Health Care Insurance Terms
The terminology health insurance companies use to describe their plans and programs can be baffling even to people in the industry. You practically need degrees in medicine, law, and exotic languages to make sense of today’s complex health insurance plans! Here’s a basic glossary of terms to help make sense of a complicated subject so you can make better decisions about your health insurance.
Annual deductible: The total amount of money you have to pay out of pocket per year prior to receiving benefits from your health insurance policy. Annual deductible amounts vary from one health insurance plan to another.
Coinsurance: The portion of a medical bill that you are responsible for paying. The balance of the medical bill will be paid by your health insurance company. Coinsurance usually is calculated as a percentage of the total medical bill.
Co-payment: A flat fee you pay for an office visit, prescription, or test. Co-payments, or co-pays for short, commonly are part of the fee structure of “managed care” health insurance plans. The fees usually are nominal—$15 for an office visit, for example, or $10 for a prescription.
Covered medical costs: Medical tests, treatments, supplies, medications, and other health care services paid for by a health care insurance plan.
Flexible spending account (FSA): Sometimes referred to as a flexible spending arrangement, a flexible spending account is a savings account created by an employer for the purpose of paying for qualified health care expenses. The money that goes into the account is deducted from an employee’s earnings before payroll taxes, such as state and federal income taxes and FICA (Federal Insurance Contributions Act), are deducted. Using pre-tax contributions to fund the account can nearly double the employee’s health insurance purchasing power, since payroll taxes cut earnings by up to 50 percent, depending on income tax brackets and state income tax rates. Money deposited in an FSA account must be spent on medical services within the plan year, or else they will be forfeited.
Group health care insurance: A health care insurance plan designed and priced to cover a large group, such as employees of a company.
Health Maintenance Organization (HMO): An healthcare delivery organization that provides medical care through a group of affiliated health care providers, including doctors, clinics, and labs. The healthcare providers in the health maintenance organization are contractually bound to diagnose and treat plan members according to guidelines created by the health insurer. Consumers enrolled in an HMO plan are required to obtain their healthcare from medical service providers within the network, otherwise the health insurance plan will not pay the medical bills.
Health savings account (HSA): Like an FSA (see above), a health savings account allows an individual to place earnings in a savings account before payroll taxes have been deducted from them. An HSA differs from an FSA in an important way: The funds in an HSA do not have to be used within the plan year. The funds can stay within the account from one year to the next, rolling over annually as long as the account is open. The funds in the account must be used for medical expenses until the account holder reaches age 65. After age 65, the funds can be used for any purpose without sacrificing the tax advantage. HSA accounts are available only to consumers enrolled in high deductible health insurance plans (HDHP).
Maximum out-of-pocket expense: The total amount of money the member of a health insurance plan is responsible for paying for medical care before the health insurance plan assumes responsibility for payment. Out-of-pocket expenses include co-pays, coinsurance, and deductibles.
Medicare: A program of the federal government that provides health insurance to individuals with disabilities and to those aged 65 and older. Subsidized with payroll taxes, Medicare consists of two health insurance plans: Part A and Part B. Medicare Part A is funded with payroll taxes; the recipient does not have to pay a premium for it. Medicare Part A pays for hospitalization, including care in skilled nursing facilities and hospices. Medicare Part A also pays for qualifying home care. Medicare Part B is a separate plan that covers visits to the doctor’s office, outpatient care, physical therapy and home care. The Medicare Part B recipient must pay a premium for the coverage.
Portability: The ability to move from one health insurance plan to another without giving up coverage due to pre-existing conditions.
Point of service health insurance (POS): Combining elements of HMO and PPO health insurance plans, a POS is a managed care health insurance organization. Like an HMO, a POS uses a single physician to manage care. This is know as the point of service caregiver. Unlike an HMO, the POS pays for out-of-network medical services, much as a PPO does. Like a PPO, the POS requires the plan member to pay more for out-of-network care than for care received within the network. With a POS, the plan member is responsible to managing paperwork for out-of-network services.
Preferred Provider Organization (PPO): Like a POS or HMO, a PPO is a managed care organization that provides medical services through a network of healthcare providers contractually bound to follow prescribed guidelines for medical diagnosis and treatment. Like a POS, a PPO pays for medical attention obtained outside the network of “preferred” caregivers. Plan members pay more for out-of-network care, as with a POS. However, the PPO plan member is not required to manage the medical bills and receipts for out-of-network care, as they are under a PPO plan.
Pre-existing condition: A physical condition requiring medical attention that has been diagnosed prior to enrollment in a health insurance plan. In California, health insurance providers can delay or deny health insurance coverage to an individual with a pre-existing condition if that person has not had continuous health insurance coverage. However, California law requires health insurance companies to cover pre-existing conditions of people who enroll in a group health insurance plan.
Supplemental health care insurance: A health insurance plan designed to cover medical expenses not paid by an individual’s main health insurance policy.