Insurance 101

What is Health Insurance and Why is it Important? Health insurance is a legal entitlement to payment or reimbursement for your health care costs, generally under a contract with a health insurance company.  Health insurance provides important financial protection in case you have an accident or sickness. For example, health insurance may help to pay for doctors’ services, medications, hospital care, and special equipment when someone is sick or injured, often in exchange for a monthly premium. It may help cover a stay at a rehabilitation hospital or even a portion of home health care. Heath insurance can also keep a consumer’s costs down when they are not sick. For example, it can help pay for routine check-ups. Most health insurance also covers many preventive services at no cost, such as immunizations and cancer screening and counseling.

What is a Health Insurance Plan (also called a health plan or policy)? A health insurance plan includes a package of covered health care items and services and sets how much it will pay for those items and services. In other words, a health plan will describe the types of health care items and services it will cover (help pay for), how much it will pay for those items and services (or groups of items and services), and for how long. Plans are often designed to last for a year at a time (known as a “plan year” or “policy year”).  A health plan may be a benefit that an employer, union, or other group sponsor provides to employees or members to pay for their health care services.

What are Some Types of Health Care Coverage? Health care coverage is often grouped into two general categories: private and public. Most people in the U.S. have private insurance, which they receive through their employer (which may include nongovernment employers or government employers at the federal, state, or local level), buy directly from an insurance company, or buy through a Health Insurance Marketplace. Some people have public health care coverage through government programs such as Medicare, Medicaid, or the Veteran’s Health Administration. Health care coverage can also be categorized by the scope of benefits it offers or how long the coverage lasts. Health insurance often includes a wide range of covered services, including emergency and nonemergency services as well as mental health benefits. Some people have very limited insurance plans, such as plans with benefits for only specific conditions or diseases. 

Does a Health Plan Typically Pay for Services From Any Doctor?

Not always. Some types of plans encourage or require consumers to get care from a specific set of doctors, hospitals, pharmacies, and other medical service providers who have entered contracts with the plan to provide items and services at a negotiated rate. The providers in this designated set or network of providers are called “in-network” providers. 

• In-Network Provider: A provider who has a contract with a plan to provide health care items and services at a negotiated (or discounted) rate to consumers enrolled in the plan. Consumers will generally pay less if they see a provider in the network.
• Out-of-Network Provider: A provider who doesn’t have a contract with a plan to provide health care items and services. If a plan covers out-of-network services, the consumer usually pays more to see an out-of-network provider than an in-network provider. If a plan does not cover out-of-network services, then the consumer may, in most non-emergency instances, be responsible for paying the full amount charged by the out-of-network provider. Out-of-network providers may also be called “non-preferred” or “non-participating” providers.

Tips

• Consumers can contact their insurance company or health plan to find out which providers are in-network. Health plans usually have online provider directories that tell patients whether their doctor, other provider, or hospital is in-network with the health plan.
• It is important to remember that networks can change. It’s a good idea for consumers to check with their provider about whether they are in-network each time they make an appointment, so they know how much they will have to pay.
• If a consumer has health coverage and receives care from an out-of-network provider or facility, their health plan might not cover the entire cost. Sometimes the out-of-network provider or facility could ask the consumer to pay the difference between the billed charge and the amount their health plan covers. This type of bill is called a “balance bill” or a “surprise bill.” The No Surprises Act, a recent federal law, prohibits surprise billing in some circumstances.
• In Medicaid, only under very limited circumstances would a consumer ever pay anything out of pocket for any health care service, regardless of whether they are in network or out of network. In many states, Medicaid services are delivered through health insurance plans, but in some states health care providers are paid directly by the state for Medicaid services.
• In Medicare, consumers can receive services other than prescription drugs either through a health insurance plan (commonly called Medicare Advantage) or choose any health care provider enrolled in Medicare. All Medicare consumers must choose a prescription drug plan (commonly called Medicare Part D).

Insurance Costs

Consumers typically pay the following types of costs when they have insurance. 

• Premium: The premium is an amount of money a consumer pays for a health insurance plan. The consumer and/or their employer usually make this payment bi-weekly, monthly, quarterly, or yearly. The premium must be paid regardless of how many services, if any, the consumer uses.

• Cost Sharing: Cost sharing is the share of costs for covered services that consumers must pay out of pocket. This term generally includes deductibles, coinsurance, and copayments, or similar charges, but it doesn’t include premiums, balance billing amounts for out-of-network providers, or the cost of non-covered services.

• Cost sharing in Medicaid and Children’s Health Insurance Program also includes premiums.

• Deductible: The amount a consumer must pay for covered health care services received before their plan begins to pay. For example, if a consumer’s deductible is $1,000, their plan won’t pay anything until the consumer has paid $1,000 for covered health care services. A plan with an overall deductible may also have separate deductibles that apply to specific services or groups of services. For example, a plan may have separate in-network and out-of-network deductibles.

• Copayment: A fixed amount that a consumer pays for a covered health care service after they’ve paid their deductible.

• Coinsurance: The percentage of the costs of a covered health care service that a consumer pays after paying a deductible.

Tips to Know:

• Sometimes consumers with most types of health insurance don’t have to pay any cost sharing for certain services. This is often true for preventive services like flu shots and some cancer screenings. The goal is to keep enrollees healthy and catch health problems early.

• Many health insurance plans have an out-of-pocket maximum. This is the most a consumer could pay during a coverage period (usually one year) for their share of the costs of covered services. After they meet this limit, the plan will usually pay 100% of the allowed amount until the new plan year starts. When a new plan year starts, the out-of-pocket maximum must be met again before the plan will cover 100% of the allowed amount.   This limit never includes the premiums, balance-billed charges, or care that the consumer’s plan doesn’t cover. Some plans don’t count all a consumer’s copayments, deductibles, coinsurance payments, out-of-network payments, or other expenses toward this limit. Some plans also have lifetime out-of-pocket maximums.

• In most situations, the most important document for tracking health insurance costs is usually called an Explanation of Benefits (EOB). The EOB is a summary of health care charges that a health plan may send after a consumer receives medical care. It is not a bill but shows the consumer how much their provider is charging the health plan for the care they received, and the amount the plan will cover. If the plan does not cover the entire cost, the provider may send the consumer a separate bill.