There are two basic types of insurance plans, traditional and managed care. Managed care plans include HMOs, PPOs and POS plans. HMO stands for health maintenance organization. It is the strictest of plans and pays only specified doctors. The PPO, preferred provider organization, and POS, point of service, pay a smaller percentage if you use doctors who are not on their lists. The traditional plans--fee for service--have no list of service providers and pay whichever one you select, but these plans often cost the most to purchase.
A deductible is the amount of money that you pay before the plan pays anything. Insurance companies often do not apply the deductible to services that help prevent disease. If you are in a managed care plan, one that specifies a certain group of doctors, your deductible may be higher if you use a physician or health care service that is not on the list. Once you reach the deductible for the year, the insurance company pays for all allowable charges.
Co-pays may seem similar to deductibles but are quite different. Some plans require that you pay a small co-pay amount every time you use the services of a health care provider, purchase prescription drugs or receive other services specified in your medical plan. Once you reach the deductible limit for the year, you don't begin to pay toward the deductible amount again until the following year.
The term coinsurance sounds a lot like copay, but it is different. In addition to the deductible, the insured is responsible for a specific percentage of the bill until he reaches a specified maximum amount. The coinsurance is a percentage of the bill.
Your policy may show a maximum amount that you have to pay each year before the insurance company pays everything. If your plan has a $500 deductible with 80/20 to $10,000, your maximum out-of-pocket expense would be $2,500 for the year. To arrive at that figure, take 20 percent of $10,000 ($2,000) and add the $500 deductible, which is paid before the coinsurance applies. If the policy covers more than one person, there are two different maximums. One is per individual and the other covers all family members for the year. If you use a doctor or service not in the network of physicians, the maximum out-of-pocket is normally a higher amount.
Reasonable and Customary
These are tricky little loopholes in policies. The insurance company looks at all medical charges for your area and finds the amounts doctors and hospitals normally charge for specific services. If your hospital or doctor charges more, the insurance company does not pay for it because it's more than the reasonable and customary charge. Often, insurance companies contact the entity that provided the service and negotiate a lower charge so you don't have to pay the extra amount.
Normally, a section of your insurance statement lists the services not paid for by the company. These are non-covered expenses. The company does not pay for services such as cosmetic surgery. If you have a procedure that is not covered by your insurance, the cost of the procedure will not apply toward your deductible, coinsurance or maximum out-of-pocket expense.
Whether you are purchasing your own health insurance or attempting to understand the plan your employer provides, you need to know health care terminology. You might recognize some terms but not know what they mean within the policy. If you wait until you need to use the plan, you may be surprised at how much money you have to pay out of pocket to receive services or prescriptions you thought were covered by your insurance.