Health Insurance Basics - Common Definitions and Tips For First Time Buyers

Choosing a health insurance plan that is right for your family can be a bit daunting...but it doesn't have to be. Becoming familiar with the different health insurance plans that are available both for individuals and families will help you navigate the health care insurance field and make an better informed decision concerning health insurance. Read on to learn some of the health insurance basics.

HOW TO CHOOSE THE BEST INSURANCE PLAN FOR YOUR NEEDS

First, determine if short term or long term health insurance is what you need. If you are unemployed, yet hope to be hired in a few months with a company that offers group insurance, than perhaps short term health insurance is for you. Also some companies require a new employee to work for three to six months before they are eligible for health benefits. Short term could offer the temporary coverage you need. Next, decide if basic health-care coverage or comprehensive health care coverage will better meet your needs.

BASIC HEALTH CARE COVERAGE

This plans covers inpatient hospitalization and out-patient surgery in case of a major accident or illness. The monthly health premiums are lower and are generally the choice for those who are primarily interested in coverage in case of severe accident or illness.

COMPREHENSIVE HEALTH CARE COVERAGE

This plan covers preventative care, Dr's visits, prescriptions, along with hospitalizations and out-patient surgery. Comprehensive health care coverage has a higher monthly premium, and it generally has a low co-pay at the time of a Dr's appointment. This plan may be the better choice appropriate for those who have reoccurring medical expenses.

AVAILABLE INDIVIDUAL AND FAMILY INSURANCE PLANS

Health care plans usually fall into two categories, indemnity or managed-care plans. They differ in regard to how bills are paid, ability to choose health care providers and out-of pocket expenses. Generally, you'll have a broader choice of health care providers with indemnity health-care plans and less out-of -pocket expenses and less paperwork with a managed-care health insurance plan.

MANAGED CARE PLANS

HMO's (Health Maintenance Organizations), PPO's

(Preferred Provider Organizations), and POS's (Point of Service Plans) are all managed health-care insurance plans.

INDEMNITY PLANS

Under this plan, insurance companies pay their share of the cost for services after they receive a bill. This may mean that you will have to pay your bill for medical care at the time of service and then seek reimbursement from your health insurance company.

WHAT ARE SOME OF THE ADVANTAGES AND DISADVANTAGES OF AN HMO PLAN?

- Lower out of the pocket expenses

- Fewer choices in regard to physicians and hospitals than other health insurance plans

- A PCP (Primary Care Physician) is required and will meet most of your health-care needs

- A referral is needed from your PCP before seeing a specialist

WHAT ARE SOME OF THE ADVANTAGES AND DISADVANTAGES OF A PPO PLAN?

- Health insurance companies offer a network of preferred doctors and hospitals

- These health care providers offer the members services at discounted rates

- Usually an annual individual or family deductible must be paid before the health insurance companies begins to pay out money for medical bills.

WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF A POS?

- Combines features of both the HMO and PPO plans

- Members are usually required to choose a Primary Care Physician (PCP)

- PCP services are not usually subject to a deductible

- Preventative care visits are generally covered

HEALTH INSURANCE TERMS

As with any genre, health care insurance is filled with jargon exclusive to its field. The following is a list of terms and their meanings that will hopefully give you good grasp of health insurance terms.

COINSURANCE

The percentage of medical costs you have to paying after meeting the deductible amount that is attached to your plan.

CO-PAYMENT

This occurs under an HMO plan and requires a specified dollar amount be paid to the health insurance provider on each visit.

COVERED BENEFITS

A covered benefit must always be a medical necessity. The determination of whether something is a medical necessity or not is made by the health insurance company.

DEDUCTIBLE

The amount you must pay in medical expenses before your insurance company will begin to cover your medical bills.

DEPENDENT

A dependent is someone other than yourself who is covered under your health insurance plan. This could include a spouse, child, unmarried partner. For children there are age limits at which they are no longer covered under a parent's health policy.

DISABILITY

In the event that you are unable to work for an extended period of time due to an injury or a medical condition, disability insurance provides funds to cover your living expenses in a specified amount.

GATEKEEPER

Another title for your Primary Care Provider (PCP)

GROUP INSURANCE

Employers often offer group insurance plans. Under group insurance an employee can generally obtain a much more affordable plan.

IN NETWORK/OUT OF NETWORK

In network refers to those physicians who have been contracted under a health care plan to provide services to their members. Staying in network allows lower charges and a smaller percentage of out of pocket expenses. Conversely, going out of network generally means charges are higher and you will have to pay a greater percentage of out of pocket expenses.

GRACE PERIOD

This is a specified period past the due date of a premium during which coverage may not be canceled. This prevents health insurance companies from canceling your policy if payment should arrive a few days late.

OPEN-ENROLLMENT PERIOD

Generally, this is a once-a-year period of time that allows you to make changes to your existing health insurance coverage. (A change in marriage status or the birth of a child also allows you to modify your health insurance plan.

PRE-CERTIFICATION(Pre-authorization)

Before surgery or hospitalization, the insurance company must be contacted to get approval for a medical service to take place. Failure to do so typically means the insurance company will NOT pay for the service. This does not apply in an emergency situation, although the insurance company should be contacted as soon as possible.

PRE-EXISTING CONDITION

A medical condition that existed before an insurance policy became effective. Most insurance companies require a three month to one year waiting period before a pre-existing condition can be covered under their plan.

PREMIUMS

Monthly payments for insurance coverage. Monthly payments can easily reach $100 for singles and two to three times that amount for a family.

REFERRAL

A written form from your Primary Care Provider to another Dr. (usually a specialist) giving consent for you to go to them for medical services.

SECOND SURGERY OPINION

On occasion an insurance company will ask you to be seen by a second Dr. to determine if the recommended procedure is necessary or if an alternate method could accomplish the same result.

URC (Usual, reasonable, and customary)

URC refers to the dollar amount an insurer will usually pay for a service or procedure based on what is customary for the area in which you live. An insurance company will not pay $800 for a procedure that costs only $300.

HEALTH INSURANCE QUOTES

Be sure that you shop around to find the best health insurance plan. Compare quotes from at least 3-5 different insurance companies before you decide to purchase.

Get started comparing health insurance quotes today!

Health Insurance Terms and Definitions

One of the biggest problems for most people is simply understanding the health insurance benefits that they have. For the most part, health insurance policies try to be user-friendly in their wording, but many people are just not familiar with medical and insurance terminology.

Most health insurance policies also provide something similar to a cheat sheet which gives the basic outline of policy coverage and covers the most common medical services. However, you need to be sure that you understand the different things that are excluded under your plan. Many health insurance plans provide limited benefits for services such as mental health, chiropractic services, and occupational health. Even physical therapy and home health care are often limited to a certain number of visits per year.

Co-payment or Co-pay

A co-payment is a pre-determined amount that you must pay a medical provider for a particular type of service. For example, you may be required to pay a $15 co-payment when you visit your doctor. In this instance, you must pay $15 to the doctor's office at the time of the visit. Normally, you are not required to pay any additional fees -- your health insurance company will pay the rest. However, in some cases, if your health insurance policy specifies it, you may be responsible for a co-payment and then a percentage of the remaining balance.

Deductible

A deductible is the amount of your medical expenses you must pay for before the health insurance company will begin to pay benefits. Most health insurance plans have a calendar-year deductible which means that in January of every new year the deductible requirement starts over again. So, if your calendar year deductible is $1500, as long as your medical expenses for the current year do not exceed $1500 the insurance company pays nothing for that year. Once January of the new year starts, you have to begin again to pay for $1500 of your own medical expenses.

Coinsurance

Coinsurance (or out-of-pocket expense) is the amount or percentage of each medical charge that you are required to pay. For example, you may have a $100 medical charge. Your health insurance company will pay 80% of the charge and you are responsible for the additional 20%. The 20% is your coinsurance amount.

Coinsurance accrues throughout the year. If you have a large number of medical charges in one year, you may meet the coinsurance maximum requirement for your policy. At that point, any covered charges will be paid at 100% for the remainder of the calendar year.

Stop loss or out-of-pocket expense limit

Sometimes you will hear the out-of-pocket expense limit referred to as your stop loss or coinsurance amount. Basically, this is the amount you will need to pay out of your own pocket per calendar year before the health insurance company pays everything at 100%.

You will need to check your policy because many policies that require co-payments do not allow these co-payments to go toward the out-of-pocket amount. For example, you may have reached your out-of-pocket maximum for the year, so if you are admitted to the hospital you may pay nothing. However, since you have to pay a $15 co-payment every time you visit the doctor, you will still have to make this co-payment.

Lifetime maximum benefit

This is the maximum amount that the health insurance company will pay toward your medical expenses for the lifetime of your policy. Generally, this amount is in the millions of dollars. Unless you have a very severe condition, you will not likely exhaust this amount.

Preferred Provider Organization

A Preferred Provider Organization (also known as a PPO) is a group of participating medical providers who have agreed to work with the health insurance company at a discounted rate. It's a win-win situation for each side. The insurance company has to pay less money and the providers receive automatic referrals.

In most health insurance policies, you will see different benefit levels depending on whether you visit a participating or nonparticipating provider. A PPO plan provides more flexibility for the insured person because they can visit either a participating or nonparticipating provider. They just receive a better price if they use a participating one.

Health Maintenance Organization

A Health Maintenance Organization (also known as an HMO) is a health insurance plan which restricts you to only using specified medical providers. Generally, unless you are out of the area of their network, no benefits are payable if you go to a nonparticipating physician. Typically, you are required to select one main doctor who will be your Primary Care Physician (PCP). Any time you have a health problem, you must visit this doctor first. If they feel that you need it, they will refer you to another network provider. However, you cannot just decide on your own to visit a specialist; you must go through your PCP.

Medically necessary

You will see this term in all health insurance policies, and it is a frequent cause of denied claims. Most insurance companies will not cover any expenses that they do not consider medically necessary. Just because you and/or your doctor consider something medically necessary, your health insurance company may not. For this reason, you always need to verify that any costly procedures you are considering will be covered.

Routine treatment

Routine treatment is generally defined as preventive services. For example, a yearly physical examination that you have on a regular basis is generally considered to be routine. Many of the immunizations that children and adults receive fall under this classification. Some insurance companies provide limited coverage for routine treatment; others provide no benefits at all.

Pre-existing condition

A pre-existing condition is a condition that you acquired and/or received treatment for prior to the effective date of your current health insurance policy. Health insurance companies vary on how they treat pre-existing conditions. Some companies will not give you coverage at all if you have certain chronic pre-existing conditions. Others will give you coverage but will not provide any benefits for a period of time -- usually from 12-24 months. Still, other health insurance companies will specifically exclude a pre-existing condition from a policy and will never provide any benefits for that condition.

Be sure that you are very clear on the pre-existing limitations of your policy so that you are not unpleasantly surprised when you visit your doctor.

Explanation of Benefits

This is the form that the health insurance company sends you after they complete the handling of your claim. It details the bill they received and how they processed it. It is commonly called an EOB.

Coordination of Benefits

If you are eligible for benefits under more than one health insurance plan, your various health insurance companies will need to coordinate benefits. This insures that no more than 100% of the total charge is paid. There are many variations on how this situation can occur. In general, the primary company makes their payment first. Then you file a copy of the charges with the secondary company along with a copy of the Explanation of Benefits (EOB) from the primary company. The secondary company usually picks up the remainder of the bill.

Participating provider

A participating provider is a medical provider who has signed a contract with a health insurance company or health insurance network to charge pre-determined rates to patients who are in the network.

Nonparticipating provider

A nonparticipating provider is a medical provider who does not have a contract with a particular health insurance company or network. If you use a nonparticipating provider, you will generally pay a larger portion of the bill. In some cases, you may be responsible for the entire bill.

Limited benefit plans

These are not considered to be comprehensive medical insurance plans. Instead, they provide very specific, limited benefits for different types of services. For example, they may provide a flat rate for each day you stay in the hospital or pay a limited amount for each surgical procedure that you have.

Typically, they are marketed toward people who cannot afford or are unable to obtain more comprehensive coverage due to pre-existing health conditions. Or, they may be geared toward people who have high-deductible plans. The good thing about these plans is that they generally pay in addition to any other coverage you may have. Therefore, no coordination of benefits is required.

If this is your only coverage, be aware that you will usually have to pay a large portion of any bill as these limited plans do not usually pay large amounts per day. For example, it may actually cost you $1000 a day to stay in the hospital. If your limited benefit plan pays you $200 a day for each day you spend in the hospital, you will be personally responsible for the remaining $800 per day.

Medicare supplement plans

People who have Medicare often choose to purchase a Medicare supplement plan as Medicare does not usually cover medical charges in full. Medicare continues to change and add new options but, in general, a supplemental plan pays the balance of the medical charges after Medicare pays its portion. For example, most Medicare supplements will pick up the Medicare deductible.

Some policies also pay for some of the charges that Medicare may not cover. There are many different policy variations. If you are not sure what you are purchasing, consider contacting a broker that assists senior citizens.

Steven D. Smith is a licensed life and health insurance professional and CEO of SDS Financial, LLC. He is also the author of the "2008 Guide to Choosing and Using Your Health Insurance Plan" and "Your Guide To Good Health Insurance". Other articles and books about Health Insurance written by Steven Smith can be found at his website [http://www.prohealthquotes.com]

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