What’s a Deductible? …and Other Insurance Words you Should Know
Insurance is heavily in the news right now — lots of discussion about what the various GOP proposals say, how various policies compare to others when patients are using them, and lots of discussion about“premiums” and “out of pocket maximums” and lots of other things.
I know there are lots of people who don’t have a clear idea of what some of these things actually are — and of course, that affects how you interpret articles about health reform (not to mention your own insurance policies).
So let’s talk about some of the common terms you’ll see in your insurance policy and in the healthcare debates.
Premium — The amount of money that you, the consumer/enrollee (and/or your employer), pays each month to stay enrolled on your health insurance.
This is, basically, the amount of money you pay to buy your health insurance plan. You pay this money every month, regardless of whether you see the doctor or get a prescription or use your insurance at all.
Deductible — The amount of money that your insurance company will require you to pay toward your medical expenses before they will start paying.
Your premiums do not count toward this deductible — all that counts are the bills you rack up at the doctor’s office, hospital, or pharmacy.
So if you buy a plan that has a $1000 deductible, you will pay your premiums every month to stay enrolled on that plan. If your appendix bursts right after you start your coverage, your insurance company will process your bills related to that surgery and hospital stay. They will notify the surgeon/hospital to bill you for the first $1000 of your medical costs for your deductible. Once you’ve been billed for that first $1000 (once you’ve “met your deductible”), the insurance will start paying on your bills.
Importantly, your deductible will reset every policy year. So if your insurance policy starts on May 1 and you use up $1000 in medical care by December 1st, you will have to pay your deductible again starting on May 1 of the following year.
Copay — this is a flat dollar amount that your insurance will charge you whenever you receive a certain service from a doctor or pharmacy. Most of the time, these copays will not apply until after you’ve met your deductible (see above), though some plans are set up differently.
So if you buy a plan that has $25 copays on office visits, then (once you’ve met your deductible), you will have to pay a flat $25 every time you go to a doctor’s office for treatment. At that point, it doesn’t matter whether the doctor charges $40 or $400 for that office visit — you will have to pay $25.
The same concept applies to any kind of care — you might have to pay $10 per generic prescription, or $350 per ER visit, or any other range of copays. The important point, though, is that this amount does not change regardless of how much your doctor charges or what their contract with your insurance company says. If you see a doctor at their office, you will always have to pay $25.
Coinsurance — when you’re looking at your benefits brochure, this number will be indicated as percentage. So you will see something like this:
outpatient surgery— 30%
generic prescriptions — 10%
What this means is that (once you’ve met your deductible), you will be held responsible for 30% (or 10%) of the fee for that particular service. So if you have an outpatient surgery and you’ve met your deductible, the insurance will pay 70% of your charges related to that surgery, while you will be billed for 30%.
These amounts are less clear-cut than copays or deductibles, however. Because each medical provider (doctor, hospital, therapist, etc)will have their own separate contract with your insurance company, the coinsurance amount will differ depending on how generous your doctor’s contract is.
Let’s say that you see a doctor who has a contract with your insurance that says that they will pay (“allow”) $80 for an office visit, no matter what the doctor charges. If you have a 30% coinsurance on office visits, then, you will have to pay $24 for that visit.
If you go to another doctor the next time you’re sick, the second doctor may have a separate contract with your insurance. Their contract may say that they will be paid $150 for office visits. Your 30% on *that* doctor’s bill, then, will be $45.
There is no easy way to find out what your actual costs will be when it comes to coinsurance, unfortunately. It will almost entirely come down to what the doctor’s contract says, and that’s not always something that even the staff working at that doctor’s office will know (though you can certainly ask).
Allowable amount/negotiated adjustment/network discount — the exact terminology used by various insurance companies for this concept will differ, but it is a term you will see on the explanations of benefits (EOBs) you will receive after you see a doctor or go to the hospital, once your insurance starts processing your bills.
This allowable/network amount represents the difference between what the doctor charges and what they have agreed to accept as the maximum payment from your insurance company (or you, if you haven’t met your deductible), based on the doctor’s contract with your insurance company.
Let’s use the $80 office visit example above. If your doctor has a contract with your insurance company that says they will get paid $80 for an office visit, this represents the maximum amount you will be billed. The doctor can charge whatever amount he or she wants to the insurance company, but they will then have to write off the difference between what they charge and that $80. That will be called a “network discount” (or “provider adjustment,” or “writeoff,” or some other terminology).
Payment/deductible from insurance: $80
Provider discount/adjustment: $120
As long as you are seeing an in-network doctor, you cannot be billed for that extra $120. The doctor has agreed that $80 is what they will receive for treating you, so the balance over that gets written off.
Out of Pocket Maximum — this is the maximum amount of money that you would be required to pay for covered health treatment throughout the year, if you got extremely sick or injured.
This includes deductibles, copays, and coinsurance only — not premiums, and not services that are denied outright by your insurance.
Let’s say you have the $1000 deductible plan I mentioned above, and then you have 20% coinsurances on everything else after you meet that deductible. And you have an “out of pocket maximum” on your policy of $4000.
This means that if your appendix bursts and you spend a few days in the hospital, you will be billed the $1000 for your deductible from your doctor. After that, your insurance will start paying your bills, but they will require the doctor to charge you 20% of each bill. The insurance will continue to tell the doctor to bill you that 20% of each bill until your share of the bills reaches $4000. Once that happens, the insurance will start paying 100% of your covered medical expenses. You have met your “out of pocket maximum” for the year, and they will pay everything from that point onward.
However, just as with the deductible, the out of pocket maximum will reset every year — so if you continue to get treatment after your policy year starts again, you will have to once again meet your deductible and out of pocket maximum. And again, remember — this amount doesn’t include premiums.
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This is, of course, not an exhaustive list of the terms and concepts related to health insurance here in the U.S. However, hopefully this list will give you a good start on understanding what the various terms (“$13,000 deductible,” “higher premiums”) mean when people are discussing the various proposals for healthcare reform.