Health Insurance Basics

With the requirement for health insurance in place, it’s necessary to study the language of coverage to have more than an educated guess about your options. There are two main sources of private health insurance: individual, which you can purchase on your own, and group, which you can buy through your employer.

If you work for a large business with more than fifty full-time employees, you may be offered coverage and join the company’s health plan. In small and large group plans, premium costs are shared between employers and workers.

Some small businesses also offer coverage. If your employer does not provide you with health care benefits, you can apply for an individual plan. The framework of all private health plans are the same, including the following components. This also applies to individual and small business plans on the health insurance exchange.



A premium is the amount you pay for health insurance, usually on a monthly basis. A variety of factors determine the cost of your premium, including where you live, use of tobacco products, and age. While there are far less factors to increase your premium under health reform, it is still essential to understand what can cause your rates to go up.



A deductible is the amount the policyholder owes out-of-pocket before the medical insurance provider covers a service. This is typically a fixed rate you decide when you choose your plan, and must be paid before you receive any major coverage on services like hospital care and emergency room visits. A standard rule is that the higher your deductible, the lower your premium, and the reverse also applies. Whether the deductible is applied per covered incident or per year depends on the individual policy.



The amount the insured owes out-of-pocket per visit (e.g. doctor’s office)  or service (e.g. picking up a prescription) before the medical insurance provider pays on its end is a co-payment. It must be paid at the time of the visit or service being incurred, before any policy benefit can be applied.



Coinsurance, or cost sharing, is the percentage of a medical bill that you are required to pay according to your health plan contract. The amount you owe depends on the total cost of services, the coinsurance amount specified in your contract and whether you’ve reached your deductible. For instance, if your plan pays 80 percent after deductible for a trip to the ER, that means you pay 20 percent coinsurance, or the remaining cost after your plan covers their portion of the bill.


Coverage Limits

There are health insurance policies that have a financial limit of the medical care they will provide. The provider will specify if a maximum payment is in effect for certain services, and the insured is required to pay out-of-pocket after exceeding the amount. Under the Affordable Care Act, there are no more lifetime or annual benefit limits.



Some services are not covered by health insurance. Therefore, even if you have health insurance you still have to pay in full, as your benefits will not apply. Your plan lists some commonly excluded services that they will not cover in your plan documentation. Look in the back of your policy’s documents or call your insurer to find out if you are about to receive a service that isn’t covered.


Out-of-Pocket Maximums

An out-of-pocket maximum is like a coverage limit, however, the policyholder’s commitment to pay ends when they reach the out-of-pocket maximum, and their health plan covers the remainder of their charges. These can be applied to an entire year of coverage, or can be restricted to a certain category of benefits.


Beginning in 2015, the health care law places caps on out-of-pocket maximums, however. Under the ACA, the highest amount a person with an individual health plan will pay out of pocket in 2014 is $6,350 on average, while a family’s cap is up to $12,700 — including copays and deductibles.



Capitation is the payment given by the insurer to their health care providers. There are several types of capitation: Primary, Secondary, and Global. Primary Capitation consists of a capitated relationship between a medical care organization (MCO) and a primary care physician (PCP) where the MCO directly pays the PCP for members who have chosen the Physician as their PCP.

Secondary Capitation is a relationship arranged by the MCO between a PCP and a secondary or specialist provider, where the secondary provider is also paid capitation based on that PCP’s enrolled membership. Global Capitation is a relationship where a provider who gives services and is reimbursed a Per Member Per Month charge for all of the providers in the network.


In-Network Provider

An In-Network Provider is a medical professional, facility or hospital on a delegated list set up by your insurance company to receive lower prices on covered care. When receiving care in-network, you are able to use lower copays and coinsurance as outlined by your plan, which offers a more cost-effective option for many services.


Explanation of Benefits (EOB)

An Explanation of Benefits is a document displaying how the benefits of your individual plan were applied to a medical visit or service used. It will tell you how exactly the payment amount and patient responsibility amount were decided upon. This document can be obtained from your insurance company.


Prior Authorization

Prior Authorization is needed with certain types of care before an insurer offers to cover it.