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Five financial health insurance terms to know

By Matt Cavallo

Open enrollment is here which gives those of us living with multiple sclerosis a chance to make adjustments to our health insurance plan. When evaluating a plan to determine which one best meets your needs, it is imperative to understand all of the different health insurance terms and what they mean to you. Health insurance is a complicated necessity that most of us don’t fully understand. As a person living with a chronic illness, purchasing health insurance is one of the most important decisions that you can make, so make sure you understand what you are buying.

Five Health Insurance Financial Terms you must know:

1. Premium – Your health insurance premium is the monthly payment that you pay in order to keep your health insurance active. If you cannot make your premium payments each month, then the health insurance company can drop your coverage. This makes choosing a health insurance plan with a premium that fits your budget very important. However, there is often a tradeoff between monthly premiums and overall out-of-pocket costs. Plans with a lower monthly premium tend to have a higher deductible, which means the plan with the lowest monthly premium might not be the right one for you. As a person living with MS, you may require more health services which may make a plan with a higher monthly premium, but lower deductible the best way to save money on your total health insurance cost for the year.

2. Deductible – Your health insurance deductible is the amount you pay out-of-pocket before your health insurance plan starts to pay. For example, if your plan has a premium of $500 a month with a deductible of $1,500, you must pay the $500 monthly, plus pay for all of the health services until you reach $1,500.  After you reach $1,500 out-of-pocket, your insurance coverage kicks in. Many plans, however, pay for check-ups or disease management programs before the deductible is met. It is important to read the details of the plan to understand what the plan will pay for. Also remember that there is a tradeoff between deductible and premium. High deductible plans have low monthly premiums, but higher deductibles. High deductible plans are designed for healthy individuals that don’t consume many health services annually. As a person living with MS, you may consume more health services and meeting a high deductible may be challenging. This is why it is important to understand the details of the plan before you make your buying decision.

3. Co-payments – Your co-payment is the fixed amount you pay for services after you have met your deductible. For example, once you meet your deductible, you might have a $35 co-pay for physician visits. If the doctor bills $100 for the visit, your co-pay would be $35 and the plan would pay $65. Plans can also have different co-payments per lines of service. This means that there can be different out-of-pocket co-payments for doctor’s visits, drugs, labs and imaging. Co-payments are also varying by premium. A plan with a higher monthly premium typically has lower co-payments.

4. Co-insurance – Your co-insurance is a variable amount of out-of-pocket expenses that you incur based on percentages once you have met your deductible. For example, let’s say that you have met your deductible and have a plan with 20 percent co-insurance. If your doctor bills you $100 then you would be responsible for 20 percent, or $20, and your insurance plan would pay the other 80 percent, or $80. Many people confuse co-payments with co-insurance, but the way I think about it is that co-payments are fixed costs and cannot change no matter the cost of the service. On the other hand, co-insurance is variable and can fluctuate as a percentage of the overall cost of the service.

5. Out-of-pocket maximum – Your out-of-pocket maximum is the maximum amount of out-of-pocket expenses that you will incur before your insurance will cover 100 percent of your covered benefits. That means that once you reach your out-of-pocket maximum, you will no longer have to pay your deductible, co-payment or co-insurance. If you are on the healthcare exchange, the out-of-pocket maximum for individuals is $7,150 and $14,300 for families.

Let’s put it all together to see an example of how it works:

You have a scheduled MS treatment with a cost of $15,000.
  • Your premium is $500
  • Your deductible is $1,500
  • Your co-insurance is 20 percent
  • Your out-of-pocket maximum is $4,000

For your $15,000 MS treatment, you would pay the deductible of $1,500 before your insurance kicks in. Then, you would owe a co-insurance of $3,000, or 20 percent of the $15,000 treatment. This would equal a total of $4,500 in out-of-pocket expenses in this example. However, you have an out-of-pocket maximum of $4,000. That means that the extra $500 would be taken care of by the insurance company because you would have met the out-of-pocket maximum for the year.

Let’s say that this is monthly treatment and you met your out-of-pocket maximum in January. This means that for the remainder of the year you have met all out-of-pocket costs and your future treatment will be covered at 100 percent by the insurance company. The only financial responsibility you would have left is for your $500 monthly premium.

Resource – insurance term definition was adapted from the Healthcare.gov glossary.