Open enrollment season is here! And if you’re in the majority, you’re probably freaking out trying to figure out what each health insurance plan means and which one is right for your family.
Don’t worry – we got you covered. Here’s a breakdown of the health insurance terms you’re likely going to run into (complete with examples):
Open enrollment is the annual period where employees can select or decline their company’s health insurance coverage for the following calendar year. For example, the plan you select in the fall of 2021 will determine your 2022 coverage.
🔥 Tip: If you decide to not enroll in your company’s coverage, you still need to take action and decline coverage.
A health care premium is the fixed monthly fee for the plan. The company and the employee split this cost at most companies. And your share automatically comes out of your paycheck pre-tax.
For example, say you make $4,000 per month before taxes, and your portion of the premium is $200. That $200 is automatically subtracted from your paycheck and is put toward your health insurance. And you’ll take home $3,800 before taxes or other deductions.
Explanation of benefits
An explanation of benefits is the formal document sent via mail or electronically after a charge has been processed with your insurance. And it acts as your one source of truth for every healthcare expense, letting you know if you’re being overcharged or due for a refund.
For example, imagine you just had surgery done. When you were leaving, your healthcare provider billed you for $800, which you paid before leaving.
Months later, in the mail, you receive your explanation of benefits, and it says you only owed $500 for the surgery – not $800. That means your healthcare provider owes you the $300 discrepancy.
Legally, your doctor can’t keep the overpayment, and they risk getting shut down if they do. So, claims adjusters strictly monitor this.
However, it can still take months to get a refund if you don’t check-in. So, feel free to take that explanation of benefits back to your doctor and show them that they overcharged you. They also get notified when a bill is processed, and chances are good that they already know and have started working on your refund. But talking to them might make your refund show up faster.
In health insurance, processed means that the healthcare provider submitted a bill to your insurance company. The insurance company then replied with the full amount they agreed to pay, known as the “amount payable.” What you owe of the amount payable depends on your co-insurance.
A co-pay is a flat fee for select services that your health insurance plan covers. And rarely will a service covered by co-pay also be subject to a deductible (if it is, it will be super clearly marked).
For example, if you have a physical therapy co-pay of $25 per visit, then that is what you owe per visit.
However, this payment does not work toward your out-of-pocket maximum. So, even if you reach that max, you will still need to pay $25 per PT visit.
In-network refers to healthcare providers (including doctors and hospitals) who are contractually bound to accept your insurance and often have pre-negotiated a lower rate for certain charges.
Charges are based on current procedural terminology (CPT) codes. Meaning, health care provides use a standardized code set to report any medical procedure or service to health insurance companies. And for each code, your insurance company has already negotiated a pay rate, which is usually a percentage of the full price.
For example, imagine you have a physical therapy (PT) appointment with an in-network provider. In that appointment, the therapist does an evaluation, manual therapy, and therapeutic exercise.
The PT company would then send a bill to the insurance carrier that looks something like this:
- 97001 – 1 unit ($265/unit)
- 97110 – 2 units ($130/unit)
- 97140 – 1 unit ($130/unit)
This does not mean that the amount payable is $655.
This is where the in-network contract comes in. Your insurance provider will have agreed on a percentage of the total cost of each code that the company will pay. For simplicity’s sake, we’ll say this is 50% for each code (in reality, each code will have a different percentage negotiated).
The total bill would be $655, but the total payable would be $327.50. Meaning, you would only be billed that negotiated rate – not the full $655. This is assuming that co-insurance, not co-pay, covers the physical therapy.
However, billing can get a bit complicated if a healthcare facility accepts your insurance, and not everyone who treats you there is in your network. That’s because hospitals and doctor’s offices can say they accept your insurance if they accept out-of-network benefits. But by doing so, they get less money, and you pay significantly more.
This is common in emergency situations, childbirth, and surgeries because so many different providers will treat you that there’s a higher risk that one or more may be out-of-network.
Out-of-network refers to healthcare providers (including doctors and hospitals) who are not contractually bound to accept your insurance. And services by out-of-network providers are handled much differently than your in-network benefits.
Think of them as two buckets that you put money into every time you have a healthcare expense. Your in-network bucket is full (so long as you’ve met your deductible or out-of-pocket maximum). Meanwhile, your out-of-network bucket remains empty.
Dollars do not transfer between the two buckets. So, technically you have two deductibles and two out-of-pocket maximums to meet if you receive services from both in-network and out-of-network providers. And the out-of-network costs will be much higher.
The good news is that your out-of-network benefits are likely still better than no benefits. Meaning, if you’re in an emergency situation and can’t check that all the providers are in your network, out-of-network insurance will cover at least some of your services. You will owe more, but you will not owe everything billed.
Your deductible is the money you agreed to pay out-of-pocket for services and procedures before your co-insurance kicks in. You’re responsible for paying every dollar in the explanation of benefits up to the deductible’s full amount unless otherwise stated.
If your plan has co-pays, chances are good, however, that most common services (like x-rays, bloodwork, specialist visits, and so on) will be covered by a fixed co-pay rate and typically do not count toward your deductible. Meaning, you can spend hundreds of dollars on health insurance costs without making a dent in your deductible.
Let’s go back to that PT example. Imagine it’s your first medical bill of the coverage period (or the timeframe your selected health insurance plan covers). And physical therapy does not fall to a co-pay.
If your deductible is $500, and the bill is $655, you’ll pay $500. Then, your co-insurance will determine what your insurance covers and what you still owe of the remaining balance for this bill. No other bill in this coverage period will be subject to the deductible in this scenario.
However, say your bill is only $10. You’ll only pay that amount – not the full $500 deductible. And co-insurance will not kick in. Your next bill will once again be subject to your deductible minus what you’ve already paid toward deductibles ($490) until you’ve paid the full $500 toward your deductible.
🔥 Tip: Meeting your deductible does not mean that you’re done paying for your healthcare expenses. Just that your co-insurance kicks in!
Individual vs. family deductibles
For family healthcare plans, you’ll have an individual deductible and a family deductible. And your co-insurance kicks in when you meet either of the two deductible amounts in full.
For example, say you have a $500 individual deductible and a $1,000 family deductible. And your family includes you, your spouse, and two kids.
To date, your applicable healthcare expenses break down to:
- You: $300
- Spouse: $400
- Kid 1: $200
- Kid 2: $100
In this case, no one individual met their $500 individual deductible. But added together, they meet the $1,000 family deductible. So, the family deductible takes precedence and all future medical bills in this coverage period are subject to co-insurance.
Co-insurance is your share of the amount payable. Meaning, your insurance company pays a percentage of the remaining bill, and you pay the remainder up to your out-of-pocket maximum.
For example, a common co-insurance split is 90/10, where insurance pays 90%, and you only pay 10%. However, most health insurance plans will cover 100% of preventive care – regardless of where you stand with your deductible.
Let’s go back one more time to the PT example, where the amount payable was $327.50. Say you have an 80/20 co-insurance. This means your insurance company would pay 80% or $262, and you would only be responsible for the remaining 20% or $65.50.
The out-of-pocket maximum is the most amount of money you’ll pay in a coverage period for in-network, covered services. However, not-in-network expenses do not count toward it.
Once you meet your out-of-pocket maximum, your insurance will pay 100% of applicable expenses until the plan ends. Applicable expenses refer to any service that would count toward the out-of-pocket maximum if it were not already met.
Similar to deductibles, your plan comes with an individual and out-of-pocket maximum and a family out-of-pocket maximum.
But unlike deductibles, reaching your individual out-of-pocket maximum does not take precedence over the family out-of-pocket maximum. When this happens, insurance only covers 100% of that individual’s applicable expenses until the family’s out-of-pocket max is met.
For example, imagine your plan has a $600 individual out-of-pocket maximum and a $1,000 family out-of-pocket maximum.
To date, your family’s applicable healthcare expenses break down to:
- You: $600
- Spouse: $200
- Kid 1: $0
- Kid 2: $100
In this example, you’ve only met your individual $600 out-of-pocket max. But you have not met your $1,000 family out-of-pocket max. So, your insurance will only provide 100% coverage to your applicable expenses.
But another $100 applicable expense will meet your family’s out-of-pocket maximum. At that point, your insurance will 100% cover all of your family members’ applicable expenses.
But this does not necessarily mean you’re off the hook for all healthcare expenses in the remaining coverage period. There will be some expenses that do not apply to the out-of-pocket max.
For example, co-pays are usually not subject to the out-of-pocket max. So, you will still need to pay your co-pays for services like x-rays, primary care appointments, or in-network therapist visits.
Qualifying life event
Most people think open enrollment is something that happens once a year. But that’s not always true. A few major life events can qualify you for a special enrollment period, including:
- Childbirth or adoption
- Legal separation or divorce
- Death in the nuclear family
- Employee turns 26 (and loses prior coverage)
- Move to a new location (not always applicable)
- Involuntary loss of previous coverage
These special enrollment periods are open for 30 days after the qualifying life event. At that time, you can add or drop coverage based on your family’s needs.
A verified rate refers to the estimated cost per service from your insurance company. However, there is no guarantee the number will be more accurate than a ballpark figure.
That’s because a healthcare provider can call your insurance company four times and get four different answers on what you’ll owe. (It’s as frustrating for them as it is for you). This does not mean that the information will change based on who processes your bill.
You can also research verified rates yourself via your health insurance provider’s website. These are the same estimates you’ll get from your insurance representatives or healthcare provider.
But be prepared for it to be wrong, no matter what verified rate you get (via your healthcare provider or your own research). There is rarely full visibility into healthcare costs, even for healthcare providers.
And depending on how good an in-network healthcare provider was at negotiating or whether everyone who treated you was in-network might change the final number. Unfortunately, you won’t know the real cost until you receive service and the bill processes.
For some services (like really expensive surgeries), you might need to get prior authorization. Meaning, before the a health care provider conducts the service, your insurance company needs to approve the service costs. This burden to obtain prior authorization is on the healthcare provider, not you!
Generally, the process to check your benefits and obtain prior authorization happens once you schedule your service. But some providers wait until they obtain the authorization to schedule anything.
If the authorization is denied, it’s because the medical team at the insurance company has deemed that the service is not medically necessary. There is an appeals process that the healthcare provider’s administrative office can go through, so initial denial is not the end of the road.
Selecting the right health care plan
Remember: You are on the hook for your full deductible. Then, a percentage of all future medical costs up to your out-of-pocket maximum (which might be tens of thousands of dollars).
So, when choosing your health insurance plan, think about your financial comfort for when things go wrong, not when they go right.
Of course, you should consider all your (and your family’s) recurring claims like medications and specialist visits. But you should also consider the unexpected.
Fall and break an ankle? Deductible. A piano falls from the sky and hits you? Deductible. Land wrong after skydiving? Deductible. Even young, healthy people who don’t usually have problems can have accidents.
So, be sure to read the plan summaries and educate yourself on your personal needs and what makes sense for you (and your family)!