Individual health insurance, group health insurance and / or employer based health insurance apply a number of common terms. To help understand such health insurance language, here are a few key health insurance related terms:
Health Insurance Deductible: A health insurance deductible is the amount the insured is required to pay before the health insurance plan actually starts to pay for a covered expense. For example, in the case of $5000 in covered expenses where the insured has a $1000 deductible, the insured pays the first $1000 before the insurance plan pays all or a portion of the remaining $4000.
Health Insurance Coinsurance: Health insurance “coinsurance” refers to the percentage of a covered expense, if any, that is “co-insured” between the insured and the insurance provider. For example, in the case of a health insurance plan with no deductible, but with 80/20% coinsurance; a $5000 covered expense would require a $1000 payment from the insured ($5000 x 20% coinsurance = $1000). The insurance provider would be responsible for the remaining balance of $4000 ($5000 x 80% = $4000).
Health Insurance Deductibles and Coinsurance Combined: It is common to see health insurance plans structured so that deductibles and coinsurance percentages work in conjunction. For example, a health insurance plan may have a $1000 deductible with 80/20% coinsurance. In such case, a $5000 covered expense would be paid as follows;
$5000 covered expense minus $1000 deductible paid by insured = $4000 (remaining balance).
The remaining balance of $4000 is “coinsured”
$4000 x 20% = $800 (paid by the insured)
$4000 x 80% = $3200 ( paid by the health insurance provider)
In total, of the $5000 covered expense,
The insured pays $1800 ($1000 deductible + coinsurance amount of $800 = $1800).
The insurance provider pays the remaining balance of $3200 ($5000 claim – $1800 insured responsiblity = $3200).
Health Insurance Coinsurance Maximums: A coinsurance maximum refers to the moment in which coinsurance stops. After the coinsurance maximum is reached, the insurance provider then takes responsibility for the remaining balance of the covered expenses. For example, with a $5000 coinsurance maximum, after coinsuring $5000 worth of covered expenses with the insured, the insurance provider is responsible for 100% of any covered expenses thereafter.
Health Insurance “Plan-Year”: Deductibles and coinsurance generally relate to a health insurance “plan-year.” A health insurance plan-year is a twelve month period of time during which deductibles and/or coinsurance amounts apply against covered expenses. Some health insurance plans have plan-years that are based on a calendar year. In such cases, any new deductibles and coinsurance amounts begin in January, coinciding with the new calendar year. Health insurance plan-years may also begin in other months depending on the contract. Covered expenses that occur within a plan-year are paid after being calculated against any specified deductibles or coinsurance percentages. When a new plan year begins, new deductible and coinsurance amounts will also begin.
Health Insurance Lifetime Maximum: A health insurance lifetime maximum is the maximum dollar amount a health insurance provider will pay in covered expenses for the lifetime of an insured. A typical lifetime maximum might be a million to several million dollars, or an unlimited amount depending on the particular health insurance contract.
Single Health Insurance Plans and Family or Muli-Party Health Insurance: A single health insurance plan is a health insurance plan that covers a single individual. A multi-party health plan covers several individuals listed within the same policy certificate. Listed insureds may be a spouse, dependent children or combination thereof. Multi-party health insurance plans usually specify a maximum number of deductibles that are required to be met by the covered insureds listed on the certificate. In the case of a six member family, a health insurance contract may specify that after three individuals have met deductibles in a plan-year, no further deductibles need be met during that plan-year.
Health Insurance Out-of-Pocket-Maximums: A health insurance out-of-pocket maximum refers to the maximum out-of-pocket expense an insured or a multi-party can incur for covered expenses in a plan-year. After the maximum out-of-pocket expense is met, the insurance provider will begin to pay all additional covered expenses up to the maximum lifetime benefit of the insurance contract.
Health Insurance Balance Billing: Health insurance balance billing occurs when a health insurance contract specifies an amount for a covered expense that is less than a healthcare provider will accept for covered services. For example, if a healthcare provider (i.e. doctor, clinic, hospital, etc.) charges $125.00 for an office visit, and a healthcare provider only allows $100 for that type office visit, the insured may be “balance billed” the remaining $25 ($125 total billing – $100 allowed amount = balance bill of $25).
Managed care plans such as PPO (or, “Preferred Provider Organizations”) and HMO (or, “Health Maintenance Organizations”) typically include provisions with contracted providers that disallow balance billing. This is because providers generally agree to reimbursement amounts as a part of their membership in the managed care arrangement. However, a PPO plan may provide coverage for covered expenses from non-contracted, non-preferred, or non-network providers. Balance billing can occur for expenses incurred with such non-contracted providers.
In-Network and Out-of-Network Expenses: In health insurance plans that use preferred provider (or, PPO) arrangements, two or more “levels” of benefit may apply when an insured incurs covered expenses. Generally, insureds that access care from contracted providers will receive higher levels of reimbursement. Again, in a preferred provider plan, balance billing may occur when care is accessed from a non-contracted provider.
24 Hour Health Insurance Coverage: 24 Hour health insurance coverage is health insurance coverage that insures the owner of a business for 24 hours a day. If a situation were to occur that a sole-proprietor business owner were permitted to operate without workers compensation insurance, this type of coverage could provide insurance for that owner even if they were injured at work. In most cases, however, employees are strictly required to be covered by workers compensation insurance for work related medical expenses.