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Health Insurance Explained: A Plain-English Guide to Understanding Your Coverage

Let's be honest: health insurance can be confusing.


Most people don't read their insurance policy until they're sick, injured, or standing at a doctor's office wondering why they just received a bill they weren't expecting. Even then, insurance documents often seem to be written in a language understood only by attorneys, accountants, and insurance representatives.


The good news is that understanding a few key terms can make your insurance coverage much easier to navigate.


Start With the Premium

Think of your premium as your membership fee.


A premium is the amount you pay to keep your health insurance active. Depending on your plan, it may be paid monthly, quarterly, or annually. Whether you use your insurance or not, the premium must be paid to maintain coverage.


Insurance companies determine premiums based on numerous factors, including age, location, tobacco use, plan type, and other risk factors. In general, the more comprehensive the coverage, the higher the premium tends to be.


Unfortunately, paying your premium doesn't mean your healthcare is free. It simply means your insurance coverage is active.


Understanding Deductibles

A deductible is the amount you must pay out of your own pocket before your insurance company begins sharing the cost of covered services.


For example, if your deductible is $2,000, you are generally responsible for the first $2,000 of covered healthcare expenses before insurance starts paying its portion.


Many plans have deductibles ranging from a few hundred dollars to several thousand dollars. Typically, plans with lower monthly premiums have higher deductibles, while plans with higher premiums often have lower deductibles.


Some family plans have both individual and family deductibles, meaning there are separate thresholds for each covered family member as well as the family as a whole.


Copays: The Predictable Expense

A copayment, or copay, is a fixed amount you pay when receiving certain healthcare services.


For example, your insurance plan may require a $25 copay each time you visit your primary care physician or a $50 copay to see a specialist.


Depending on the insurance plan, some copays apply immediately while others may apply only after a deductible has been met.


Coinsurance: The Percentage Game

Coinsurance is your percentage share of a covered medical expense after applicable deductibles have been met.


A common arrangement is 80/20 coverage. In that scenario, the insurance company pays 80 percent of the covered expense while you pay the remaining 20 percent.


For example, if a covered procedure costs $1,000 and your coinsurance is 20 percent, your portion would be $200 while the insurance company would pay the remaining $800.


The Out-of-Pocket Maximum: Your Financial Safety Net

The out-of-pocket maximum is one of the most important numbers in your insurance policy.


This represents the most you will pay during a plan year for covered, in-network healthcare services. Once you reach that limit through deductibles, copays, and coinsurance, your insurance company generally pays 100 percent of covered in-network expenses for the remainder of the plan year.


Importantly, premiums usually do not count toward your out-of-pocket maximum, and neither do many out-of-network charges (we’ll discuss in-network and out-of-network in a second).


Traditional Insurance vs. Managed Care

Historically, many people had what is known as traditional or indemnity insurance. These plans generally allowed patients considerable freedom in choosing providers and obtaining care.


Today, most people are enrolled in some form of managed care plan. Managed care organizations were designed to help control healthcare costs while coordinating patient care. Spoiler alert, they didn’t.


The two most common types are HMOs and PPOs.


HMO (Health Maintenance Organization)

With an HMO, you typically choose a primary care physician who serves as the coordinator of your healthcare. Referrals are often required before seeing specialists, and coverage is generally limited to providers within the HMO network.


The advantage is often lower costs. The disadvantage is less flexibility.


PPO (Preferred Provider Organization)

A PPO provides greater freedom to choose healthcare providers. Patients usually do not need referrals to see specialists, and they can receive care outside the network, although doing so often results in higher out-of-pocket costs.


The tradeoff is simple: more flexibility often comes with higher premiums and healthcare costs.


In-Network vs. Out-of-Network

One of the easiest ways to reduce unexpected medical bills is to understand whether a provider is in-network.


An in-network provider has a contract with your insurance company and has agreed to negotiated reimbursement rates.


An out-of-network provider does not have that agreement. As a result, your insurance company may pay less—or nothing at all—for services received outside the network.


Before scheduling non-emergency care, it is usually worth spending a few minutes confirming that your provider participates in your insurance network.


Secondary and Supplemental Insurance

Some individuals carry more than one insurance policy.


Secondary insurance is an additional health insurance policy that may help pay expenses not covered by a primary plan.


Supplemental insurance works differently. These policies are designed to provide additional financial protection for specific situations such as hospitalization, accidents, cancer treatment, or other covered events. They are intended to supplement, rather than replace, traditional health insurance coverage.


The Bottom Line

Health insurance is complicated, but understanding a few key concepts can help you avoid unexpected expenses and make better decisions about your healthcare.


When reviewing a policy, pay particular attention to five numbers:

  1. your premium,

  2. deductible,

  3. copays,

  4. coinsurance,

  5. and out-of-pocket maximum.


Together, these figures tell you far more about your coverage than the insurance company's marketing brochure ever will.


And remember, if you're uncertain about your benefits, ask questions. Most healthcare offices can verify your benefits before treatment begins, and your insurance company can explain the details of your specific policy.


A few minutes spent understanding your coverage today may save you a great deal of confusion—and money—later.


Yours in Health,

Dr. Levi G. Merritt, DC


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