The final cost of a medical insurance plan depends on more than just the premiums, even when you compare plans with similar benefits. Understanding the following definitions can help your employees understand the components that affect their medical coverage costs.
Premium: This is the fee you agree to pay, generally monthly, for your insurance coverage. Your premium and benefits remain the same during the policy term; however, the insurer can change these upon renewal.
Deductible: A fixed dollar amount you must pay during the benefit period — usually a year — before the insurer starts to make payments for covered medical services. If you have a family plan, you might have both per individual and family deductibles.
Some plans may have separate deductibles for specific services. For example, a plan may have a hospitalization deductible per admission.
To save money, consider raising your plan’s deductible. You might pay more out of pocket, but you could save substantially on premiums. Just make sure you have funds on hand to cover your deductible.
With certain high-deductible policies, you can qualify for a health savings account (HSA), which allows your savings to accumulate tax-free to pay qualified medical expenses.
Coinsurance: Coinsurance is a form of cost-sharing that requires the insured to pay a stated percentage of medical expenses after the deductible amount is paid. For example, let’s say your policy has a coinsurance percentage of 20. If you’ve already met your plan’s deductible for the year and your doctor charges you $200 for a covered office visit, your insurer would pay $160 and you would have to pay $40.
Copayment: Another form of cost-sharing that requires an insured person to pay a fixed dollar amount when a medical service is received. The insurer is responsible for the rest of the reimbursement.
If you pay $25 or some other flat amount for a covered medical visit, then your plan has a copayment. You most often find copayments in preferred provider organization (PPO) plans, point-of-service (POS) plans or HMOs, which also may charge higher copayments when you obtain services from out-of-network providers.
Maximum out-of-pocket expense: The maximum dollar amount an insured must pay out of pocket during a year. Until you meet this maximum, you and the insurer share the cost of covered expenses. After you reach this maximum, the insurer may waive the coinsurance or copayment and pays all covered expenses, up to any annual or lifetime limit.
Under the Affordable Care Act, the insurer for a non-grandfathered individual group plan must pay 100 percent of “essential health benefits” for the rest of the year after you reach the out-of-pocket maximum. Note that this is 100 percent of “essential health benefits,” not all covered benefits. Voluntary insurance plans, such as critical illness insurance, cancer insurance and hospital indemnity insurance, can help pay for some of these uncovered items.
Annual and lifetime limits (or “cap”): The Affordable Care Act prohibits major medical insurance policies from having lifetime limits, or caps on the maximum amount your insurer will pay toward covered expenses.
Out-of-network charges: Many plans pay a lower portion of any services you obtain from out-of-network providers. Some also have higher copayments. Before buying a plan, check its list of preferred providers or network providers to see if your physician(s) and local hospital of choice are included. If you’re not willing to switch to a preferred provider, factor higher out-of-network charges into your healthcare costs.
“Usual, customary and reasonable” charges: You may find the term “usual, customary and reasonable” (UCR) charges in your policy benefit statements. “Usual” means the provider’s usual charge for this treatment (i.e., he’s not charging you more because you have insurance!), “customary” means customary for all providers in your geographic area and “reasonable” means reasonable based on the particular circumstances of your claim.
Once you pay any deductible amount and coinsurance, the insurer is responsible for reimbursing the rest of covered benefits up to allowed charges: the individual could also be responsible for any charges in excess. If your insurer deems your provider’s charges above the UCR amount, you could be responsible for the difference.
You’re more likely to run up against UCR charges in indemnity plans. PPO, POS (point of service) and HMO plans negotiate fixed payment schedules, so when you use an in-network provider who accepts your plan, he or she has likely accepted the insurer’s fixed payment.
Regardless of the type of group health plan you offer your employees, it likely costs more or covers less—or both—than it did a few years ago. Voluntary benefits allow employees to buy coverage for additional services (such as vision or dental) or costs not covered by their major medical plan at competitive group rates through convenient payroll deduction. Please contact us for more information.