Understanding your health plan may be confusing at times but familiarizing yourself with financial terms related to your health coverage can eliminate a lot of that uncertainty. These terms related to your health coverage are important for planning and budgeting purposes.
Whether you're enrolling in a new health plan or just need a refresher, knowing the following health coverage terms will be beneficial.
| Term | What it is | When you pay |
|---|---|---|
| Premium | Monthly cost for your plan | Every month, regardless of usage |
| Deductible | Amount you pay before plan shares costs | As you receive care |
| Copay | Fixed amount for a service | At the time of service |
| Coinsurance | Percentage of cost after deductible | After the deductible is met |
| Out-of-pocket limit | Limit on what you pay for covered services | Until you reach the limit |
1. Premium
A premium is what you pay each month for the plan itself and is the cost you pay to keep your health coverage. When searching for a plan, it's important to remember that if you need a lot of health care, a plan with a higher premium but lower deductible may save you money.
Real-world example: Rachel is shopping for an Individual health plan and she enrolls in a plan where she pays a monthly premium of $100. This is the cost to keep her coverage; every month, Rachel is required to pay her $100 monthly premium or her plan will be terminated.
2. Deductible
A deductible is the amount you pay before the health plan begins paying for your health services. Once you've paid your deductible, your costs are typically just copays and coinsurance. Your insurance company pays the rest.
Real-world example: Stacy has just received a medical bill for $2,000. Her health insurance has a $1,000 deductible so she would be responsible for paying the first $1,000 in full before her copay or coinsurance benefits kick in.
3. Copay
A copay is a fixed amount you pay when you receive a health care service or fill a prescription. Some plans offer copays before you meet your deductible, which is a valuable benefit because it allows you to access certain services at a predictable, lower cost right away. Copay amounts can vary by service within the same plan, and generally, plans with higher monthly premiums have lower copays.
Real-world example: Jordan has already met his deductible. His copay for a doctor visit is $40. After the appointment, the doctor gives him a bill for $90. Jordan only pays his $40 copay, and his health insurance covers the remaining $50.
4. Coinsurance
Coinsurance is like a copay that you pay at the time you receive your health care service or prescription. However, it is a percentage of the total bill you will be responsible for.
Real-world example: Jessica has already met her deductible. Her office visit costs $200, and her coinsurance rate is 20%. This means she will pay $40 (20% of $200), while her health plan covers the remaining amount.
5. Out-of-pocket limit
The out-of-pocket limit is the most you will pay over a year. Once you've reached your out-of-pocket limit, the plan pays for covered benefits and services in full without a copay. The out-of-pocket maximum does not include your monthly premiums, services your plan does not cover, out-of-network care or costs above the allowed amount for a service.
Real-world example: Henry’s health plan includes a $5,000 deductible and a $10,000 out-of-pocket maximum. After Henry has paid $10,000 toward covered health care services, he won’t owe anything else for medical care for the rest of the plan year. However, he will still need to pay his monthly premium.