A Guide to Understanding Health Insurance
How does health insurance work? If you’ve ever asked this question, you’re not alone. The health care system in America can be difficult to understand and navigate. That’s why we’ve created this introductory guide to understanding health insurance.
You’ll learn what common insurance terms mean as well as how to figure out what you’ll need to pay for any health care service. Use the links below to quickly navigate to the topic of your choice or keep reading for a full look into how health insurance works.
Explaining Health Insurance Terms
- Allowed amount
- Coinsurance
- Copay
- Covered costs
- Deductible
- EPO
- Formulary
- FSA
- HMO
- HSA
- HRA
- Medicaid
- Medicare
- Out-of-pocket maximum
- Telemedicine
- POS
- PPO
- Premium
- Preventive Care
How to Find In-Network Doctors
The easiest way to find local primary care providers and OB/GYNs who align with your personality and health care needs is to use MyHealthKC’s doctor-matching tool. You’ll take a survey to answer a few questions about yourself, and MyHealthKC will use your answers to match you with a list of providers who are likely to be a good fit for you. Once you have your matches, you’ll just need to check to see which ones are in-network with your plan.
Every health care plan has a network of hospitals, doctors, nurses and other health care providers that have been contracted to provide care at a discounted price. These are known as “in-network” providers. One way to see if your provider is in-network is to visit your insurance provider online. Typically, you will need to create an account and log in before being able to see who is in-network with your particular plan.
Another way to find out if a provider is in-network is simply to call their office and ask. Be sure to have your insurance card handy because the provider’s office will ask you to provide plan info.
What is covered?
Every health care plan is different, but under the Affordable Care Act, all insurance plans must, at minimum, cover the following services:
- Emergency services
- Hospitalization
- Lab tests
- Maternity and newborn care
- Mental health and substance abuse treatment
- Outpatient care
- Pediatric services
- Prescriptions
- Preventive services
- Chronic disease management
- Rehabilitation services
Medicare vs. Medicaid: What's the Difference?
Medicare and Medicaid are two separate government-run programs that provide health insurance to certain groups of eligible people. Some people may qualify for both services, in which case their insurance costs will be lowered. The graphic below breaks down the major differences between the two programs.
| MEDICARE | MEDICAID |
|---|---|
| A federal program for individuals 65+ and certain people with disabilities | A state and federal program that provides free or low-cost care for low-income individuals. |
| The program is funded primarily through payroll taxes and income taxes paid on Social Security benefits. | The program is jointly funded by the federal and state governments. |
| An individual must have paid income taxes for at least 10 years to qualify. | An individual has to meet the requirements set forth by their state to qualify. |
| There are two main types of coverage: Part A & B. There is no monthly premium for Part A. | Individuals who qualify for Medicaid don’t pay monthly premiums and are 100% covered for most medical expenses. |
HSA vs. FSA
HSAs and FSAs are health savings accounts you can use to pay medical expenses not covered by your insurance plan. You get to determine a dollar amount within a certain limit to have withheld from your paycheck pre-tax to cover medical expenses throughout the year. You can use these savings to pay for things like deductibles and copays. It’s a great way to set aside pre-tax dollars if you know that you’re going to have medical expenses throughout the year.
An HSA is primarily there to help manage the costs of high-deductible plans. In fact, in order to qualify for an HSA, you must have a Qualified High Deductible Health Plan (QHDHP). Any funds you don’t use by the end of the year can be rolled over to the next year. You can even invest your HSA dollars in mutual funds and the interest will grow tax-free as long as you only use the funds to pay for eligible expenses.
Similar to an HSA, an FSA is a savings account you pay into with pre-tax dollars to help pay for certain out-of-pocket health care costs. Unlike HSAs, FSAs do not roll over and can’t be taken with you if you leave your employer. With an FSA, you are free to spend the amount you have planned to save for the year at any point, regardless of whether your account is fully funded or not. Interested employees should check with their employer for details on eligible expenses and claim procedures.
The following chart breaks down the major differences between HSAs and FSAs.
| HSA | FSA | |
|---|---|---|
| No insurance requirement to use | X | |
| Can use if self-employed | X | |
| Contributions are tax-free | X | X |
| Can roll over unused dollars | X | |
| Earns interest | X | |
| Can access future contributions now | X | |
| Can withdraw funds if needed for something else (for a penalty) | X |
How much will my health care service cost?
Figuring out how much you’ll pay out of pocket for a health care service can be tricky. First, you’ll want to understand your deductible and how it works with your out-of-pocket max. Depending on the cost of the services you need, you may end up paying your deductible in full for one service or you may pay it over the course of receiving several services.
Once you’ve paid your deductible, your coinsurance kicks in. This is the cost-sharing agreement between you and your insurance provider. You will pay a certain percentage of the bill, and your insurance will cover the rest.
When you have reached your out-of-pocket max for the year, your insurance will cover 100% of your covered health care services for the remainder of the year. In most plans, once you’ve reached your out-of-pocket max, you will no longer pay copayments either.
Because every plan is different, you’ll need to answer these questions in order to get an idea of how much you’ll pay for a service.
- Do my deductibles and copayments count toward my out-of-pocket max?
- How much have I paid toward my deductible so far this year?
- How much have I already paid toward my out-of-pocket max?
- Is my provider in-network?
This last question is big. If you are planning to use an out-of-network provider, you’ll need to understand from the health plan and the out-of-network provider what your out-of-pocket expenses are going to be. You may be responsible for paying the out-of-network provider up front for the cost of the service. You will also be responsible for a larger portion of the bill with an out-of-network provider (and your deductible will likely be higher).
One important thing to note is that if you are forced to use an out-of-network provider because your insurance doesn’t have any providers in-network for a covered service, you can apply for a network gap exception. This is a tool health insurance companies use to compensate for gaps in their network of contracted health care providers. When your insurance provider grants you a gap exception, you can receive services from an out-of-network provider at the in-network rate.
As you can see, there are a lot of details to understand in order to figure out how much you’ll pay for a health care service. To illustrate how this all comes together, here’s an example:
$20,000
Out-of-pocket max:
$5,000
Deductible:
$1,000, does not count toward out-of-pocket max
Coinsurance:
20% (your responsibility)
In this example, we will assume you haven’t paid anything toward your deductible or anything out of pocket yet. We will also assume the service you received was in-network and within your allowable amount for that service.
Since the service costs more than your deductible, you’ll pay your deductible in full, which means you won’t pay a deductible on any other service for the remainder of the year. Your coinsurance on the rest of the bill ($19,000) is 20%, so you will be responsible for an additional $3,800. This amount counts toward your out-of-pocket max, leaving $1,200 in out-of-pocket expenses for the remainder of the year.
Your total costs for this service would be $4,800—your deductible ($1,000) plus your coinsurance ($3,800).
Use AdventHealth’s price estimator tool to get an idea of your health care costs based on anticipated services.
Use AdventHealth’s price estimator tool to get an idea of your health care costs based on anticipated services.
Understanding Your Explanation of Benefits (EOB)
Each time you receive a health care service, a claim will be filed with your insurance provider. When your insurance provider processes the claim, they’ll send you an EOB to explain how they processed it.
Although it may look like a bill, it’s not—it’s simply an explanation of how your benefits were applied to the service you received, and it alerts you to any costs you will be responsible for. It’s basically a way for your insurance provider to make sure you are all on the same page before the doctor’s office sends you a bill.
It’s a good idea to review the EOB closely and make sure there are no errors. If something doesn’t look right to you, contact your insurance provider as soon as possible. Be sure to keep the EOB for your records in case you need to refer to it down the line.
Additional Resources
For more information about the United States health care system, the following websites have the most accurate and up-to-date information:
Member Portals & Mobile Apps
It’s a good idea to create a profile on your insurance provider’s website and check to see if they have a mobile app. This is a great way to track your care and gain access to any tools the provider may offer, such as cost estimators, wellness info or incentive programs that provide additional benefits or rewards for healthy behavior.
Finding a Doctor
For the easiest way to find a health care provider who is compatible with your personality and health care beliefs, take MyHealthKC’s doctor-matching survey. The first question is embedded below for your convenience.
Allowed amount: The maximum amount your health insurance will pay for a covered health care service. The allowed amount permitted by an insurance company is based on the contract it has negotiated with the in-network provider. It can also be called eligible expense, payment allowance or negotiated rate. If you use an out-of-network provider who charges more than the allowed amount, you may have to pay the difference unless you negotiate with the provider up front.
Coinsurance: The percentage of costs you pay for a health care service after you have paid your deductible. Sometimes coinsurance may be displayed as a ratio like 80/20. If the coinsurance is 0, that means you will have no expenses after your deductible is paid.
Copay: A set rate you pay for prescriptions, doctor visits and other types of care. In general, the amount you spend on copays does not count toward your deductible but it can count toward your out-of-pocket max for the year.
Covered costs: Any health care service or medication your plan covers.
Deductible: The yearly amount you will pay out of pocket in addition to coinsurance for health care services before insurance coverage kicks in. Note that depending on your health plan, your deductible may or may not count toward your out-of-pocket max.
EPO: A plan network that’s like a hybrid of HMO and PPO. Like HMOs, EPOs cover only in-network services, but may allow you to book an appointment directly with a specialist without a referral. EPO stands for Exclusive Provider Organization.
Formulary: A list of drugs your plan covers. If your prescription requires a drug that’s not on this list, you will have to pay the full cost. Prescriptions not covered on the list do not count toward your out-of-pocket max.
FSA: A more flexible pre-tax health savings account that helps you save for medical expenses your health insurance doesn’t cover. FSA stands for Flexible Savings Account.
HMO: A plan network that will cover you only if you see an in-network provider. In an HMO, you may need a physician referral in order to see a specialist. HMO stands for Health Maintenance Organization.
HSA: A pre-tax savings account that helps you save for medical expenses your health insurance doesn’t cover. HSA stands for Health Savings Account.
HRA: An IRS-approved, employer-funded, tax-advantaged health benefit used to reimburse employees for out-of-pocket medical expenses and personal health insurance premiums. HRA stands for Health Reimbursement Arrangement.
Medicaid: A government program that provides health coverage to eligible low-income adults and children. The program is funded jointly by states and the federal government.
Medicare: A federal health insurance program for adults aged 65 and older, younger people with disabilities and people with end-stage renal disease. Working adults aged 65 and older who qualify for Medicare and paid Medicare taxes for at least 10 years are eligible to receive hospital insurance through Medicare without paying a premium.
Out-of-pocket maximum: The most you will have to pay for covered services in a plan year before your health insurance covers 100% of the bill. Depending on your plan, this may or may not include anything you pay on deductibles and copayments. Your share of coinsurance always counts toward your out-of-pocket max, but the amount you spend on your monthly insurance premium or any service not covered by insurance does not. If the plan is ACA (Affordable Care Act) compliant, all covered expenses go toward your out-of-pocket max.
Telemedicine: The remote delivery of health care services, such as health assessments or consultations, over the phone or via video chat. In some instances, medications could be prescribed.
POS: Similar to an EPO, a POS is a plan network that combines elements of HMOs and PPOs. But with POS, it’s the opposite of EPO—you’re partially covered out of network but are required to have a referral in order to see a specialist. POS stands for Point of Service.
PPO: A plan network that offers partial coverage if you go out of network. Typically, these plans have higher monthly premiums. In a PPO, you do not need a physician referral in order to see a specialist. PPO stands for Preferred Provider Organization.
Premium: The monthly amount you pay for health insurance, usually taken out of your paycheck.
Preventative Care: Health care services and programs that help patients stay healthy. These include annual physicals, immunizations and routine screenings. Preventive care is now covered at 100% on most insurance plans.