When shopping for medical plans, there are several terms that can cause confusion. Here is a quick guide to give you confidence in your selection.
Health Insurance Terms You Need to Know
When shopping for a health plan, we encounter terms that we rarely hear in our daily lives: "out-of-pocket maximums," "coinsurance," and "deductibles." What do they all mean, and how do they all affect our pocketbooks? The good news is you don't have to be an expert in the language of health insurance to figure that out! However, understanding a few basics terms will certainly improve your experience and could save you some money:
Individual Coverage Health Reimbursement Arrangement (ICHRA)
It is a new type of healthcare reimbursement plan that became available in 2020. With an ICHRA Health Care Plan employees can choose the healthcare plan that best fits them and their families. While employers of any size reimburse employees for some or all of their healthcare premiums with pre-tax dollars. It provides employees with much more flexibility and choice for their own health care needs and it provides employers with cost control and risk management.
Once you have met your deductible, you are responsible for a portion of the cost of the covered medical services you receive. The exact amount varies by plan but typically ranges from 10%-40%. Example: Going back to John and Margaret, the total cost of their delivery was $7,000, and their co-insurance requirement is 20%. John and Margaret paid the first $5,000 and satisfied their deductible. For the remaining $2,000, John and Margaret will pay $400 (their co-insurance obligation), and their insurance company pays $1600.
A copay is a fixed amount you pay for certain medical services. For example, when you visit your primary care doctor you may have a $25 co-pay. Your co-pay does not count toward your deductible, but it does count toward your out-of-pocket max.
A deductible is how much you spend before your insurance company will pay for your medical services. *Example: John and Margaret had their first baby in February. The hospital charged $7,000 for the medical services associated with the delivery. John and Margaret's deductible was $5,000, so they owe the hospital $5,000. For any amount above $5,000, the insurance company will pay a portion, and John and Margaret will pay their coinsurance portion.
Health Insurance Marketplace
Provides health plan shopping and enrollment services.
Health Maintenance Organization (HMO)
An organization that provides insurance coverage for specific doctors and hospitals in a particular area (in-network providers).
Preferred Provider Organization (PPO)
An organization that provides insurance coverage for any doctors, specialists, and hospitals in a particular area (in or out of your network).
What you pay your insurance company in order to maintain your plan. Your premium is paid monthly and is a fixed cost regardless of whether you have a major medical procedure or you have no medical costs at all.
An out-of-pocket maximum is the total amount you are required to pay during a policy period (usually a year). Once you have met your out-of-pocket max, your insurance company is responsible for paying for 100% of all covered procedures. Deductibles, coinsurance, and copays all contribute to your out-of-pocket maximum. However, premiums are not included in your out-of-pocket max.
Tax Premium Credits (subsidy)
The subsidy is provided by the Federal Government to offset the cost of insurance premiums to make them affordable. During enrollment, many carrier websites may check your eligibility for a tax credit, but not be aware of your company's contribution.
If your company is NOT providing an affordable contribution, then you may be eligible for a subsidy. However, upon selecting the tax credit, you will not be able to take advantage of the company contribution.
If your company is providing an affordable contribution, you are NOT eligible for a tax credit. If you select a subsidy without qualifying for one, you could be subject to IRS tax fines and penalties during tax season.