the amount of money the health insurance plan costs. Premiums vary depending on the insured's age, health, zip code, plan type and more. The insurance company will often offer many different premium payment modes, such as monthly, quarterly, semi-annual and annual. Most individual health insurance companies only accept automatic bank drafting for the monthly payment option. A few companies even offer some sort of a discount if you elect to pay annually.
A pre-determined amount the insured must pay on medical bills before the insurance company will start to pay on any claims submitted. Deductibles come in all shapes and sizes. Typically, the higher the deductible, the lower the premium. If you elect to have a small deductible, the premiums will likely be high. Most individual health insurance companies offer deductible ranging from $500-$10,000.
It is very important to understand your plan's deductible structure. Deductibles are normally a calendar year expense, per person, although most of the time this will be limited to you paying three deductibles in one year, no matter how many family members are insured. Some plans deductibles are structured differently, therefore it is very important to read your brochure and understand exactly what you are buying. There are plans that only require you to meet one deductible for an entire family- an HSA plan is built with this deductible structure. Other plans may require you to meet your deductible per occurrence, meaning you will need to pay the deductible each time you have a surgery or are hospitalized. There are positives and negatives to all plans, do your research to find out which plan fits your family's needs the best.
Co-insurance is the percentage of the bill you will share with the insurance company after the deductible has been met. Typical co-insurance amounts found on individual health insurance plans are 50/50, 70/30, 80/20 or 100%. If you chose an 80/20 option you would pay 20% of the bills after the deductible has been met. Normally there would be a co-insurance maximum, which prevents you from having too much out of pocket expenses. Co-insurance maximum is explained later in the next paragraph. Although it may seem that having a 100% co-insurance plan is the best, because the insurance company will pay for everything after deductible, this may not be the case once you figure the amount you could save on your monthly premium by selecting another co-insurance option. Always review quotes with each co-insurance option to see which plan makes the most sense for you and your wallet.
As explained above, co-insurance is the percentage of the bill you will share with the insurance company after the deductible has been met. Co-insurance maximum is the total amount you will pay the percentage up to. For example: If you have an 80/20 plan, you may have a co-insurance maximum of $2000. This would mean that after the deductible was met, you will pay 20% of the bills until you have reached a maximum of $2000, plus your deductible. Co-insurance maximum normally has to be met by two people in the family, meaning you will have to pay 20% to $2000 for two people in the family, totaling $4000 family co-insurance maximum. If only one person is insured on the policy, only one co-insurance maximum must be met. Some plans allow you to adjust your co-insurance maximum, which can reduce your premium if you choose a higher co-insurance maximum option. Please keep in mind, policies may vary, check your brochure to find out exactly how much your co-insurance maximum is, and more importantly, that your policy has a co-insurance maximum.
Out-of-pocket maximum refers to the maximum you will be out of pocket if you add your deductibles and your total co-insurance out of pocket. For example: Let’s say you have a family of yourself, a spouse and two children. If you chose a plan that had a $1000 deductible, three max per family and a co-insurance amount of 80/20 with a $2000 co-insurance maximum that needed to be met by two people in the family, your total out-of-pocket cost would be $7000. If you chose a plan with a family deductible of $5000 and 100% co-insurance, your total Out-of-pocket would be $5000. Another important thing to remember is that office visit co-pays, prescription drug co-pays and non-covered expenses are not applied to the Out-of-pocket maximum. These costs will be over and above the Out-of-pocket maximum.
A co-pay is a set amount that you can pay to visit a doctor or purchase a prescription before the deductible has been met. Although, the co-pay amount normally does not work toward the deductible either. Co-pay amounts will vary depending on the service you are using. You may have a plan that has a $25.00 standard office visit co-pay, but the co-pay may be $40.00 to use a specialty doctor, such as an ear, nose and throat doctor. Prescription drug co-pays will typically vary depending on whether the drug in generic or brand name. For example, if you were to purchase a generic drug the co-pay amount may be $10.00, but if you purchase a brand name medication it could be $25.00.
Co-pays are normally an optional benefit. The plan may be far cheaper if you elect not to take the co-pay options. Be sure to quote your plan with and without co-pay options. Try to remember your families medical habits within the past few years. If your family does not have a habbit of visiting the doctor or using prescription drugs, you may be much further ahead by choosing to opt out of the co-pay option.
Lifetime maximum is the amount the insurance company will pay throughout the life of the policy. A typical individual health insurance policy may have a lifetime maximum of $5,000,000 per family. This is always something to look in to, each company will vary. Some companies may even have Annual limits, on top of lifetime limits. Annual limits can help reduce premium and may not be a bad option depending on your health insurance needs, though most often people would rather not have annual limitations. Some companies even offer up to $8,000,000 per insured person on the policy. Again, each policy will vary, so please do yourself a favor, read your brochure thoroughly.
Those are just a few of the most commonly used terms when talking about health insurance plans. There are many more aspects to individual health insurance. Don't hesitate to contact your agent should you have any questions about an individual health insurance policy. To be connected to a local agent in your area, click here.