Defining Common Health Insurance Payment Terms
The health insurance industry – like many others – uses a lot of jargon. For employers and employees, insurance terms are sometimes hard to understand. But, we can help. In this article, we will explain four of the most-common health insurance terms, so you’ll be better able to understand your health insurance and employee benefits.
Premium is the amount of money you pay for your (and your employees’) health insurance every month. Several things, including what type of coverage you select, determine the price you pay. The CaliforniaChoice multi-carrier, small business private exchange offers a variety of options for you and your employees, including Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), and Exclusive Provider Organization (EPO) plans as well as High Deductible Health Plan (HDHP) options and Health Care Service Plans.
Other factors influencing your cost are your age and the ages of your employees – and eligible dependents, if they are covered – as well as your home ZIP Code.
The premium for your selected coverage is fixed for the term of your plan, 12 months for most employer-sponsored coverage. The monthly amount could change at your renewal, when you will also be given the opportunity to shop and compare other options.
At its core, as with other types of insurance, your premium is the amount you pay in exchange for the promise by your insurance carrier to pay claims for covered services during your contract period.
Beyond the premium that you and your employees pay, you may have other out-of-pocket costs during your plan year. Those other costs include your annual deductible, copayment amounts (for doctor office visits or other services), and coinsurance, all of which we’ll explain below.
Deductible is the amount you must pay each year before your health insurance plan starts to pay for covered services. For example, if your plan has a $1,000 deductible, you would need to pay $1,000 for what your health plan categorizes as eligible, covered services before your insurance begins to pay.
It’s also worth noting that some health plans have an in-network deductible, a separate out-of-network deductible, and, sometimes, a deductible for prescription drugs. Other plans have only one deductible for each insured person. If you have family coverage, your health plan very likely has a deductible for you and a separate deductible for your insured family members. Be sure to review your health plan details concerning your deductible before selecting your coverage or seeking medical care.
After you pay your annual deductible, your out-of-pocket costs are usually limited to your copayment amounts or coinsurance for covered services. Your insurance company will pay the rest of your covered health care charges.
Under the Affordable Care Act (ACA), preventive health care services – like shots and screening tests – are available at no cost and are not subject to a deductible. Copayments and coinsurance amounts do not apply either. Therefore, if you offer an ACA-compliant plan to your employees, they will be able to get some health care services at no out-of-pocket cost (beyond their contribution to the health plan premium, if any).
Generally, plans with lower monthly premiums have higher deductibles. Plans with higher monthly premiums usually have lower deductibles.
What are Copayments?
Copayments are typically fixed dollar amounts you must pay (in addition to your deductible) when seeking medical treatment. If, for example, your health plan has a $15 copayment for a $100 doctor’s office visit, you would have to pay $15 and your insurance would pay the rest (if you have satisfied your annual deductible).
If you had not met your deductible, you would need to pay the full $100 charge, which you could count toward your annual deductible.
What is Coinsurance?
Coinsurance is usually a fixed percentage of the total cost for covered services that you must pay (in addition to your deductible) when seeking treatment. If, for example, your health plan has a 25% copayment for a $125 specialist office visit, you would have to pay $25 and your insurance would pay the rest (if you have satisfied your annual deductible).
If you had not met your deductible, you would need to pay the full $125 charge for the specialist office visit, which you could count toward your annual deductible.
Different services covered by the same health plan can have different copayment percentages or amounts. This is especially true when it comes to prescription drugs, lab tests, and visits to in- and out-of-network medical specialists. You will want to keep this in mind when selecting a plan – and when seeking treatment.
Plans with low monthly premiums generally have higher coinsurance, and vice versa.
If you are interested in an explanation of other health care-related terms, your employee benefits broker is a great source of information. If you do not already have a broker, we can help you find one who will meet with you to discuss your needs and provide you with a custom quote for CaliforniaChoice coverage for your employees.