Demystifying the Top 10 Common Health Insurance Terms

Figuring out health insurance can be intimidating, especially when confronted with a lot of unknown words and lingo. Understanding these health insurance terms is important for making the right decisions about your medical care. In this blog post, we'll go through some of the most commonly used health insurance terms so that you can be armed to take charge of your healthcare.

Premium

The premium is the fee charged for your insurance plan. It's typically paid monthly, even if no healthcare services are used. A health insurance premium can be thought of as a subscription payment granting access to the benefits of health insurance.

Deductible

The deductible is the amount you must pay out of pocket each year before your insurance coverage kicks in. For example, if your deductible is $1,000, you will be responsible for paying the first $1,000 of covered medical expenses before your insurance starts covering any costs. Often, the higher your deductible, the lower your premium payment will be. Having a good understanding of your deductible can help you when budgeting for healthcare costs and help in avoiding any surprise bills.

Coinsurance

Coinsurance is the percentage of the cost of a covered service that you're responsible for paying after meeting your deductible. For example, if your coinsurance is 20%, you would pay 20% of the cost of a covered service, while your insurance company would cover the remaining 80%.

Copayment

A copayment, or copay, is a fixed amount you pay for a specific service or medication. For instance, you might have a $20 copay for a doctor's visit or a $10 copay for a prescription. Copayments are typically due at the time of a service and vary depending on the type of service or medication.

Out-of-pocket maximum

The out-of-pocket maximum is the maximum amount you will have to pay for covered services in a given year. Once you reach this limit, your insurance company will cover 100% of the costs for covered services. This cap includes all out-of-pocket costs like deductibles, copayments, and coinsurances, but not premiums.

Network

A network refers to the group of healthcare providers, hospitals, and facilities that have contracted with your insurance company to provide services. These contracted services are often performed at pre-determined rates. Staying within your network can help you save money on healthcare costs. Out-of-network providers do not have contractual agreements with your insurance company and may result in higher out-of-pocket costs.

Preauthorization

Preauthorization, also known as prior authorization, is the process of obtaining approval from your insurance company before receiving certain medical services or treatments. Preauthorization makes sure that the service is medically necessary and covered under your plan. Failure to obtain preauthorization may result in a denial of payment by your insurance company and increased out-of-pocket costs.

Formulary

A formulary is a list of prescription drugs covered by your insurance plan. Insurance companies categorize medications into different tiers, with each tier having a different copayment or coinsurance. Understanding your plan's formulary can help you make informed decisions about your prescription drug coverage.

Health Savings Account (HSA)

A health savings account lets you set aside money before taxes for medical expenses. HSAs can be used to pay for things like co-pays, deductibles, and other qualified medical expenses. Many plans also allow you to use your HSA to pay for over-the-counter medications and medical supplies. Additionally, HSAs can help you cover the costs services that may not be covered by your insurance. Knowing what is and isn't covered by your HSA can help you make the most of your plan.

Flexible Spending Account (FSA)

An FSA is an employer-sponsored savings account that can make medical costs more manageable. Like HSAs, FSAs are tax-advantaged accounts. You can put money into an FSA from your paycheck before it's taxed to save for qualified healthcare expenses. However, unlike an HSA, there are more restrictions around an FSA. Money put into an FSA must be used within the plan year or you will lose it. Money in an FSA can't be rolled over year-to-year. Additionally, there's also a limit to the amount you can put into an FSA, which is usually set by your employer.

Having a thorough understanding of these ten common health insurance terms will equip you with the necessary knowledge to navigate the world of healthcare coverage. When you know these key terms, you'll have the confidence to make smart decisions about your healthcare and get the most out of your health insurance plan.