Understanding Your Health Insurance: The Basics

Health insurance is fraught with complexity. The technical jargon of these policies makes many of us want to throw up our hands in disgust. In this column I will attempt to explain the more basic aspects of health insurance policies. An additional resource is http://www.tdi.texas.gov/consumer/index.html.

What kind of policy do you have?

Is your health insurance an employer group plan? Or do you have an individual policy? Is your plan a Health Maintenance Organization (HMO), a Preferred Provider Organization (PPO) or a Point of Service (POS) plan? If you do not know the answers, read your policy or call you agent or, for employer group health plans, call your company benefits office.

Key Areas of Coverage

There is no standard health insurance policy. Benefits, coverage levels and other features are different between policies. However, most policies have certain basic types of coverage. Understanding these basic keys will help you get a handle on your policy.

Hospital Expense Insurance   This can generally cover either a percentage of your hospital costs or a specific dollar amount per day for a maximum number of days. The latter is known as “indemnity.” Covered hospital costs include room-and-board, operating room, X-rays, drugs, lab charges and the like.

Surgical Expense Insurance This covers surgeons’ costs and related items, like anesthesia and use of the operating room when those are not covered as a hospital expense. Many times these benefits are paid from an insurer’s set schedule, but a plan can pay what is called “usual, customary and reasonable” amounts in a particular geographic region.

Physicians’ Expense Insurance This is also known as “medical expense insurance.” It covers doctor visits when you go to the office and also when the doctor comes to you in the hospital. Typically there is a maximum benefit per visit such as $25 or $50 and a maximum number of visits per illness or injury.

Major Medical Insurance   This coverage is intended to protect you and your financial security from the costs of a major illness or injury. The coverage is typically very broad. It often has a high benefit limit, such as a $1 million. Coverage commonly includes but is not limited to nursing, diagnostics, outpatient, ambulance, home health care, radiology and prescriptions.

Out-of-Pocket Costs

It is important to understand all potential costs when you evaluate your current policy and/or a new policy.

Premiums   The most easily understood cost is the monthly premium. Employer sponsored plans have lower premiums than individual policies. Be aware that premiums increase over time for both types.

Deductibles   This is the amount you have to pay toward your medical costs before the insurer begins paying any of your costs. It is usually an annual amount. Generally, the lower your premiums, the higher your deductible and vice versa.

Co-payments   This is the amount you pay at a health-care professional office visit or a pharmacy. For individual policies, co-pay amounts differ from policy to policy.  

Coinsurance     This is the percentage of your medical costs that you have to pay after you satisfy your deductible. Usually this is capped at a maximum dollar amount for out-of-pocket costs. Warning: Some insurance companies will define coinsurance as the percentage of your medical costs that they pay instead of the percentage of your medical costs that you pay. This can be confusing, so read carefully and ask questions.      

Other Useful Information to Know

Understanding or choosing your health insurance policy is more than a matter of money. You should pay attention to specific provisions and features in your policy. There is such a large variety of these that I cannot list all of them here, so I will stick with the more common provisions and features.

Limitations and Exclusions   There will be limitations on certain things, such as cosmetic or elective surgery. Look for this to be clearly stated in your policy. All limitations and exclusions should be clearly stated in your policy.

Maximum Lifetime Payout   This is the maximum your insurer will pay on your behalf. The recommended amount is $1 million.    

Family Coverage   Your premium will be higher when you include your spouse and children in the coverage. Usually there is a family deductible amount that differs from the individual or per person deductible amount. A family deductible must be satisfied before coverage kicks in for anyone in the family.

Riders and Endorsements   You can buy optional features on your policy to tailor your policy to your unique needs. You should ask the insurer what is available and at what cost.

Understanding the provisions of your health insurance is critical to your financial security. Health insurance is complicated and befuddling. Most people choose to turn the other way, cross their fingers and pray that the coverage is adequate. It is impossible to explain all the aspects of health insurance in this column. I urge you to make a New Year’s goal to gain a working knowledge of your own health insurance coverage.