GLOSSARY OF TERMS

Excerpts from: “Get a Good Deal on Your Health Insurance Without Getting Ripped Off” by Jonathan Pletzke, 2007, Aji Publishing.

Copay
Some healthcare plans offer a copay option. Essentially you have a fixed price for a doctor visit, a specialist visit, a prescription or a laboratory test. Not all plans offer copays for all services, and some have different copay amounts for the different types of services, such as a regular doctor (like a general practitioner) visit or a specialist (like a dermatologist) visit. A copay also can apply to a prescription as well as any other service that an insurance plan offers. The amount can range from zero to thirty dollars or more. Keep in mind that a lower copay does not mean a lower cost plan or necessarily a better deal. A higher copay or absence of a copay may mean a significantly lower monthly premium rate—and the doctor visit may still cost you less than paying month after month, year after year, for a copayment option. Before you start comparing plans try to estimate how many doctor visits you would typically make in a given year.

Deductible
The deductible is the expense that you pay for health services that are eligible expenses before your health insurance policy begins paying. This does not apply to items with a copay. So for a plan that has a copay, the $20 that you spend to see your doctor does not count towards the deductible, but expenses paid while in the hospital would. You will begin paying towards the deductible immediately until you’ve reached the deductible maximum. Some policies have a maximum per individual as well as per couple or per family, so understanding this number is important. It also is important to know for which expenses you only have to pay a copay and which ones you pay in full with the amount going towards the deductible. You may save money in the long run with a high deductible plan, knowing that you can build up a financial emergency fund with money saved in premiums within the first years of a policy. You need to understand and estimate the right plan, premiums, and deductibles for you based on your medical requirements.

Coinsurance
Coinsurance is the expense that you will split with the insurance company before the insurance company pays in full for eligible expenses. It is usually expressed as a percentage and a dollar amount. Typically coinsurance starts after you have satisfied an individual or family deductible and continues until you’ve reached the coinsurance maximum amount. Sometimes the coinsurance percentage is expressed as the amount that you will pay, and sometimes as the amount the insurance company will pay, making it even more confusing.

You need to look at the percentage and the amount together. For example, if you had medical bills of $8,000, a 50% coinsurance amount with a limit of $8,000 will result in $4,000 in payments by you after you’ve satisfied your deductible and a $4,000 payment by the insurance company. An 80% coinsurance amount on a limit of $10,000 will result in a maximum of $2,000 in payments by you after you’ve satisfied your deductible, with the insurance company paying $8,000 of the expenses before paying entirely for any other eligible expenses.

Having coinsurance can reduce your expenses during a medical event, but can also raise the premium that you pay month after month, year after year. The increased premiums may amount to a difference of thousands of dollars over time as compared to a plan with no coinsurance and the same deductible.

Total Out of Pocket
The total out of pocket is the deductible amount plus the share of coinsurance that you pay. For example, an individual plan with a $5,000 deductible and a 50% coinsurance on the next $5,000 will give you a total out of pocket amount of $7,500. However, the total out of pocket is a misnomer because it does not include amounts spent on premiums, copays, or prescriptions. It is simply the “big dollar” amounts of how much you will have to pay if something medically significant happens.

The total out of pocket can be expressed on an individual basis or on a family basis. The family out of pocket is the individual out of pocket maximum multiplied by a number, which can be less than the total number of family members. Looking at total out of pocket is one way to compare apples-to-apples when you have health insurance quotes from different companies.

Lifetime Limit/Annual Limit
The lifetime limit is a maximum that the company or policy will pay during your lifetime of coverage. These range from the low millions of dollars (e.g., one million, five million) to unlimited. The annual limit is the maximum amount that will be paid in benefits during the year. Keep in mind that depending on the policy, the year could be a calendar year or any 12-month period.

Having an annual limit or a low lifetime limit may reduce your premiums, but it may not be worth the savings. The biggest reason to have health insurance is to manage expenses that you might not be able to pay yourself. If your coverage runs out when you really need it—after a major medical problem—how will you feel?

Health Maintenance Organization (HMO)
A Health Maintenance Organization (HMO) is a health plan that offers services through a list of specific providers, sometimes employees of an HMO owned facility, sometimes through contracted doctors and facilities. HMO plans typically have a list of contracted doctors, hospitals, and facilities (commonly known as the network) whose expenses will be covered by the plan. Because you are limited to using their contract doctors and facilities, plans in this category have lower costs in this area but HMO plans tend to be full featured, and there are more limited plans based on the PPO model that may cost less. If you wish to see a doctor not contracted with the plan, the plan will not cover the visit, leaving you to pay for the medical expenses.

Preferred Provider Organization (PPO)
This option provides for more flexibility than an HMO. It may offer an HMO type of network and provide a higher level of coverage when using providers in the network, but it also provides coverage to providers outside of the network, though at a lower level of coverage, meaning that you will pay a larger amount of the bill. This keeps the option to use non-network providers, but also gives you the choice of using the network doctors at a lower cost. If your doctors and facilities are all in-network, then you might save money by using an HMO/POS over a PPO, but check out the available options, because like everything else in health insurance, it varies depending on the insurer and policy.

Point of Service (POS)
A variation on the HMO is the Point of Service (POS), which is also very much like a PPO, but offered as part of an HMO plan. Point of Service means that the type of coverage you will receive depends on the point (or place) of service.  A POS plan provides a list of doctors and facilities that, if used, provides for more flexibility and a similar low-cost approach to healthcare as an HMO. Use of doctors and facilities outside of the HMO or network may not be covered in full as the charges from these providers are not pre-negotiated with the insurer. The difference here is that some part of the expenses/charges may be covered, sometimes up to the amount that the insurer deems “reasonable and customary,” meaning the amount they would pay for the exact same procedure code to a doctor within the network, minus the percentage that you are responsible for paying when going out of the network.

Indemnity (Major Medical) Health Insurance
An Indemnity Health Insurance plan, also known as major medical, is a more flexible yet more costly option. Many people refer to this as a traditional plan because it preceded the advent of managed care: HMO, PPO, POS. You choose your doctors and facilities and then the insurer pays, subject to any deductibles or coinsurance. Some plans may offer wellness visits, such as an annual physical, but you may pay more for this benefit even though in the long term wellness would keep health expenses down. Because of the flexibility and control that you have over the delivery of the benefits, this can be an expensive option. You’ll know if you need this type of insurance based on the available healthcare options in your area after researching the doctors that are in-network with the managed care plans available to you.

Health Savings Account (HSA) and High Deductible Health Plan (HDHP)
A Health Savings Account (HSA) is an account much like an IRA into which you can deposit a limited amount of money without paying any federal income tax on that money. The added bonus is that the unused portion stays in the account year-after-year, accumulating tax-free interest. The money can be used for a wide variety of medical purposes including things not covered by most health insurers. Plus, when you hit 65, you can take money out for non-medical purposes just like an IRA: you do pay income tax on the distributions. You can even get access to the money before age 65 for non-medical purposes by paying a 10% penalty in addition to income tax.

An HSA must be coupled with a High Deductible Health Plan (HDHP), which is likely to be similar to an indemnity or PPO policy with a higher deductible. An HDHP must be HSA qualified—some HDHPs don’t have HSA as part of it, due to some part of the benefit package not qualifying. The HDHP must have a deductible within a certain range.

An HSA/HDHP allows you to spend pre-tax dollars for your out-of-pocket health expenses using either a debit card or a checkbook from the HSA. However, with a few exceptions, this does not include health insurance premiums.

Underwriting
Underwriting is the process that the insurance company uses to assess your application. During this process they will determine if you are insurable according to the company guidelines, finalize the rate that you will pay which could be greater or less than quoted, and determine if there are any special circumstances that will apply to you, such as excluding coverage for certain conditions.

Medical Condition
A medical condition is any one-time medical event that could have a lasting impact on health, as well as chronic conditions that require on-going medical treatment. Many times these will be used to deny insurance or increase rates during underwriting.

Community Rating
Community rating is a way to charge everyone in a community the same amount of money in premiums, regardless of health conditions. Most of the states that have implemented this have some modifications that allow somewhat different rates based on the location in the state, number of family members, and few other criteria.

Community rating effectively levels the premium paid by all people in the state. The upside is that those who have a medical condition can find health insurance more affordably than without community rating. The downside is that healthier people are paying significantly higher premiums than in other states, in part because the state government requires many benefits to be mandatory. States currently mandating community rating in purchase of individual insurance are: Maine, Massachusetts, New York, New Jersey, Oregon, Vermont, and Washington.

Exclusionary Riders
Exclusionary riders are additions to an insurance policy that exclude coverage for certain conditions. These can be for the life of the policy or for a stated period of time. Insurers also can adjust the premium amount because of these riders. Riders like these are not desirable, nor allowed in every state. However, rather than going without insurance, or being rejected for insurance, you may find that you can get a time limited exclusionary rider, for which you may then try to appeal for a time limit. You may also wish to appeal for a time limit on any exclusionary riders that may be proposed without any time limit. An experienced agent can tell you which companies have done this in the past, and help you to try.

Pre-Existing Condition
This is a medical condition that exists before the policy is in force. It may cause exclusionary riders, changes in the premium amounts, or waiting periods before coverage starts. Sometimes, if you have existing coverage on these conditions, they may not be counted. However this varies by state and insurer. Some states do not permit insurance companies from refusing coverage due to pre-existing conditions—and the rates are usually best for those with pre-existing conditions in states that have Community Rating.

Waiting Period
If you have a pre-existing condition, have not had health insurance just prior to coverage (usually within 63 days), or haven’t had health insurance for a long period of time prior to coverage, insurers will make you wait before they’ll pay certain expenses. Some insurers will have a waiting period for everyone. Sometimes this includes preventative healthcare in the first year of the policy, even when you’ve had health insurance all your life. State laws govern some of these, and insurance companies can make choices about what they’ll cover in concert with the state laws, or where state laws don’t specify.

Eligible Expenses
Not everything that you might consider healthcare is going to be eligible for payment in your health plan. Additionally, the list of items eligible for tax treatment, such as for the federal itemized deductions or the HSA account, may not cover everything on which you may want to spend money. For example, chiropractic may not be covered in your health plan, but may be eligible under tax treatment, so if you had an HSA/HDHP, you could spend pre-tax dollars on your chiropractic care. Certain alternative treatments, such as some herbal treatments, may not be eligible at all.