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A guide to understanding your health insurance policy

While the Affordable Care Act (ACA), also known as Obamacare, has helped simplify certain aspects of the health care system, health insurance is still incredibly difficult to understand.

Health insurance policies are legally binding contacts, which can have a major impact on both your health and financial life, so understanding your coverage is extremely important. Waiting until you are seriously ill or involved in an accident to investigate your health plan is major mistake.

Our guide will help you understand the basics of health insurance, how to read your policy, understand your type of coverage and how to make changes to you plan, if necessary.

Where is your health insurance coming from?

Common terms that can be confusing

What type of plan do you have?

How to make changes to your plan

The Summary Plan Description

The Summary of Benefits

What is covered by your health insurance plan?

Example of cost structure

Additional health coverages

Best practices and expert advice

 

Where is your health insurance coming from?

It’s important to know who provides your coverage and where to go if you have questions. The following are the three most common sources of health insurance:

Employer: If you work for a company that has 50 or more full-time employees, they must offer health insurance to full-time employees.

Employer-based plans are referred to as group or workplace health coverage, and it is a policy that is purchased by an employer and offered to the eligible employees as a benefit.

One of the major benefits of a group plan is that most employers (but not all) make a contribution toward the cost of your premium. Therefore, employer-based plans are most often (but not always) the cheapest option.

Marketplace: The Marketplace was created by the ACA to help people shop for health insurance. The federal government operates a number of Marketplaces, which you can access at HealthCare.gov. However, some states run their own Marketplaces, so you would have to shop at your specific state Marketplace.

Those who do not have access to employer-based plans and whose income level is such that it would qualify them for subsidies would be ideal customers for the Marketplace exchange.

The Marketplace provides health plan shopping and enrollment through the website, call centers and in-person help.

Individual Plans: Just like most other insurance products, you can purchase an individual health plan from the best health insurance companies, broker or through the Marketplace. If you are shopping on your own, make sure you have a complete understanding of the policy, if you have questions, get them answered before signing on the dotted line.

If your income does not qualify you for subsidies, and you do not have access to employer-based health insurance, then you might have better luck shopping with individual health care providers.

 

Common terms that can be confusing

Because health insurance policies are written in legal language and filled with medical jargon, they are often difficult to read and understand. You’re not alone if you find the wording intimidating and confusing.

“We find that quite a few health insurance consumers are confused about what a deductible is as well as how it differs from their plan’s Out of Pocket Maximum,” says Marc Lewandowski with Planning Needs Financial Group.

A good place to start is the “Definitions” section that will define the words used in the policy. It’s helpful to review this section when reviewing your policy details.

Here are a few terms that can be confusing in your health insurance policy: 

TermExplanationExample
Premium The premium is the amount you or your employer pays for your health insurance coverage every month. If you have enrolled in your employer's health insurance plan, your premium is deducted pre-tax from your paycheck. After enrolling in a Marketplace plan for individual health insurance benefits, you are billed $200 per month.
Deductible This is the amount of medical costs that you must pay before your insurance will kick-in. Copays dollar amounts and coinsurance percentages generally do not count toward the deductible. Your insurance has a $500 deductible, and you haven’t made any claims so far this coverage year. After you visit the emergency room for a broken arm, the total bill is $1,500. You will likely receive a bill from the service provider after the insurance company pays their portion, leaving you to pay your coinsurance percentage (see below). Your deductible accumulates throughout the year, so after this visit, you wouldn’t have to pay the deductible again.
Coinsurance This is the percentage of medical costs for which you are responsible for covered services. Coinsurance percentages vary between plans. In most cases, coinsurance charges begin after you've met your deductible. Continuing the example above, your coinsurance responsibility is 20 percent. You will have to pay your deductible of $500, then 20 percent of the remaining $1,000 bill ($200), and your insurer will pay $800.
Co-pay This is the dollar amount that you pay for office visits and prescriptions, commonly required to be paid at the time of service. Urgent care and emergency room visits generally have more expensive co-pays, which generally range from $100 to $500. Some plans do not have copayments. For your broken arm, you are charged a $250 copay to be seen and you are given a prescription for pain medication. If you have a generic prescription co-pay of $20, then this is the amount you will pay for the prescription when you purchase it at the pharmacy.
Maximum out-of-pocket This is the most that you will be required to pay out of pocket for in-network expenses during a year. This includes your deductible, co-pays and coinsurance payments. Your monthly premiums, expenses not covered by your plan, or out-of-network expenses do not count toward the maximum. Once you have paid the maximum out-of-pocket amount, your insurance should pay 100 percent of your covered medical expenses. If a family is covered under a Marketplace plan, then maximum out-of-pocket expenditure for 2016 is $13,700 per family, with an individual limit of $6,850. Your broken arm has cost you $270 in copays, $500 deductible, $200 coinsurance. You have paid $970 toward a maximum annual individual limit of $6,850.
Covered Person This is any person who is eligible to receive benefits on your health insurance plan. This would include the policy owner (you) and any family members covered by your plan. You, your spouse or a dependent would all be considered a covered person if you are on the same health plan.
Explanation of Benefits This document is not a bill, but rather an account statement. After you make a claim on your policy and the insurance company has made a payment, you will receive an EOB in the mail. It will explain the actions the insurer took on the claim, the available benefits, and, if necessary, any reasons for denying the claim, as well as the explanation of the claims appeal process. After the insurer pays their portion of the bill from the hospital for the broken arm, you receive an EOB itemizing provider charges of $1500, the deduction of $800 for how much your insurer has paid, and any remaining portion left to be paid.
Formulary/Preferred drug list This is also referred to as a drug list. It is a list of prescription drugs that are covered by your health insurance plan. You should verify all drugs you take are on the list, otherwise they may not be covered. You receive a prescription for a pain medication for your broken arm. If possible, you can see if the prescribed drug is on your formulary. If it is not, you can request your doctor to prescribe a covered alternative. This isn't generally an option in an emergency.
Preauthorization This is also called prior authorization, prior approval or precertification. It refers to a decision by your health insurer whether a service, treatment plan, prescription drug or medical equipment is medically necessary. Your insurer may require that you receive preauthorization for certain treatments before you receive them. This usually doesn’t apply to emergencies. In the continued example, no preauthorizations were necessary to receive covered care for the broken arm. An example of a service that might need a preauthorization would be an MRI test.
Preventive Services The majority of health plans must cover certain preventive services for free. These services include things like immunization vaccines and screening tests. Flu shots, diabetes screening tests, mammograms, and certain cancer screening tests are considered preventitive services.

What type of plan do you have?

There are a variety of plans available, whether you are choosing an individual plan, a Marketplace policy or a workplace plan. Knowing the difference between the various plans can help you select the right plan for you or your family.

Here is an overview of available options:

PlanExplanationProsCons
EPO EPO stands for Exclusive Provider Organization and is often referred to as a narrow network plan. This means you can use the doctors and hospitals within the EPO network. An EPO does not require referrals; you can see the specialist directly. The plan will not cover any medical expenses if you use a provider outside the EPO network, except in an emergency.
HMO This is a Health Management Organization plan. It is similar to an EPO in that you are restricted to the network providers to seek health care services. An HMO requires a policyholder to choose a primary care physician that acts as their first point of contact for all care. Lower monthly premiums and copays. To visit a specialist or receive any other type of service, you’ll be required to obtain a referral from your primary care physician. Services and providers outside of the network are not covered at all, except in an emergency.
PPO This stands for Preferred Provider Organization. A PPO has a network of healthcare providers but members are allowed to stray outside of the network at their discretion and a referral is not required. A greater number of providers are available, and you do not need a referral to see a specialist. PPOs typically have higher monthly premiums and more complicated out-of-pocket costs than HMOs. If you visit a provider outside the network, you will pay a higher percentage of the bill.
POS A Point-of-Service plan is similar to an HMO in that participants must designate a primary care physician in the plan’s network of providers. Also, like an HMO, you’ll be responsible for the cost of any out-of-network services. These plans don’t typically have a deductible and might provide some out-of-network coverage if your primary care physician provides a referral. To visit a specialist or receive any other type of service, you’ll be required to obtain a referral from your primary care physician. Services and providers outside of the network may be covered very little or not at all.
HDHP This stand for High-Deductible Health Plan. According to the IRS, for 2017, any plan that has a deductible of at least $1,300 for an individual or $2,600 for a family is considered a high-deductible plan. These plans usually carry a lower monthly premium but your out-of-pocket costs will be higher before the plan starts paying. You can see any provider you choose, but you’ll pay less if you stay in network. You will pay a much higher deductible before the plan kicks in to cover costs. Generally, not ideal for families as school-aged children tend to be sick often, which can result is several doctors office or weekend urgent care visits.
CDHP This is a Consumer-Driven Health Plan and it requires consumers to make decisions about their health care plan. There are a variety of forms this type of arrangement can take, but commonly a HDHP is combined with a Health Savings Account to cover out-of-pocket costs. These plans are designed to give consumers choices in their health care and encourage them to spend wisely. Participants may not actively shop for best-cost care and may postpone care altogether.
FFS A Fee-for-Service plan will pay for each individually approved procedure. The insurer will either pay the doctor directly or reimburse you after you file a claim. The plan is very simple, and you may visit any doctor or medical facility you choose. These plans are often more expensive and require additional paperwork.
Catastrophic This is a high-deductible policy that is only available to people under the age of 30 or those qualify for a hardship exemption under the Affordable Care Act. This type of plan was designed to protect members in worst-case scenarios. Monthly premiums are usually low, but these plans require you to pay for nearly all of your health care costs until the yearly deductible is reached, which currently for Marketplace plans is $6,850. Lower-than-average premium. Extremely high deductible. Only three primary care visits and certain preventative services are covered. You must pay for all other medical expenses until you reach your yearly deductible. After that, the plan pays 100 percent of covered services.
Medicare Federal health insurance for those people 65 and older, qualified younger people with disabilities, and people with End-Stage Renal Disease. Medicare is accepted widely with providers and requires no referral. There is no out-of-pocket maximum, so copayment costs can get high. There is no coverage for policyholders who travel outside of the U.S.
Medicaid/ CHIP Federal and state combined health insurance program for low-income individuals or families. Low-cost or free medical coverage for those who would otherwise might not be able to afford services. Some states have not expanded their Medicaid programs, leaving some people ineligible for the discounted or free services. Coverage levels and method of coverage can differ by state.

How to make changes to your plan

If you are unhappy with your current plan, you can compare different plans at any time, however you can only enroll in a different plan two ways: during an open enrollment period or during a special enrollment period because of a qualifying event. 

For employer-based plans, your company will inform you of its open enrollment period when you are hired, and employers typically notify employees of upcoming open enrollment well in advance.

For the marketplace or individual plans, the open enrollment dates change each year. 

The Summary Plan Description

The Summary Plan Description (SPD) is the equivalent of a declaration page. It acts as a high-level overview of the plan and contains information on how to find more detailed plan information.

The SPD should be reviewed carefully to make sure all of your personal information is correct as well as the details of your plan.

The Department of Labor requires insurers to send a paper copy of your Summary Plan Description, but it should also be online when you log into your account.

Here are a few of the more important details an SPD includes:

  • Plan Name: This is simply the name of your plan.
  • Plan Numbers: This is the plan number and the Employer’s Identification Number (EIN), which is the number assigned by the IRS to the Plan Sponsor.
  • Type of Plan: This details the plan type, an HMO, PPO, HDHP etc.
  • Type of Benefits: This lays out the plan benefits, for example, medical, dental, vision etc.  
  • Plan Year: This outlines the plan year or the dates that your health insurance policy is in effect.
  • Plan Administrator: The details of the plan administrator are listed here so you know who to call when you have questions about your policy.

Summary of Benefits and Coverage (SBC)

The ACA requires that health insurance plans provide you with a Summary of Benefits, which is an easy-to-understand summary of benefits and coverage. It will also include a Uniform Glossary of terms used in health coverage and medical care. The SBC was designed to make “apples-to-apples” comparisons of plans quick and easy.

Click here to see a sample SBC.

It answers many of the most common questions shoppers have in short concise language. Its shows the plans deductible amounts, out of pocket limits, as well as what happens if you go outside the plans network of providers.

The SBC also details your costs for common medical situations and spells out your rights. The SPC should be reviewed in detail when shopping for coverage.

 

What is covered by your health insurance plan?

Like most insurance products, what is covered and coverage levels will vary depending on the choices you make. While more expensive policies will carry higher coverage levels, they come at a price.

The ACA requires the following 10 items and services, referred to as Essential Health Benefit Packages (or EHBPs), to be covered by all insurance policies. Coverage limits can vary by plan, so make sure you review your limits. 

Outpatient Care This is the type of care you receive without being admitted to the hospital. Checkups, doctor visits and even some surgeries that allow you to go home on the same day would be considered outpatient procedures.
Emergency Room Visits If you are in an accident you may need to go to the emergency room. Your insurance company will cover this cost but it is important to note that ER visits often come with very high co-pays.
Inpatient Care This refers to medical services that require admission to the hospital. You must be formally admitted to the hospital for health insurance to kick in and once again, deductibles, co-pays, and co-insurance costs can be high.
Pre and Post Natal Care This includes prenatal and postnatal doctor visits, gestational diabetes screenings, as well as lab studies and medications. Inpatient services such as doctor fees and hospital bills are also covered. After the baby arrives, newborn care, lactation counseling and breast pump rental are also covered.
Mental Health and Substance Use Services This includes behavioral health treatment, counseling and psychotherapy.
Prescription Drugs This will cover the cost of prescription drugs on your formulary which you are prescribed. In almost all cases, there will be a co-pay.
Rehabilitation services and devices Services such as physical and occupational therapy, speech-language and psychiatric are all covered under this section of the policy.
Lab Tests All doctor-ordered lab tests should also be covered. There will often be a co-pay for these services.
Preventive Services Vaccines and screenings fall under this category. Vaccines for children should always be free.
Pediatric Services (under 19 years of age) Care for your children should be covered, but many services will have a co-pay. This includes dental care and vision care for kids.

It is important to remember that coverage levels can vary between plans, and you will almost always be responsible for co-pays, co-insurance and deductibles.

Example of cost structure

Assume you need gallbladder surgery that has covered costs of $30,000 and the following are your health insurance figures:tip

Deductible: $1,500

Coinsurance: 20%

Out-of-Pocket Maximum: $5,000

Prescription co-pay: $20

 

Follow the calculation below to understand the sample costs and patient responsibility:

$30,000 total cost

-$ 1,500 deductible

$28,500 remaining

X   20% coinsurance

$  5,700 coinsurance payment

+     $40 co-pay for two post-surgery prescriptions

+$1,500 deductible   

  $7,240 total patient charges

 -$5,000 your maximum out-of-pocket 

  $2,240 the amount over your maximum which your insurer pays

Your maximum out-of-pocket amount for the year is $5,000, so all expenses related to the surgery above $5,000 are paid by your insurance coverage. In addition, your insurer will pay any covered medical expenses for the rest of your plan year.Tip2

 

Additional health coverages

Prescription Drug Coverage: The majority of health insurance plans offer some sort of prescription drug coverage, but the details can vary dramatically.

Your drug plan will usually allow you to get prescriptions filled at a variety of locations but those details can vary. As an example, Blue Cross/Blue Shield works with 60,000 pharmacies across the country. Kaiser-Permanente on the other hand usually requires patients to use their in-house pharmacies.

In addition, prescription drug pricing varies depending on the plan you have and the drug you need. Generic drugs may fall into a lower pricing category (also referred to as tier one), which comes with a $15 co-pay, while a name brand drug may require a $40 co-pay.

If your insurance plan does not offer prescription drug coverage you need, it may be possible to possible to purchase a standalone drug plan for additional drug coverage.

Vision Coverage: Vision is not always an option with a health insurance plan, and if it is, it may not be worth the cost. If you don’t currently have vision problems or use corrective lens, you might not need vision coverage.

All plans sold in the Affordable Care Act Marketplace must include vision coverage for children. It’s also possible to purchase a standalone vision plan, but in most cases, medical issues related to the eyes, cataracts or glaucoma are not covered by a vision plan. Those issues fall under regular health insurance coverage.

If you suffer from poor vision or are already wearing contacts or glasses, a vision plan can be well worth the cost.

Dental Coverage: Dental coverage is frequently offered as an add-on to a health insurance plan. Coverage levels vary, but in most cases, preventive services such as cleanings and checkups are covered at 100 percent, while more basic services (such as fillings) are paid at 80 percent, leaving you responsible for 20 percent of the cost.

Major dental work is usually limited to 50 percent of the cost. If you are in need of an implant, bridge or root canal, you will be paying for half of the procedure’s cost. Many plans do not cover the cost of orthodontia, especially for adults.

The ACA requires that health plan for anyone under the age of 18 must offer dental as part of the plan or as a standalone.

 

Best practices and expert advice

There is no doubt that health insurance is complicated, and even the most savvy consumers may need help understanding their coverage. Do not hesitate to contact your agent or insurer for clarification.

Our health insurance experts have put together a few best practices when it comes to shopping for and understanding your coverage:

Shop your options

Federal law prohibits you from changing plans except during your employer’s or the Marketplace’s open enrollment period, unless you have had a qualifying event, such as a job change or divorce.

“During that period, shop your coverage. If you miss it, you will be stuck with your current plan for another year,” advises Mike Raines with Raines Insurance Group. “Verify the new policy meets the ACA requirements and that your preferred doctors are in the plan,” says Raines.

When shopping for a health care policy, it’s important to compare your options. “Oftentimes, we see clients who want to skip right to the cheapest plan rather than considering what their true health care needs may be in the future. Eventually they may come to regret their decision as the coverage is lacking,” explains Lewandowski. “We also see the same thing in the opposite direction, with clients wanting the best plan available yet they underutilize the plan over the year or just find it unaffordable,” he continues.

Mind the exclusions

There are standard exclusions on every insurance policy, and insurers can also impose additional exclusions. No health insurance plan will cover every single medical expense, and limitations and exclusions are very common,” says Paul Clitherow, VP Sales & Marketing at MSH International.

Review all exclusions and make sure you can live with the services and medicines that may be excluded by your policy.

Double check your doctor

Having your preferred medical providers in your network is important, but it can be challenging to know if the insurer’s provider list is

quote

  current, despite requirements for up-to-date directories.

“Don't believe that the doctors and hospitals listed in the insurer's booklet or website are still on the plan,” advises Adria Goldman Gross, with MedWise Insurance Advocacy.              

“When a provider is no longer credentialed with the insurance company it often takes 3 to 5 years for the list to be updated. I always recommend contacting the medical providers and the hospital to verify,” she continues.

Keep your summary of benefits handy

 “It’s important that you become familiar with how your plan operates. The best way to achieve that is to review and keep handy your Summary of Benefits. This is like your health insurance roadmap, and it tells you how your plan operates, what’s covered, how much your deductible, out of pocket maximum and co-pays are and what services are and aren’t covered,” advises Lewandowski.

Take charge of your health plan

If your policy doesn’t match your needs or your favorite doctor is not considered in-network, it may be time to start looking for a new policy so you’re ready to change when your enrollment time arrives. We can help you find an affordable and comprehensive policy to protect you and your family.

Start shopping health insurance quotes right now on Insure.com with Best Health Insurance Companies.

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