Health Insurance Overview

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Everyone likes a safety net. Our lives can be better, fuller and richer knowing that if something happens, we’ll be safe. If a family member falls ill, if there's a car accident or if a prescription drug is required, we want to know that we'll be able to pay for it. Given the starkly rising costs of healthcare, it's no wonder that our ability to afford it weighs heavily on our minds. However, there is a solution: health insurance.

When you buy health insurance, you pay a low monthly or yearly rate to a health insurance company. When you're injured, sick or in need of a doctor, the health insurance company then pays for the bulk of your healthcare costs. Essentially, the insurance company estimates the risk of injury or illness among certain groups and adjusts the price you pay accordingly, so that they can always provide as much as you need. A health insurance company may be a government agency, a not-for-profit or a private company.

Now let’s check out a few terms essential to the understanding of health insurance.

First, a PREMIUM. A premium is how much you pay to buy your health insurance. It can be monthly, yearly or by paycheck. If you have health insurance through your place of employment, your employer usually pays the premium.

You’ve probably heard the term DEDUCTIBLE before. This is the part of health insurance that you pay to cover a fixed amount of your health care. For example, if you owe $5,000 for a surgical procedure and your policy carries a $1,000 deductible, you will pay $1,000 and your provider will pay the other $4,000.

When you visit a doctor for routine exams or for reasons of illness, the fraction of the total cost you’re required to pay for each visit is called a CO-PAYMENT. This means that you pay part of the cost at a set rate, i.e., $25 per visit, while your health insurance provider pays the rest. Similarly, COINSURANCE is the amount you might have to pay above and beyond a co-payment. Let's say you require surgery, and your co-payment for that visit is $40. You’ll have to pay that $40 plus 20% of the total cost of surgery while your health insurance policy will cover the rest.

There might also be an annual OUT-OF-POCKET MAXIMUM. This is a limit beyond which you no longer have to pay. You might think of it as an annual deductible. While deductibles apply to individual events, the out-of-pocket maximum is applied to the aggregate cost of events over a 12-month period. For example, if your policy includes a $10,000 out-of-pocket maximum and the total cost of all your exams, surgeries and illness-related doctor visits over the course of a year total $50,000, you will pay no more, including deductibles, than $10,000.

Sometimes, a particular procedure might need PRIOR AUTHORIZATION. That means you have to call your insurance company and let them know that you need that procedure so that they can authorize it and prepare to pay for it.

Now, being part of a NETWORK of a particular insurance provider means that you are limited to using particular doctors and other health care providers that have been approved by your insurance company. The insurance company does this both to manage costs and to make sure that you receive the best care possible. You must go to IN-NETWORK PROVIDERS doctors and providers that are part of that network or pay a higher co-payment. In-network doctors are ones that an insurance company pays a CAPITATION, or fixed rate per patient, in order to ensure that they’ll provide health care to everyone covered by that company.

Of course, every health insurance company has EXCLUSIONS and COVERAGE LIMITS. You can read about those when you get an EXPLANATION OF BENEFITS from your health insurance company prior to purchasing a particular policy. Remember, that explanation of benefits is your legal right. You should always know what you’re buying.

There are four different types of plans, as far as health insurance goes. First, you can have an HMO, or Health Maintenance Organization plan. This means that you will be paying a monthly premium to cover the overall cost of your coverage, plus various co-payments for doctor and hospital visits. Next, you can have a POS, or Point of Service plan. These are HMO plans that provide more control over what you receive as a customer of a health insurance company and as a patient within the health care system. You will have several options to choose from in regard to your insurance network, your primary care physician and your coverage with out-of-network health care providers. You can also choose a PPO, or Preferred Provider Organizations plan. This will lower the overall cost of your healthcare, but will limit you to in-network doctors and providers. Finally, you can choose a Fee-for-Service plan, or Indemnity. This is the simplest type of health insurance because it provides reimbursement for your health care providers costs on a case-by-case.

Now that we’re finished explaining health insurance terms, it’s time to shop and choose a policy that’s right for you.