Just under half of Americans with health insurance feel confident that they understand such basic insurance terms, according to a recent study in the journal Health Affairs. Among uninsured Americans, fewer than a quarter have that confidence.
As the Affordable Care Act creates millions of new health insurance customers and provides new options for the already-insured, confusion about basic insurance concepts could make it difficult for people to make the right choices.
“The vast majority of consumers do not know the ins and outs of health insurance because they never have needed to,” says Eric Stauffer, a former insurance agent who now rates and reviews insurance companies online.
“For years, most people have received health insurance through their employers. They get a card in the mail, and that is their ticket to health insurance,” he says. “Consumers rarely saw much more than a bill for a few hundred dollars here and there.”
But it’s no longer so simple. “Years of being naive about the entire industry are starting to catch up with people now,” Stauffer says.
Here are five things a wise health insurance consumer needs to know.
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The premium isn’t everything
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Every health insurance plan includes a number of variables, so just looking at the monthly payment, or premium, doesn’t tell the whole story.
To determine whether a plan fits your situation, you must understand the big picture. That includes the annual deductible, which is the amount a consumer must pay out of pocket before the insurance company will pay any expenses.
“If you are a healthy person, there is no reason to have a deductible lower than $5,000,” says Ashley Hunter, president of HM Risk Group, a niche insurance brokerage serving the U.S. and the Middle East.
“Purchase a policy with a higher deductible and an option that allows you to have at least two doctor visits with a copayment for emergencies,” she says, adding that you might then invest your premium savings.
People who seek health care regularly should look for a low copayment, which is a fixed out-of-pocket charge for medical services.
“We find that if you tend to use your health insurance, it is almost always cheaper to take a higher-cost plan with the lowest out-of-pocket expenses,” says John Seltzer, founder and CEO of J. Seltzer Associates, a Pittsburgh-based insurance brokerage specializing in employee benefits.
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Copayment and coinsurance are not the same
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While copayments and coinsurance are both types of cost-sharing between the consumer and the insurance company, they are two distinct types of payments, notes Michelle Katz, a nurse and the author of “Healthcare for Less” and “101 Health Insurance Tips.”
In a copayment, also known as copay, the patient pays a specific flat dollar amount to the provider, usually for each service or treatment, such as $25 for a checkup.
Coinsurance, on the other hand, is a percentage of costs that a patient must pay after the deductible is met. “For example, you may have a deductible of $250 before insurance will cover 80 percent of charges, leaving you responsible for the other 20 percent — known as coinsurance,” Katz explains.
The typical health insurance plan includes a network of doctors, health care facilities and other providers that either work for or contract with the insurance company and agree to provide services at a particular rate.
In most cases, insured consumers may still use out-of-network providers, but they need to understand that there’s a difference between in-network and out-of-network benefits, says Keith Tobin, vice president of Medorizon, a medical billing company based in Romeoville, Ill.
When you go out-of-network, you could be stuck paying a higher coinsurance percentage. And often there are higher annual coinsurance and overall out-of-pocket limits when using out-of-network providers. Depending on your plan, you could even be billed for 100 percent of the costs when you seek out-of-network care.
But it may be necessary to use out-of-network providers if, for instance, a health care crisis occurs while traveling. In some cases, a provider may be in your network but the hospital where that provider works may be outside the network, presenting questions about whether the services provided there will be covered, Tobin says.
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Patients must make sure charges are paid
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For years, many consumers have “presented their health insurance cards as though they were credit cards, and never saw or cared about bills or the cost of the services they received,” Seltzer says.
But consumers have always been ultimately responsible for their own health care costs.
After many employers began offering health insurance as a benefit following World War II, “employees became complacent, assuming that the health insurance would assume all risk and make all payments,” Tobin says.
However, the contractual agreement is with the provider and patient, as it always has been, and insurance companies process the medical claims “as a courtesy for their customers,” Tobin says. “Many customers don’t realize that insurance doesn’t cover everything past a copay.”
If the insurance won’t cover part of a bill and you don’t pay it, it’s your credit that takes the hit — not the insurance company’s.
Many of the insurance plans offered through the Affordable Care Act carry higher deductibles and coinsurance requirements than previous plans, Seltzer notes.
As a result, many individuals will be responsible for paying a more significant portion of their bills and consequently may “be looking to become better consumers of health care services,” he says.
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The ER should be avoided, if possible
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Hospital emergency departments were designed to treat true emergencies, such as persistent chest pain and traumatic injuries. But overuse of the ER has driven up both prices and wait times.
“Many of the conditions for which patients often go to the ER, such as sprained ankles, colds and other conditions that are not life-threatening, are better handled at an urgent care facility or by their own physicians,” says Marty Rosen, co-founder of Health Advocate, a health insurance assistance firm.
Avoiding the emergency room can save money and time.
“With most insurance plans, the copay cost is significantly higher at an ER than getting the same treatment at urgent care,” Rosen says. “If you’re on a high-deductible plan with a $3,000 deductible, you may pay that entire amount out of pocket for treating a sprained ankle at a trauma center ER. At an urgent care, you might spend a few hundred.”
Patients at most urgent care clinics are treated within one hour, versus average wait times of up to six hours at ERs, Rosen adds.
To determine whether an ER visit is in order, consult your primary care provider or a nurse hotline if one is included in your insurance plan.