Recently, I read an article about a study in the Journal of Health Economics that shows how little the average American knows about how health insurance works. Researchers looked at two surveys of Americans between the ages of 25 and 64 who have private coverage. They found that just 14% of respondents had an understanding of the most basic insurance concepts of deductible, copay, coinsurance and out-of-pocket maximum.
Then, I saw another article about how people with high-deductible health plans aren’t able to pay their medical bills. Why? Because they don’t understand how their benefits function.
As consumers, all of us should know the basics of how health insurance works and what the terminology means. Each industry has its own jargon, which we have to understand in order to get what we want. When you go into a Starbucks coffee house, for instance, you can’t order a small, medium, or large coffee; you have to order a Tall, Grande, or Venti coffee. Or mocha. Or cappuccino. Or Latte. Or macchiato. It’s complicated!
If you can keep all of those straight, health insurance terms all of a sudden don’t seem so challenging. The problem is that health insurance just isn’t as cool as coffee, so figuring out what it all means isn’t as fun.
I’m going to make an assumption that your health insurance costs you more each month than your coffee (if I’m wrong, you may want to cut back on the java). So let’s take a look at some basic terms you should know so you can ask intelligent questions the next time you’re shopping for a health plan.
Deductible: The amount of money you must pay each year to cover eligible medical expenses before your insurance policy starts paying.
Copay: One of the ways you share in your medical costs. You pay a flat fee for certain medical expenses (e.g., $30 for every visit to the doctor), while your insurance company pays the rest.
Coinsurance: The amount you pay to share the cost of covered services after your deductible has been paid. The coinsurance rate is usually a percentage. For example, if your health plan pays 80% of the claim, you pay 20%.
Out-of-pocket maximum: The most money you will pay during a year for coverage. It includes deductibles, copayments, and coinsurance, but is in addition to your regular premiums. Beyond this amount, the insurance company will pay all expenses for the remainder of the year.