Health Insurance 101

Boost Your Health Insurance IQ

Go from confused to confident with these health insurance basics.

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You Have Insurance, Now What?

Do you ever wonder how health insurance works and why you sometimes have to pay and other times you don't? Health insurance can be tricky, but understanding the basics can help you feel empowered to ask questions and to advocate for yourself.  You don't need to be an expert, having a general understanding of health insurance can help you determine if your benefits are applied correctly when you receive an unexpected bill or a claim is denied, which would ultimately save you money. 

 

Male student sitting outside on laptop

What Is Health Insurance?

Health insurance is different across the world, but here in the United States, it is designed to help you cover the costs of medical care for yourself and/or for your family.  Whether you use it or not, you pay a monthly premium for your insurance. If you need medical care, health insurance covers some of those costs.  What they cover depends on the type of plan you have and what type of doctor you see. 

Good to Know: Health Insurance Terms

Sometimes health insurance terms can feel like a different language. We've broken down these terms to make them easy to understand. These terms apply to your policy year, typically a 12-month period when you have coverage through your health plan. 

Access-Related Insurance Terms

These terms are associated with how to access medical care for your particular health plan. Depending on your plan, you may have different requirements associated with accessing care. 

REFERRALS

A written order from your primary care provider for you to see a specialist or get certain health care services.

COVERED BENEFITS

Services, treatments, and/or prescriptions.

OPEN ENROLLMENT

Designated time to enroll/renew/confirm coverage. 

QUALIFYING LIFE EVENT

An event in which you may have the option of enrolling for coverage outside an OE.

IN-NETWORK

A provider who has a contract with your health insurer or plan who has agreed to provide services to members of a plan.

OUT-OF-NETWORK

A provider who doesn’t have a contract with your plan to provide services.

Cost-Related Insurance Terms

These terms are associated with the care that you receive. You'll typically see them on your Explanation of Benefits (EOB) after seeking services and your plan's summary of benefits. Depending on your plan, these costs can vary. 

CLAIM

Itemized invoice of services provided by your provider.

COPAY

A fixed amount you pay for a covered health care service, usually when you receive the service.

DEDUCTIBLE 

An amount you could owe during a coverage period (usually one year) for covered health care services before your plan begins to pay.

CO-INSURANCE

Your share of the costs of a covered health care service, calculated as a percentage of the allowed amount for the service. 

OUT-OF-POCKET LIMIT

The most you could pay during a coverage period (usually one year) for your share of the costs of covered services.

PREMIUM 

The cost of your health plan.

How to Read Your Explanation of Benefits (EOB)

Your EOB is a summary of your insurance coverage for a billed service, it is NOT a bill. 

How to read your Explanation of Benefits

Different Types of Health Insurance

There are three main types of health insurance plans. All have their unique characteristics. Being familiar with the types of plans available can help you either choose the plan that fits your needs best or understand your plan better. 

HMO

  • Typically can only use in-network providers, it does not include out-of-network coverage.
  • Referrals are required for most services.
  • Deductibles and out-of-pocket costs will depend on the specific plan
  •  May require selecting a primary care provider as part of the plan.

PPO

  • Typically has in-network and out-of-network coverage options.
  • Most do not require referrals for additional services.
  • Deductibles and out-of-pocket costs will depend on the specific plan

High-Deductible Health Plan 

  • Operates similarly to a PPO 
  • The monthly premium is generally lower than a PPO plan
  • Deductibles are set higher but often include a Health Savings Account (HSA) 

Putting it All Together

So you're familiar with health insurance terms, understand there are different kinds of plans, and how to read an EOB. Let's review and see how all these pieces fit together.

How You and Your Insurer Share Costs

Most health plans have a policy year starting January 1st and ending December 31st, with some exceptions. Here are some helpful ways to see how medical costs are covered between you and your health care plan.  The patient's responsibility (how much you would owe) depends on your plan type, deductibles, and your out-of-pocket maximum. 

Sam pays 100% her plan pays 0%

Sam's Plan Deductible: $1,500

Sam hasn’t reached her $1,500 deductible yet
Her plan doesn’t pay any of the costs.
Office visit costs: $125
Sam pays: $125
Her plan pays: $0

Sam pays 20% her plan pays 80%

Coinsurance: 20%

Sam reaches her $1,500 deductible, coinsurance begins
Sam has seen a doctor several times and paid $1,500 in total, reaching her deductible. So her plan pays some of the costs for her next visit.
Office visit costs: $125
Sam pays: 20% of $125 = $25
Her plan pays: 80% of $125 = $100

sam pays 0% her plan pays 100%

Out-of-Pocket Limit: $5,000

Sam reaches their $5,000 out-of-pocket limit 
Sam has seen the doctor often and paid $5,000 in total. Her plan pays the full cost of her covered healthcare services for the rest of the year.
Office visit costs: $125
Same pays: $0
Her plan pays: $125

(images adapted from healthcare.gov)