Medical insurance plan terms, descriptions of provisions, and coverages can be hard to understand.  We've provided some support (below) to assist in helping you to better understand some common health insurance terms and types of coverage.

Understanding Terminology

Deductible

The deductible refers to the amount of money the insured is required to pay before any benefits from the health insurance policy can be used.  Generally, deductibles are met on an annual basis and begin all over again each plan year; there are usually separate individual deductible amounts and total family deductible amounts.  Some services (like doctor visits) may be available without meeting the deductible first.

Co-Insurance

Co-insurance is a percentage amount that is the insured's responsibility.  A common co-insurance split is 80/20.  This means that the insurance company will pay 80% of the procedure and the insured is required to pay the other 20%.

Co-Payments

The co-payment is a fixed amount that the insured is responsible for at the time of service; generally the co-payment is for basic doctor visits and when purchasing prescription medications.

Out-of Pocket

Out-of-pocket refers to the money spent by the insured.  An out-of-pocket expense can refer to the amount paid for a co-payment, co-insurance, or deductible.  This terminology is frequently referred to as "annual out-of-pocket maximum" - meaning the full amount the insured would be required to pay for the whole year, excluding premiums.

Lifetime Maximum

This is the maximum amount of money the health insurance policy will pay for the entire life.  Attention should be given to individual lifetime maximums, as well as family maximums as they can be different.

Exclusions

Exclusions are things the insurance policy will not cover.

Pre-Existing Conditions

Pre-existing conditions refer to something an individual had before obtaining the insurance.  Some plans will cover pre-existing conditions while others may completely exclude them.  There are some health insurance plans that will cover pre-existing conditions after a certain time period.

Waiting Period

A waiting period is the time an insured would be required to wait until certain health insurance coverage is available.

Coordination of Benefits

If an insured has two or more sources of available coverage that would provide payment for certain conditions (such as coverage under a spouse's insurance plan along with their own), the insurance companies will not pay double benefits; the health insurance companies would coordinate benefits to assure each plan pays a portion of the service.

Grace Period

A grace period refers to the amount of time one has to pay their health insurance premium after the original due date and before insurance coverage would be canceled.

Understanding the Types of Health Insurance Plans

Managed Care

Managed care is a type of health delivery system that includes participating providers who contract with the health plan.  The providers manage the care of their patients.  Types of managed care plans include HMOs, PPOs and POS plans.  Some managed care plans require you to have a Primary Care Physician (PCP); if so, you must rely on your PCP any time you need a service.  When appropriate, the PCP will refer you to a specialist within the plan's network.  The plan may allow you direct access to the specialist, depending on the seriousness of your condition or if you require specialized care over a long period of time.

• Health Maintenance Organization (HMOs)
  Health Maintenance Organizations are pre-paid health plans where individuals or employers pay a monthly premium.  In exchange, the HMO provides comprehensive care for you and your family, including doctor visits, hospital stays, emergency care, surgery, lab tests, x-rays, and therapy.  Except in emergency situations, HMOs usually do not pay anything toward your care if you do not use the plan's network of providers.  Members are generally asked to make a co-payment for services and use the doctors within the network.  Out-of-pocket costs are likely to be lower and more predictable than those in an indemnity or fee-for-service plan.
• Preferred Provider Organization (PPO)
  Preferred Provider Organization is a plan that contracts with independent providers at a discount for services.  Those enrolled can go outside the network; however, will pay a greater percentage of the cost of coverage than if seeking care within the network.
• Point-of-Service (POS)
  A point-of-service plan (also known as an open-ended HMO) is a blend of HMO and PPO coverage.  You may use doctors in the HMO network or you may choose other doctors.  You will pay a higher cost if you use doctors outside the network.

Traditional Health Insurance

An insured individual with a traditional health insurance plan will have coverage to use at any hospital or with any doctor.  Normally, a monthly premium, a yearly deductible, and co-insurance payments are required for each service.  A typical co-insurance amount would be 80/20 (the insurance company will cover 80% of the cost and the individual is responsible for 20%).

CDHP (Consumer Driven Health Plans)

• Health Savings Account (HSA) with a high-deductible health plan
  Employers may offer Health Savings Accounts (HSA) to their employees.  HSAs are "savings funds" that allow you to pay some health care costs with tax-free dollars.  HSAs let you pay for current medical expenses and save for future qualified medical and retiree health expenses on a tax-free basis.  In order to use a health savings account, you must purchase a high-deductible health plan to use with it.  Employers often contribute dollars to the HSA; however, individuals can also make pre-tax contributions.  Upon separation of employment, the HSA balance belongs to the employee.  Under a high-deductible health plan, you pay a lower premium and accept greater risk; the HAS can assist you to meet that high deductible.
• Health Reimbursement Account (HRA) with a high-deductible health plan
  Similar to the HSA, the health Reimbursement Account (HRA) provides funds that allow you to pay health care costs with tax-free dollars.  They are frequently matched with a high-deductible health plan.  Employers fund the HRA on behalf of the employee; however, HRAs are owned by the employer, not the employee; therefore, if you leave your employer, the money remaining within the HRA may not be taken by the employee at time of employment termination.  Under a high-deductible health plan, you pay a lower premium and accept greater risk; the HRA assists you in meeting that high deductible.

Coverage Provided by Employers

Most large employers offer health insurance to their employees.  It is important to understand, however, that employers offer insurance voluntarily - no law requires it.  The employer may offer insurance that will cover only the employee or may provide coverage to you (the employee) and your dependents.  Plan coverage details may be based on whether you are part of a large or small employer group. 

Some large employers "self-insure" the health benefit plans that cover employees.  If your employer is self-insured, it means the employer, not an insurance company, is responsible for payment of your covered health care services.  These plans may be administered by the employer itself or could be contracted with an outside administrator (often a health insurance company) to process claims.  The best way to know if your plan is self-insured is to ask your employer's Human Resources department; many self-insured plans are not subject to state insurance laws.