When you start shopping for health insurance, it is important to understand the terminology and the definition of certain terms. Otherwise, you may purchase a program that doesn’t meet your expectations. Unfortunately, many agents and brokers use certain insurance definitions to their benefit to make certain health programs seem as if they cover more than they cover. We have spoken to so many consumers that were victims of this approach and some found out when they had to use their plan toward an office visit or worse than that, an inpatient hospital stay. A consumer can be stuck with hundreds of thousands of dollars if the right policy is not provided or realistic expectations aren’t explained. Below you will find the insurance definitions or terminology that really matters when shopping for health insurance.
Co-Pay: A set dollar amount determined by the insurance company that an insured will pay for a specific medical expense. The most common medical services that have a co-pay are office visits and prescriptions. Sometimes, your plan will have a co-pay for the emergency room as well. For example, if your plan has a co-pay of $25 for PCP visits, that would mean you pay $25 when you see a Primary Care Physician. Or if you have a co-pay of $10 for generic prescriptions, that would imply that you pay $10 for your generic prescriptions.
Deductible: A deductible is the amount in medical expenses that the insured is responsible for before the insurance company starts to pay toward those medical expenses. For example, if your plan has a deductible of $1,000, that would imply that you are responsible for the first $1,000 in medical expenses that your policy defines as “subject to deductible”. It is important to read your policy carefully because medical services that have a set co-pay typically do not go towards your deductible. It is those medical services that are defined as “Subject to your deductible” that will pay into your deductible. Another misconception is that if you have a deductible, you are not responsible to pay the deductible in its entirety unless your medical services exceed that amount.
Co-Insurance: Co-insurance is the percentage split in medical expenses between the insured and the insurer. The co-insurance on most insurance plans is either 80/20 or 70/30. In most cases, your co-insurance kicks in after your deductible is met. At that point, you are responsible for your percentage of the medical expenses until you meet your maximum out of pocket. When it comes to your co-insurance, the insured is responsible for the smaller percentage. For Example, if your co-insurance is 80/20, then the insurance company is responsible for 80% and the insured is responsible for 20%. In the rare case where you have a plan that has a $0 deductible, then your co-insurance will kick in immediately.
Maximum Out of Pocket: The maximum out of pocket on a health insurance policy is the most that an insured is responsible for before the insurance company will pay 100% of medical expenses. For example, if you maximum out of pocket is $7,500, that would imply that once you have accumulated at least $7,500 in medical expenses for that year, your carrier is responsible to pay 100% of your medical expenses.
Lifetime Maximum: A lifetime maximum is the most that an insurer will pay in medical costs before they stop paying. Once your lifetime maximum is met, the insurer will stop paying any medical costs you may have. Typically, the lifetime maximum ranges from $100,000 up to $1,000,000. Make sure to review your summary of benefits to see if your policy has a lifetime maximum that they will pay.
Indemnity Benefit: This is a fixed dollar amount that an insurance company will pay for a certain medical expense. For example, if your policy has an indemnity benefit of $50 for office visits, that would imply that the insurance company will pay $50 towards your visit and you are responsible for the rest. It is important to review your policy documents when purchasing a plan with indemnity benefits because even though they do not have deductibles, they only pay a fixed dollar amount and the rest is left for the insured to pay. Indemnity plans do not have a maximum out of pocket so the more your medical expenses are, the more you must pay as well. Usually for hospitalization, they will pay up to $1,000 per day and have a maximum of five to ten days. So therefore, you must pay the difference which can become costly. A plan that has indemnity benefits is great option for those who need coverage to fill a void between Open Enrollment periods or until they reach Medicare.
Remember: When someone presents a plan that has a $0 deductible, that doesn’t necessarily mean that the insurer will pay all your medical costs at 100%. That just implies that you don’t have a set amount to pay out of pocket before your benefits kick in. You very well may have purchased an indemnity plan so make sure to ask for something in writing. Furthermore, if you are presented a plan that has no copays, that doesn’t mean that they will pay everything 100%. Your policy probably has a fixed dollar amount that it will pay so therefore it doesn’t have a copay. As we mentioned at the very beginning, some agents and brokers will try and use insurance terminology to their benefit to make something seem better than it really is. Always make sure to ask questions and see something in writing.
