Posted by Allison Grant, October 18, 2019 (last updated on November 05, 2019)
The lack of transparency and easily accessible information can sometimes make it feel almost impossible to ever be fully informed about your health insurance. While most of the information is out there, it’s often fragmented across a dozen websites and can feel like you’re reading gibberish.
We’re here to help – we’ve outlined the major health insurance plan types to help you better understand your coverage so you can stress less and be more informed. But first, let’s untangle all the key terms you are likely to come across in health insurance.
Key Health Insurance Terms
So, you have decided to learn more about the health insurance plans and want to understand the basics. Good news, this is the perfect place to start. We’ve created a glossary of essential health plan terms.
- Premium: Every month, you will pay a certain amount to have health insurance so you’re covered when you or someone in your family gets sick, injured, or needs to see a doctor. You’re on the hook for paying your premium regardless of whether or not you end up seeing a doctor or needing medical care that month.
- Deductible: Your deductible is the amount you’ll pay for care before your insurance starts to chip in and cover some of the cost. You’ll pay full price for most care until you reach this amount – unless it’s preventative care which is typically covered fully.
- Copay: Your copay is a flat fee you’ll pay up front for services from your doctor. The fee may vary depending on the type of service and the provider. For example, a co-pay for medical services maybe $20 per office visit and $30 for a prescription – it just depends on your plan.
- Co-insurance: Once you’ve hit your deductible, your co-insurance will kick in. Think of this as the cost you'll split with your insurer. You'll pay a percentage of the total cost of medical services, and your insurance covers the rest.
A common co-insurance split goes by the rule of 80/20, where the insurance company pays 80% of the total cost while the patient pays 20%–but check with your insurer to see what your plan covers.
- Out-of-pocket maximum: There is a worst-case scenario, maximum amount you’ll have to pay out-of-pocket that year for any medical care provided. The out-of-pocket maximum excludes your premium or services your insurance plan doesn’t cover. Once you’ve hit your out-of-pocket max, your insurance will finally fully cover the cost of your care until your plan resets.
- Claim: If you or your health care provider has ever asked your insurance company to pay for medical services, then you’ve filed a claim. The insurance company then reviews the claim for validity and then pays you or your healthcare provider.
Types of Individual Health Insurance
You have a variety of choices when you shop for health insurance. Typically, the major types of health insurance plans include:
- Health Maintenance Organizations (HMO)
- Preferred Provider Organizations (PPOs)
- Point-of-service (POS) plans
- Exclusive Provider Organizations (EPOs)
- Indemnity Insurance Plans
Other helpful terms when you’re navigating health insurance:
- Health Savings Accounts (HSA)
- Flexible Spending Accounts (HSA)
Let’s dive into each one of them in detail.
Health Maintenance Organizations (HMO)
When we talk about HMOs, we mean a plan with low premiums, low copays (or sometimes none at all), and minimal paperwork. You'll have a chance to choose a primary care physician (PCP) to take care of most of your healthcare needs. However, with an HMO plan, if you want to see any outside specialists, you have to go through your primary care doctor (PCP) before you can see a specialist. One thing to keep in mind is that most HMO plans do not cover you if you go outside your network without authorization from your primary care physician or in emergency cases.
Preferred Provider Organizations (PPOs)
With a PPO plan, you can access a large network of providers, so the good news is that you have a lot of hospitals, doctors, and other health care facilities to choose from. You can also choose to see health care providers from outside of the PPO plan’s network, but if you do that, you’ll usually have to pay more.
Additionally, PPO plans allows you to see specialists without getting approval, as long as it’s an in-network provider. A PPO plan can be a good option if you want or need flexibility when working with physicians and other providers and when you want to skip the process of seeking a referral to see a specialist.
Point-of-Service (POS) Plans
A POS plan blends the main features of an HMO with a PPO plan. Think of it this way, the HMO is the basic motor vehicle, PPO is more of the luxury type, while POS is a hybrid model. The network of doctors you can see is relatively smaller compared to a PPO plan, but the costs for in-network care are lower, like in the HMO plan. In this plan, you are required to choose a primary care provider (PCP) from within the plan’s list of doctors. Generally, the primary care doctor coordinates your care.
If you need to see a specialist, you need to get a referral from your PCP. But, like a PPO plan, you can still choose to see a doctor in-network or out-of-network. If you decide to visit a specialist outside the plan’s network, there will be additional costs, and you’ll have to file any claims yourself.
Exclusive Provider Organizations (EPOs)
With an EPO, you will have moderate freedom in choosing your doctors. However, you still have the chance to choose your primary care doctor from a smaller list of professionals. If you have to see a specialist outside your network, you will likely pay more for the extra services.
Indemnity Insurance Plans
Indemnity plans – also known as fee-for-service plans – allow you to choose a doctor, hospital, service provider, and other health care professionals of your choice. The pros of this type of plans are that, you have a great level of freedom and flexibility.
Additionally, an indemnity plan may require you to pay upfront, after which you can file a claim to be reimbursed for the covered amount.
Health Savings Accounts (HSA)
An HSA is a great tool to help you pay for your health care costs throughout the year. Basically, you can set aside any amount of your income before it gets taxed and put that directly into an HSA. From there, you can use the money in your HSA to pay for your healthcare. Often times, HSAs are offered if you have a high-deductible health plan (i.e. if your plan has a deductible of at least $1,350 for an individual or $2,700 for a family).
HSAs are also awesome because if for whatever reason you end up not using all the funds in your account, any leftover funds at the end of the year roll over and accrue interest, tax-free over time.
Flexible Spending Accounts (FSA)
An FSA is very similar to an HSA plan in that you can set aside part of your pre-tax income to cover your healthcare expenses. However, there are a few big differences: 1) an FSA does not roll over, so if you don’t use it you lose it and 2) there is a cap on the amount you can contribute to you FSA, which is $2,650 per year.
Information is power
Being able to understand how you’re tracking on your healthcare spending for the year as well as the nitty gritty of your plan are essential to being an educated consumer of healthcare.
Understanding your health insurance is important not only so you can be prepared for the times you really need it, but also so you can take advantage of all that your plan has to offer. Whether you get your insurance from your employer, buy it yourself, or are on Medicare, it’s important to know all the details, including the available options and actual costs.