Open enrollment begins soon and many Americans will have a chance to make adjustments to their healthcare plans. But let’s face it – it could be tough to choose the best coverage if you don’t understand the difference between a premium and a deductible. That’s where our guide comes in. We define 10 common healthcare terms that you’ll want to know before picking another plan.
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A deductible is what you pay annually for health services before your insurance company pays its share. For instance, if you have a deductible of $1,000, your insurance plan might not start covering its share of your bills until you’ve paid $1,000 for healthcare in a given year. However, plans often cover the cost of things like preventive care doctor’s visits even before you’ve paid your full deductible amount.
2. High Deductible Health Plan
If you have a high deductible health plan (HDHP), you’re paying a larger deductible than most people. You’ll be paying more out-of-pocket and your insurance won’t cover much until your deductible has been paid in full. In exchange, your premiums won’t be as high and you will likely qualify for a health savings account that lets you save pre-tax dollars for covering medical expenses.
For 2016, HDHPs are those plans that have deductibles of at least $1,300 for individuals and $2,600 for families. They can potentially save you money and can be especially useful for younger people and folks who don’t need much medical care and and want low premiums. On the other hand, if you rack up a lot of medical bills in a given year, an HDHP can be expensive.
3. Health Savings Account
A health savings account (HSA) allows individuals to put in up to $3,350 (or $4,350 if you’re at least 55) in pre-tax dollars to be used for medical expenses. Your contributions lower your tax bill, and if you use the money for qualified medical costs your withdrawals will be tax-free.
An HSA differs from a flexible spending account (FSA), which is connected to your job and allows you to save pre-tax money you can use toward out-of-pocket medical expenses. Unused HSA funds remain in your account until you need them, while FSA funds must be depleted before the plan year ends because the funds generally do not roll over.
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Your premium is what you’ll pay the insurance company for the privilege of having an active insurance plan. Most people pay theirs every month, but your payments might be due once a quarter or once a year.
Fortunately, there are tax credits available to offset the costs of health insurance premiums for plans purchased on the Affordable Care Act marketplace. If you get health insurance through work, your employer probably covers a share of your monthly premium.
The copayment (or copay) is the amount you owe each time you receive certain types of medical care. Copays can vary depending on the kind of service you’re getting. For example, you may have to pay a $30 copay for each visit to your GP and $60 for each visit to a specialist.
Normally, you can’t use copayments to reach the threshold for the deductible. It depends on your plan, though, so you’ll need to read the fine print to find out how your coverage works.
After you’ve met your deductible for the year you’re not off the hook when it comes to medical bills. You’ll generally face some amount of coinsurance. That’s the percentage you’ll pay of medical expenses. For example, you might meet your $2,500 deductible in May and from then on your coinsurance would be 20%. That means you would pay $20 of a $100 bill and the insurance company would pay the other $80.
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7. Out-of-Pocket Maximum
This amount is the most you’ll pay each year toward costs including your deductible, copay and coinsurance. For 2016, the maximum threshold is $6,850 for singles and $13,700 for family coverage. Say you’ve gone all year without any medical expenses and suddenly have to go to the hospital. Assume your plan specifies that you pay 30% of hospital bills (your coinsurance) and the insurance company pays 70%. If your 30% share of your bill is greater than $6,850 you still won’t have to pay more than that because you will have met your yearly out-of-pocket maximum.
Once you’ve met the maximum, your insurance company will pay for the remainder of your care, as long as it’s essential. Premiums aren’t included in the out-of-pocket maximum and neither are extra services such as hearing aids and acupuncture. If your plan distinguishes between in-network and out-of-network providers, out-of-network bills may not count toward your out-of-pocket maximum either.
A health maintenance organization (HMO) plan might give you the least amount of flexibility in terms of who you can choose as a provider. If you don’t see a physician who’s either an employee of the HMO or does contract work for it, be prepared to pay for the entire medical bill (unless there’s an emergency). And if you move or switch over to a job in a new city, you might lose your coverage.
Under a point of service (POS) plan, you can’t receive care from a specialist without a referral from your main doctor. Your medical expenses will be higher if you seek help from an out-of-network physician, but on the bright side you’ll likely have a greater number of doctors to choose from than you would with an HMO.
With a preferred provider organization (PPO) plan, your insurer might pay a portion of your bill if you visit a doctor or specialist outside your network. You won’t need a referral from your primary physician to do that, but you’ll probably pay more. To keep costs low, you’ll want to stick with in-network healthcare professionals.
With a firm understanding of what the various healthcare buzzwords mean, you should be able to find a plan that meets your needs and fits within your budget. When shopping for health insurance, you’ll generally face a trade-off between high coverage and low cost. The plans that have the lowest deductibles and the most provider flexibility generally come with higher premiums. Inexpensive plans can be a good deal in a healthy year but an expensive choice if you have a lot of medical expenses.
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