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Understanding your health insurance
What is covered by my health insurance policy?
There are many different types of health insurance coverage. The most common plan types include Health
Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), High Deductible or Consumer
Directed Health Plans (HDHP or CDHP) and Limited Medical policies (sometimes called mini-med).
You will want to understand your benefits coverage before seeking care. Your health benefits will
vary depending on what type of plan you have. Some key items to understand include:
- Does your insurance require you to select doctors and providers from a list? (This is
often called a provider network.)
- If you use a provider outside of the allowed network, will your insurer pay for any portion
of the care? (This is often called an "out of network" benefit.)
- Specifically, what services are not covered by your insurance? (For example, cosmetic surgery
is generally not covered. Dental services are not typically part of medical coverage and require
separate dental insurance.)
- Are medications covered by your policy, and if so, what types of medications are covered? (The
list of covered medications is often called the formulary.)
- Is there a limit on the total amount that your insurer will cover? (Limited Medical policies may
only cover up to $10,000 while HMOs and PPOs may have total maximum benefit of $500,000 to $1 million.)
- What portion of your healthcare are you being asked to pay out of pocket? Depending on the type of
plan you have, you may be asked to pay:
- A co-payment, which is a specific amount you must pay at each visit or for each medication
- A deductible, which is the total amount you must pay before your insurance begins paying their
part for services. Deductibles are increasing and often require the patient to pay for the first
$500-$1,000 of services before insurance begins to pay for services
- Co-insurance, which is the percentage you must pay for each service up to a limit (the limit
is often call the Out of Pocket Maximum)
For more information about deductibles, co-payments, limits and co-insurance, please see the next
sections of Understanding Your Health Insurance.
If you receive your health insurance from your employer, refer to your benefits plan summary or contact
your Human Resources representative for details. If you purchase your own insurance, contact your insurer
or broker for a summary of benefits.
What is a provider network, and how does it work?
A provider network is a group of providers who agree with an insurance company to accept lower prices
for their services. The term "provider" includes healthcare professionals and facilities like doctors,
hospitals, retail clinics, pharmacies, optometrists and many others. Health insurers create provider
networks in order to get better prices.
If your insurance includes a provider network, it is important to know if your doctor or other provider
is in the network ("in-network") since your insurance will pay a higher level of coverage for in-network
providers. If you provider is out of the network ("out of network") you may have to pay significantly more
for the service.
Use your provider directory or search for in-network providers at your health insurer’s web site.
What is a deductible, and how does it work?
A deductible is a set dollar amount that you must first pay out of pocket each year for covered services
before your health insurance policy begins paying its part for services. You can think of a deductible as
a pool of money. Once you have spent your pool of money out of your pocket, your insurance begins to pay
for services.
It is important to understand and shop for prices before you receive treatment when you are using your
deductible. Even if you are paying for services at the in-network rate, the in-network price for the exact
same service can be very different depending on which provider you choose. For more information on healthcare
prices, please see Using the Healthcare Blue Book to Find a Fair Price.
What are co-payments, co-insurance and the out of pocket maximum; and how do they work?
A co-payment (or co-pay) is a fixed dollar amount you pay for covered services, such as a doctor’s
office visit or medication. There are frequently different co-pays for different services – a doctor’s
office co-pay is typically lower than an emergency room visit co-pay, or you may have a lower co-pay for
generic medications than brand name medications.
Co-insurance is a percentage that you will pay for covered services. For example, if you have 20%
co-insurance, then you will be responsible for paying 20% of the in-network cost for services (the insurer
will pay the other 80%). If you have a deductible, then co-insurance begins only after you have paid your
full deductible amount.
The out of pocket maximum is the most you will pay out of pocket in a benefit year for medical
services. The out of pocket maximum is designed to limit the total amount that you have to pay with
co-insurance and deductible.
A quick example will help illustrate the concept. Let’s say that you have a $500 deductible, 20%
co-insurance and an out of pocket max of $1,500. Now, let’s say that you injure your knee while playing
basketball at the park, and the surgery will cost $10,000. How much would you have to pay out of
pocket? (Assume you have had zero health care costs yet this year and you have paid none of your deductible).
| Total Cost |
$10,000 |
| Deductible |
-500 |
| Remaining Cost |
$9,500 |
| 20% Co-insurance without out of pocket max applied |
$1,900 |
| Co-insurance after out of pocket max |
$1,000 |
Your total out of pocket costs are only $1,500 ($500 deductible + $1,000 co-insurance on the remaining
balance) because you are limited to paying only the out of pocket maximum.
What is a Health Savings Account (HSA) and a Health Reimbursement Account HRA), and how do I use them?
Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA) are savings accounts that help you
save and pay for out of pocket medical expenses. HSAs and HRAs are intended to help you pay for your
deductible before insurance benefits kick in. There are a few important differences between the two types
of accounts:
Health Savings Account (HSA) – HSAs enable you to pay for current health expenses and
save for future qualified medical expenses on a tax-free basis. In order to have an HSA you must be
covered by a High Deductible Health Plan. Any employer can offer an HSA (or a self-employed individual
can set one up on his or her own), and both employers and employees can contribute to it with pre-tax
income. One big advantage of HSAs is that you can earn interest on your savings – similar to a 401k
retirement plan. HSAs also stay with you when you change jobs. Health Reimbursement Account (HRA) – HRAs are similar to HSAs – they allow you to pay
for current health expenses and save for future qualified medical expenses on a tax-free basis. HRAs also
earn interest over time, and most employers allow your to rollover unused funds from one year into the
next (so that your HRA grows in value over time). However, unlike an HSA, only your employer can make
contributions to your HRA (individual contributions by the employee are not allowed) and you cannot take
the HRA amounts with you if you leave your employer.
You should use your HSA/HRA to pay for all medical services until the amount of the deductible is
reached. Most HSA/HRA accounts have a checkbook or debit/credit card that you can use to pay for services
at the provider’s office.
Are there special program or discounts that can help me save money?
If you receive your health insurance through your employer, you may be eligible for discounts on
medical procedures, diagnostic tests and medications. Your employer may also offer rewards for active
participation in Disease Management, Lifestyle or Wellness programs. Some common types of discounts and
rewards include:
Prevention: Many employers exempt preventative services from co-pays or your
deductible. This means that you receive a discount or may not have to pay out of pocket for these
services. Common examples of preventative services include regular pediatric visits for children,
colonoscopies, and mammograms for women. Consult your employee benefits guide or contact your Human
Resources representative for more information. Treatments for Chronic Conditions: Many employers exempt lab tests, supplies and some
medications from the co-pay or deductible for employees who have a chronic condition such as diabetes,
asthma or cardiovascular disease. This means that you receive a discount or may not have to pay out of
pocket for these services. Common examples of free or discounted services include A1c lab tests,
diabetes test strips, and generic cholesterol lowering medications. Consult your employee benefits
guide or contact your Human Resources representative for more information. Participation in Disease Management or Wellness Programs: Many employers offer rewards for
participating in chronic disease or wellness programs. If you are eligible for the programs and choose to
participate you may be able to earn rewards. Common examples of rewards include a lower monthly insurance
premium, cash awards contributed to your Health Savings Account (HSA) or free smoking cessation patches when
participating in a smoking cessation program. Consult your employee benefits guide or contact your Human
Resources representative for more information.
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