Understanding Your Health Care Coverage

Confused Trying to Understand Health Insurance Terms

Confused about your health care coverage?

It happened again last week.

In our mailbox were another two envelopes from our health insurance company, each one with a check for a seemingly random amount reimbursing us for medical coverage—although we couldn’t tell you exactly what visit the check was for.

Ever since my husband started his new job and we officially changed health insurers, we’ve had inexplicable “Explanation of Benefit” mailings, checks, and dizzying formulas for determining what is and is not covered.

I will admit to burying my head in the sand and just paying whatever was asked right after our son was born. At that point I was too sleep deprived to try to understand the labyrinthine logic of the health care industry. Plus, I was comforted in the fact that I had group vs individual health insurance.

But I recently decided that I needed to actually familiarize myself with what it is that our insurance covers and why we keep getting checks. Below is the cheat sheet for your health insurance terms.

Once you understand these, you’ll be in a better position to know your benefits and dispute problems—and keep your budget healthy!

1. Deductible

Anyone who has ever carried car insurance knows that the deductible is the minimum amount that you must pay before you can get any benefits from the insurance company. The deductible is generally a yearly amount, so it resets every year.

The deductible can get to be hairy if you have several family members on the plan, as we do. We each have an individual deductible of $300, and then there is a cumulative deductible of $900. So if any one of us incurs $900 or more in medical expenses, the benefits kick in for all three of us for the rest of the year.

Just to make things more complicated, we have a non-comprehensive deductible, meaning not all procedures will apply toward the deductible. For many policies, a regular checkup will not apply to the deductible, but a visit to the ER or a surgery would.

Self-employed? Consider a high-deductible plan to make your premiums more affordable.

2. Co-Insurance

This is the part that so confused me about the hospital stay for the birth of my son. I knew that we had met the deductible prior to my son’s birth, so I was confused as to why we still owed the hospital money.

That was because we had co-insurance, meaning that our policy will pay for 80% of a procedure or visit, while we are responsible for the remaining 20%. We had gone into the hospital thinking that we were completely covered, and came out with a somewhat hefty bill.

Luckily, most doctors and hospitals know that co-insurance can take anyone by surprise and will happily set up an interest-free payment plan for the remainder of the bill.

Make sure you avail yourself of this service, because it really will help you to keep medical bills from eating up the rest of your budget.

3. Co-Payments

This is the fixed amount that you will pay at the time of service or when filling a prescription. The one benefit to our new insurance plan is that it has no co-payments, so each doctor visit is simply a quick trip without having to take out the checkbook.

However, at least in our case, by trading out co-payments, we got a much more confusing policy.

4. Annual Out-of-Pocket

Most insurance policies set an annual cap at how much you will pay yourself, including deductibles, co-insurance and co-payments. This will be a boon if you are ever plagued with a bad year, health-wise.

5. Lifetime Maximum

Your insurance company has decided ahead of time how much it can pay for the health of an individual or a family. This lifetime maximum is an important figure to know, because if it is too low it could leave you with a very high bill at a time of great family stress, and it will leave you scrambling to find another insurer for the other members of the family.

Do make sure you know the difference between the individual and family lifetime maximum, as the numbers will often be different.

It’s important to understand your health insurance policy so that you will not be surprised by bills (or checks!) after you have had medical care.

It’s also important to make sure you’re getting the best care for your money, and you can only do that if you understand what options are available to you, both within your insurance policy, and among other possible policies you may buy into.

No one wants to think about health insurance, but both your family’s health and finances are depending on it.

Photo by Brian Lane Winfield Moore

Last Edited: May 3, 2011 @ 10:40 amThe content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Emily Guy Birken

Emily Guy Birken is a former English teacher and respected personal finance blogger. She lives in Milwaukee, Wisconsin with her engineer husband and two high-energy little boys. She has written two books: The Five Years Before You Retire and Choose Your Retirement. Emily's thoughts on parenting and life in general are found at The SAHMnambulist.