Members often have questions about their health plan, from the definition of terms to how to best utilize their coverage. Our Term Talk series aims to answer commonly asked questions to help you better understand health insurance and empower you to make decisions about your coverage that best fits your needs.
A common dilemma:
I’ve had my own health plan for a few years now and am embarrassed to admit this, but there are a lot of terms I don’t have a true understanding of. For instance, I know I have a deductible to hit annually, but there’s also a monthly premium. I’m unsure as to whether the premium goes toward my deductible. It’s also been confusing trying to understand bills I receive for appointments. Could you explain the difference between some of the more common cost-related terms?
Common cost-related health insurance terms
Premium: This is the amount you pay for your health insurance every month. If you are on a group plan, you and your employer may share in the cost of your insurance premium. In addition to the premium, you usually have to pay other costs for your health care, such as a deductible, copayments and coinsurance.
Deductible: This is a set amount of money that you have to pay out of your own pocket for certain services. If you have a $2,000 annual deductible, for example, you will have to pay $2,000 worth of charges before Harvard Pilgrim helps pay. If you receive care for services that apply towards the deductible, your provider will send you a bill. If prescription drugs apply towards your plan’s deductible, you’ll need to pay the applied amount when you pick them up from the pharmacy. Copayments and coinsurance do not count toward your deductible.
Copayment: This is a flat dollar amount you pay for certain services on your plan. You may have different copayments for different services (e.g., primary care visits, specialist visits and prescription drugs). Copayments are normally due when you have your appointment or when you pick up prescriptions from the pharmacy. Your Schedule of Benefits and Prescription Drug Flyer will tell you what your copayments are for different services.
Coinsurance: This is a fixed percentage of costs that you pay for covered services. For example, if you have a plan with coinsurance, you may have to pay 20% of a provider’s bill for your care, while Harvard Pilgrim pays 80%. Coinsurance is usually something you pay after you have paid an annual deductible.
Cost sharing: Cost sharing is what you pay for specific health care services (e.g., office visits, X-rays and prescriptions). Coinsurance, copayments and deductibles are all examples of cost sharing.
Allowed amount: This is the maximum amount that Harvard Pilgrim will pay a provider for covered services minus any cost sharing you pay. If you have a POS or a PPO plan and you see a non-participating provider, it’s possible that the provider will charge more than the allowed amount for the care you received. In that case, you would be responsible for paying the difference between the provider’s charges and Harvard Pilgrim’s allowed amount. This is sometimes called “balance billing.” Note: If you have an HMO plan, there is no coverage for care you receive from non-participating providers, except in an emergency.
Out-of-pocket maximum: This is a limit on the total amount of cost sharing you have to pay annually for covered services. This may include copayments, coinsurance and deductibles. After you meet your out-of-pocket maximum, Harvard Pilgrim will pay all additional covered health care costs.
You should feel proud that you raised your hand to ask a question, a question that likely many others didn’t know the answer to either. In order to make the best choices for your health, you first need an understanding of the terminology used by health insurers and providers—especially when cost is associated. Consider this reference guide if there are other health insurance terms you’re unsure of; and for Harvard Pilgrim members, tools like Reduce My Costs and Estimate My Cost can be beneficial in determining what you might be expected to pay out-of-pocket for a health service.
