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A Consumer’s Guide to Health Insurance Terminology

Copay? Tax subsidy? Know what these essential health insurance terms before you decide on your health coverage.

September 18, 2017 - By Colleen McGuire - read

Health insurance terminology and jargon is confusing and hard to understand, especially when its your first time shopping for a plan. This consumer guide to health insurance terminology can help you understand your coverage options before deciding which plan you want to buy.

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Understanding Health Insurance Terminology and Industry Jargon

Plan Details

Your plan details offer a summary of a particular insurance plan’s coverage and benefits. Always review Plan Details for any health insurance plan you are interested in, and if you would like to save the information to compare plans side by side, print the Plan Details for future review.

Premium

The flat amount you pay each month for health insurance coverage is called a premium. This is the fee you pay your health insurance company to keep your coverage active. You’ll also hear people refer to this as a “monthly premium.”

Deductible

A plan deductible is the total amount policyholders need to pay out-of-pocket pocket for medical care and services before your health insurance company begins to cover the cost of these expenses. For example, if your deductible is $3,000, your plan won’t pay anything until you’ve already paid $3,000 for covered medical services from your own bank account. Your plan deductible may not apply to all medical services, and some plans have two separate deductibles: one for prescription drugs and another for other medical care.

Coinsurance

Most healthcare plans charge coinsurance for specific medical services. It means exactly what you think it might – you have to share the costs of medical care with your health insurance company. The cost is calculated as a percent (for example, 80 percent) of the allowed amount for the service. You are responsible for your coinsurance share. In our example, you would have to pay the remaining 20 percent of the medical bill plus any remaining deductible you owe. Another example: If the health insurance company’s allowed amount for an office visit is $100 and you’ve met your deductible, your coinsurance payment of 20 percent would be $20. The health insurance plan pays the rest of the amount. Another term for coinsurance is “coverage level.”

Copay

A copay or copayment is a fixed amount you are required to pay for a covered healthcare service, usually the same day you receive the service. The amount can vary by the type of covered healthcare service. For example, visiting a doctor in-network may require a $30 copay. However, this is still less than paying a higher amount for a doctor out-of-network.

In-Network

You health insurance company contracts with a large network of doctors, hospitals and clinics that creates an in-network system. These contracted doctors and facilities agree to accept special rates for procedures and services. Knowing the price of contracted medical services helps the insurance company control their costs, and helps them price their health insurance rates. Plus, health insurance policyholders are given better pricing when they visit in-network doctors.

Out-of-Network

If you receive medical services outside of your in-network approved doctor or hospital facility, you will likely pay more for this out-of-network care. Medical providers outside of your network have not agreed to a set rate with your insurance company so the cost will be higher. Your health insurance plan will also require higher deductibles, coinsurance and copays. Many times the cost is double of what your in-network costs are. Some healthcare plans do not cover out-of network charges at all, so pay close attention to both in-network and out-of-network availability when shopping for a health insurance plan.

Tax Penalty

If you can afford to purchase health insurance but choose not to buy it for various reasons, you must either have a healthcare coverage exemption that is granted by the federal government or pay a fine on your income taxes for not carrying health insurance coverage. The fine or fee is also referred to as an “individual responsibility payment” or “individual mandate.” In 2016 the fine increased to $695 per adult ($347.50 per child) or 2.5 percent of your income.

Tax Subsidy

A tax subsidy is a form of financial assistance you can receive from the federal government to help pay for your health insurance costs. The amount of money you receive is based on your total income reported to the Internal Revenue Service (IRS) for the given year. Health insurance subsidies are also known as the Advance Premium Tax Credit. When calculating your Obamacare tax subsidy, be sure to include all members of the household that are claimed as dependents as well as all income that will be reported to the IRS. It’s important to make sure your calculations are correct. If you miscalculate your income or have an increase in income after applying for your tax subsidy, you could be subject to repaying the amount of subsidy granted at tax time.

Formulary

Formulary is probably the most confusing word in the world of health insurance terminology. If you take many medications or specialty medications, it’s important to review the health insurance plan’s drug formulary. A drug formulary (or drug list) contains a list of prescription drugs covered by the drug plan or another insurance plan offering prescription drug benefits.

Taking the Next Steps

You can evaluate your health coverage and see if it’s the best option for your needs.

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