Know What Your Insurance Protects

Over the weekend, I received the annual benefits enrollment package from my employer. Last year, the health benefits offered by the company changed significantly to take advantage of Health Savings Accounts and to raise prices. Even after the multiple sessions with Human Resources, there were some of my coworkers who didn’t know the difference between HSAs, PPOs and HMOs.

The publisher of Fred Brock’s new book, Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage, sent me an excerpt from this book, and I’d like to share it. Presumably the book will help the reader make the most out of health insurance options at the lowest cost possible.

The excerpt is a concise glossary of some of the most relevant health insurance terms.

Before selecting a policy from an employer menu (or shopping for an individual policy), you should be certain you understand the terms used by the health insurance industry. The meanings can vary slightly among insurers, so if a number or explanation doesn’t match up with the following definitions, press the insurance provider for more details; there may be costs or exceptions hidden in the differences in jargon.

Coinsurance is the amount you must pay after your health plan’s deductible has been met. It’s usually expressed as a percentage. For instance, you might have to pay 20 percent of every bill until the total of your own payments hits your out-of-pocket maximum.

Copayment is a flat fee you pay for health-care services, regardless of how much the doctor or hospital receives from your insurance provider. Some plans, especially HMOs and some PPOs, require a copayment, usually $10 to $30 for each office visit to a doctor and often higher copayments for emergency care.

Credit for prior coverage may be something you need to prove — normally with a letter from your former insurer — if you are switching employers or insurance plans and need preexisting conditions to be covered right away. This is especially important if you are buying an individual policy, which can have a waiting period for preexisting conditions.

A deductible is the amount you must pay for your medical bills before your insurance kicks in. Usually the higher the deductible runs, the less expensive the policy is.

EOB (explanation of benefits) is a statement from your insurance company showing what it has paid and not paid for a claim. Some companies resist supplying duplicate EOBs, so maintaining an organized file of your EOBs is important if you need to challenge a bill.

An EPO (exclusive provider organization) plan allows you to use any doctor or hospital within the insurance provider’s current network, without a referral. You have no coverage, however, outside the current network even if your doctor used to be included in the plan. There can be copayments similar to those for HMO and PPO plans.

A fee-for-service (indemnity) plan is the traditional kind of healthcare policy that allows you to go to any doctor or hospital you choose. Deductibles can range from several hundred to several thousand dollars. After you have paid bills totaling your deductible, the plan usually pays 80 percent of all bills; you pay the other 20 percent up to an out-of-pocket maximum that generally runs between $1,500 and $3,000. After you have reached the out-of-pocket maximum, the policy pays 100 percent of your medical expenses. In most states, fee-for-service is the most expensive health insurance you can buy.

An HMO (health maintenance organization) is essentially a prepaid health plan. For a monthly premium, the HMO provides comprehensive care. You likely pay a copayment for office visits, but most HMO plans have no deductibles. (The exception to the no-deductible rule is an HMO that is eligible for a health savings account.) There are usually no forms to fill out or bills to keep track of. You are, however, quite limited in your choice of doctors, hospitals, and other health-care providers. You commonly must get a referral from your primary-care physician to see a specialist; if you don’t, your treatment with the specialist is not covered. Though HMOs were designed to control costs, they have been the source of many consumer complaints. These complaints were often because of coverage limitations or the fact that some doctors were compensated for denying treatment or referrals to patients or punished for providing what was considered by the HMO to be excessive treatment, although both problems have lessened in recent years. Because of their comprehensive, deductible-free coverage, HMOs often compete with the most affordable health insurance options.

An HSA (health savings account) is a less expensive, high-deductible policy linked to a tax-free savings account that can be used to pay medical bills before the policy’s deducible is met.

Lifetime maximum is the maximum amount of covered expenses your insurance company will pay in your lifetime. Look for a policy with a lifetime maximum of at least $3 million.

Out-of-pocket maximum is the amount of coinsurance you must pay yourself before an insurance policy will pay 100 percent of your bills. It may or may not include the deductible. The term stop-loss is sometimes used to refer to the point at which you have met your deductible and paid your out-of-pocket maximum.

A POS (point-of-service) plan is like a PPO except that you need a referral from your primary-care physician to see an out-of-network doctor, for which you may have to pay extra. Without the referral, you will likely have to pay the entire bill for the out-of-network physician.

A PPO (preferred provider organization) plan is a cross between a fee-for-service plan and an HMO. You can see any doctor you choose without a referral, although if the physician is outside the insurance plan’s network you will probably be reimbursed at a lower rate. For network doctors, you usually have only a copayment for office visits. There can be varying copayments — as well as deductibles, coinsurance, and out-of-pocket maximums — depending on the policy. Most plans that are eligible for use with a health savings account are PPOs with a high deductible tacked on.

These terms, of course, aren’t exclusive to individual policies. Many employers offer a menu of plans for you to select from that usually includes HMOs, PPOs, and traditional indemnity plans. Increasingly, companies are offering HSAs and dropping indemnity plans because they are so expensive.

Reprinted from Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage by Fred Brock. Copyright © 2006 Fred Brock. Published by Times Books; October 2006;$15.00US/$20.00CAN; 0-8050-7980-7.