Understanding Your Health Insurance Coverage

August 6, 2013

Photo by Images_of_Money, via flickr

Have you ever looked at your health insurance coverage options at open enrollment and wondered what all the different terminology actually meant?  When every plan used a different format to summarize coverage, it was a challenge to make an “apples to apples” comparison of the various offerings.

Health care reform has made comparing insurance plans much easier by requiring group health plans to provide you with a standardized Summary of Benefits and Coverage (the “SBC”) for open enrollment.

The SBC allows you to easily comparison shop your employer’s various health insurance offerings because each plan’s summary has the same standardized information.  Typically, your insurance carrier or employer (or the plan administrator if you are in a self-insured plan) will provide you with the SBC for each health plan offered.  Remember that SBC’s are not issued for stand-along vision or dental plans.  Also, not all plans are required to provide you with an SBC.  Check with your plan to see whether this requirement applies.

The SBC will provide you with information regarding the key features of the health plan that you are considering.  For example, it will explain whether the plan has a deductible and the amount, the various copays, and whether there are out-of-pocket limits, annual limits, or services not covered.  You can find a template SBC on the Department of Labor website here.

Health plans use specific terminology to identify the various coverages available to you.  The terms can be confusing and leave you wondering about what your health plan really covers and what costs you may be responsible for paying.  The Department of Labor has issued a glossary of health coverage and medical terms to help folks through the maze of various terms referenced in the SBC.  You can find this helpful glossary here.

Below are a few terms commonly used by health plans to describe the employer coverage available to you.  Some of these terms are also often found on your insurance card.

Co-Payment
This is a fixed amount that you pay upon receiving a service covered under your health plan.  The amount can vary depending on the type of service you are receiving.  For example, a co-payment for a doctor’s office visit can be $25, but a co-payment for a hospital inpatient admission could be $300.

Deductible
A deductible is a common feature of many health plans.  Generally, it is a fixed dollar amount that you need to reach on an annual basis before the plan begins covering your costs under the plan.  For example, let’s say you have an individual deductible of $1,500 and a family deductible of $3,000 for any in-network services that you and your covered dependents receive.  If you incur in-network hospital costs, you would pay 100% of the cost until you reach that deductible amount of $1,500, at which time other provisions of your plan such as, for example, co-insurance would apply.  However, the deductible may not apply toward all services so in our example above, an office visit may only necessitate a flat co-payment amount and would not count toward the deductible, or if your plan instead features a flat co-pay for hospital care, that co-pay may not apply toward your deductible.

Co-Insurance 
Co-insurance is the share of costs for which you are responsible.  Let’s use the example above and assume that your co-insurance for hospital care is 20%.  This means that when the co-insurance goes into effect (generally after you have reached your annual deductible), you would be responsible for 20% of the medical expenses and the insurer would be responsible for 80%.

Out-of-Pocket Maximum (or Limit)
Health care reform requires most plans to offer enrollees protection from skyrocketing costs by setting an out-of-pocket limit.  This is the maximum out-of-pocket amount that you and your dependents would be responsible for paying on an annual basis.  Note that some of your expenses, such as for example, co-pays, expenses for non-covered services, or other expenses, may not count toward the out-of-pocket limit.

In the example above, the plan features a $1,500 individual deductible and 20% hospital co-insurance.  If the plan has a $10,000 out-of-pocket limit, the enrollee would first meet the deductible of $1,500, after which point the 20% co-insurance would apply.  Assuming the enrollee did not incur prior costs affecting the out-of-pocket limit, the enrollee would be responsible for paying the 20% co-insurance up to the out-of-pocket limit amount of $10,000, at which point the plan would cover 100%.

In-Network vs. Out-of-Network
Seeing an in-network provider contracted with your plan will usually cost you less.  Your out-of network visit may not be covered at all or, for example, may be subject to a much high co-insurance or a separate out-of-pocket maximum or deductible.  Many plans provide search tools on their websites that allow you to search for a nearby in-network provider in a particular specialty.  When in doubt, call your insurer or plan administrator.

The definitions and examples above are general and do not apply to all plans.  Always check with your individual plan to clarify the particular provisions applicable to you.  Other commonly used health plan terms can be found here.

This post was written by Julie Borisov from Colorado PERA.

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