Understanding how your health insurance works is an imperative component of being prepared for care. In order to maximize your care and keep your out-of-pocket costs low, it is essential you understand and familiarize yourself with the details of your plan. While benefit plans vary in what is covered and the associated out-of-pocket expenses, this article is designed to tell you what you need to know and the most common terms you’ll come across.
• In and Out of Network
• HMO vs PPO
• Annual Deductible
• Annual Out-of-Pocket Maximum
Premiums are the payments you make through payroll deductions on a per-pay-period basis. Rates are affected by many variables including the cost of various medical services and how likely it is that plan participants will need those services.
Consider This: There is a high correlation between the premium and the annual deductible. The higher the annual deductible, the lower the premium and vice versa. In addition, most employer-sponsored medical plans allow participates to pay their benefit premiums on a pre-tax basis through employee payroll deductions.
In and Out of Network
When a healthcare provider wants to do business with an insurance company, such as Aetna or Blue Cross Blue Shield, the healthcare provider enters into an agreement with the insurance company to only charge what the insurance company pays for covered services: in-network healthcare provider. In doing so, a plan participant’s out-of-pocket costs are significantly lower than from a healthcare provider who is not “contracted” with an insurance company: out-of-network healthcare provider. Understanding both your plan’s in-network and out-of-network benefits is critical as you review your out-of-pocket responsibility for covered services. If a plan participant uses an out-of-network provider, the plan participant will be responsible for a lager portion of the cost.
Consider This: All insurance carriers should be able to provide you with a list of their current in-network healthcare providers. If you ask a provider this question directly is imperative you do not ask if they “ACCEPT” yourmedical carrier (e.g., Aetna, or Blue Cross Blue Shield, etc.), but rather if they are “CONTRACTED” with your medical carrier. While the semantics are subtle their effect is profound. While most out-of-network providers will accept all major medical carriers, those medical carriers will only pay what is unusual and customary. Moreover, because your out-of-network healthcare provider is not contracted with your medical carrier,they have no restrictions on the amount they can charge. More often than not, you will be “balance billed” for the difference figure.
HMO vs PPO
In a Preferred Provider Organization (PPO) arrangement, the plan contracts with physicians and hospitals to provide services at a reduced cost. If you use in-network providers, the plan pays for all or most of the common cost of treatment. Participants can use out-network healthcare providers, but may pay a larger portion of the cost. A Health Maintenance Organization (HMO) is a group plan in which members must choose a Primary Care Physician (PCP) form a network of local healthcare providers who will refer you to an in-network specialist or hospital.
Consider This: In a PPO arrangement, you do not need a referral to see a specialist, nor do you need to designate a PCP.
The annual deductible is the amount the participant(s) must pay before the health plan begins to pay towards covered services, called co-insurance. There are typically two types of deductibles, family and individual. Under a family deducible arrangement, which means you’ve enrolled dependent(s), the full-family deducible must be met before the plan begins to pay for any one or more covered dependents. In addition, most plan designs include a separate family and individual deductible for in-network and out-of-network services.
In some cases the family deductible is embedded, meaning if one or more covered dependent(s) meets their individual deducible, the plan will begin paying towards covered services for that specific plan participant regardless if the family deducible has been met. Plans designs which include embedded deductibles are rarer because of the IRS restrictions placed on this type of medical plan but they are becoming more popular. More typically, embedded deductibles are associated with Consumer Directed Health Plans (CDHP/HDHP).
Consider This: In most cases, any covered service that a plan participant pays out-of-pocket for counts towards the annual deductible accumulation. In most plans, office visit co-pays and prescription drug co-pays are excluded from the annual deductible accumulation. Moreover, the per-pay-period premiums associated with the medical plan also do not count towards the plan’s annual deductible accumulation.
Participant annual deductibles are reset at the beginning of every plan year. Many participants use, for example, a flexible spending account or a heath savings account to pay for their out-of-pocket costs until they reach their annual deductible. If you have to pay out-of-pocket anyway, you might was well use pre-tax dollars.
Some medical plans include co-pays. Co-pays are set prices for various services you may need throughout your benefit plan year. Co-pays typically apply to primary and specialty doctor visits, prescription drugs and emergency room visits. Co-pays are normally only associated with in-network healthcare providers. Consumer Directed Health Plans (CDHP/HDHP) do not use co-pays as part of their plan design.
Consider This: Because co-pays do not typically count towards the plan’s annual deductible or out-of-pocket maximum, co-pays can be a double-edge sword. While co-pays insulate you from the full cost (billed cost) of a doctor office visit, for example, participants who have a high utilization of healthcare needs throughout plan year typically fare much better under in a Consumer Directed Health Plan, if one is offered. Consumer Directed Health Plans, with the possible exception of prescription drugs coverage once the annual deductible has been met, do not have co-pays as part of their plan design, and as such, all cost associated for covered services leading up to the annual deductible are 100% out-of-pocket to the participant. In effect, participants tend to meet their annual deductible and out-of-pocket maximum much faster during the plan year. In addition, participants can pay for out-of-pocket costs using pre-tax dollars through their Health Savings Account which is always an important feature of a Consumer Directed Health Plan. Likewise, co-pays are eligible reimbursable expenses under a Medical Flexible Spending Account.
Once a plan participant meets their annual deductible, then the plan starts paying towards covered medical services. Coinsurance is the cost sharing between the plan participant and the insurance company. For example, if the plan has 80/20 coinsurance, this means the plan will pay 80% of all covered services while the plan participant pays for 20%, up to the plan’s out-of-pocket maximum.
Consider This: Many participants use a Medical Flexible Spending Account to pay for their coinsurance amounts
Annual Out-of-Pocket Maximum
This is the maximum amount of money you could be required to pay for your covered healthcare costs during the plan year and includes the amounts applied to your annual deductible and the coinsurance after the annual deductible has been met. Once a plan participant meets their annual deductible, then the plan pays 100% of all covered services. In addition, most plan designs include separate family and individual out-of-pocket maximums for in-network and out-of-network services.
Consider This: Because co-pays typically are not included in either the annual deductible or out-of-pocket maximum accumulations, co-pays will typically continue even after the annual out-of-pocket maximum has been met. The per-pay-period premiums associated with the medical plan do not count towards the plan’s annual out-of-pocket maximum accumulations.