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Insurance Terms Explained

Let’s be honest, health insurance is a complicated subject. That’s why health insurance agents are around. We are here to help navigate through this complicated subject to help every client become covered and aware of what their coverage includes.

The terms used throughout insurance documents and discussions can also be quite complicated, especially if you’re not familiar with the way it works. Let’s take the opportunity to break down some of these terms.

Let’s start with “insured” and “insurer.” Although they may sound the same, these terms are quite different. The insured is the person who uses the insurance plan, the member of the policy, the agent’s client. The insurer is the insurance company, who may also be referred to as the carrier.

A premium is the fixed amount that the insured is responsible to pay to the insurer to keep their policy active. A premium can be paid as an automatic withdrawal or as a submission of payment, like any other bill. Most people pay their premiums monthly. Other options to pay their premium is on a quarterly or annual basis, but it’s a rare occurrence for health insurance.

The enrollment period is the yearly period when people can enroll in or change their health insurance plan. Medicare recipients have their Annual Enrollment Period October 15 through December 7. ACA Marketplace opens their Open Enrollment Period November 1 through January 15. If you are on an employer plan, they also have an enrollment period, which varies from business to business.

A copayment, or copay, is a fixed dollar amount the insured is responsible for paying when a medical service is received. The insurance company is responsible for picking up the rest of the cost. You mostly see a copay when you see a primary care or specialist doctor. There is a large range of available copays. That fixed amount is all you are responsible for paying for a covered service.

A deductible is a fixed dollar amount that the insured is responsible for paying before the insurer makes any payments. In other words, your insurance plan will not pay anything towards a medical service until that amount is paid first. You mostly see this in hospital costs but can be applicable to all service types. Although deductibles can be higher or lower, I see many deductibles range from $4,000 to $9,000. Not all plans have deductibles.

Once you have met your deductible, you usually become responsible for what is called a co-insurance. The co-insurance is cost sharing of medical service between the insurer and the insured. This is broken down into a percentage, usually 50/50, 70/30, or 60/40. For example, if your co-insurance responsibility is 40% of the medical cost, then the insurance covers 60% of the cost.

Most plans have a stop-loss or maximum out-of-pocket. This is a dollar amount limit that the member will pay out of pocket during the year. As the member pays their copays, deductibles, and co-insurance, the amounts contribute to the maximum out-of-pocket total. Once the member has reached that limit, the insurer is responsible for paying all covered medical costs.

A member will receive an Explanation of Benefits, EOB. This is a statement that describes all costs covered by the insurance plan once medical care has been received. Some people mistake it as a bill, but it is just a document showing what was done, and what was covered by the plan. You may also see an EOB at the beginning of becoming a policyholder. This document explains what is covered, and what you’d be responsible for as insured.

Most health insurance plans come with a network. This is a group of medical providers that have contracted with the insurance company to provide health care service to the members. Through the networks come health plan types, including Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), and Health Maintenance Organization (HMO). Usually with a PPO, you can see provider in and out of network. Out of network providers, do come with higher out of pocket costs. EPO and HMO may have stricter networks. HMO plans require an authorization, or referral, which is when the plan gives “permission” for the insured to see a specialist or obtain a specific medical test. PPO plans, and sometimes EPO plans, do not require authorization.

There are many more terms that could be discussed. The terms I reviewed I believe are the most frequently used.

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