Health Insurance Terms You Need to Understand
Arkansans, like all Americans, soon face critical decisions regarding their future health care insurance coverage; decisions with far reaching implications in some cases.
A recent American Institute of Certified Public Accountants (AICPA) survey revealed a startling conclusion, that many American adults lack even a basic understanding of the common terms used with regard to health insurance plans.
This is alarming to me given the gravity of decisions they may have to make soon.
According to the AICPA survey conducted by Harris Interactive, over half of American adults could not accurately identify even one of three terms that are common to health insurance plans.
These three terms that they didn't know were premium, deductible and co-pay.
The survey went on to say that 41% of those surveyed said they have no knowledge at all about the Patient Protection and Affordable Care Act (PPACA) and another 48% said they only "somewhat" knew about it.
With open enrollment beginning in October under the PPACA and with penalties for failure to purchase health insurance starting in 2014, such limited understanding of even basic concepts is cause for concern.
With that in mind, here are explanation of some of the basic terms used in health insurance policies:
Premium: This is the amount paid for the policy to be in effect and covering you, usually paid on a monthly basis. The amount of the premium can vary based on a number of factors, such as the policy features (i.e, deductibles, co-pays, etc. discussed below) and even factors like age, health, and certain lifestyle factors.
Deductible: Usually expressed as an annual amount, this is the amount you must pay out-of-pocket for medical care before your insurance begins to pay anything. Typical deductibles are $250, $500, and $1000 but can be higher. Usually, the higher the deductible the lower the premium, since you are assuming more of the risk.
Co-pay (or co-payment): This is the amount you will have to shell out for each individual visit to a medical professional or a prescription.
Coinsurance: Not to be confused with co-pay, co-insurance is the percentage of your medical expenses that you must pay after you satisfy your deductible. For instance, with 20% coinsurance, after your deductible is met if you have a $100 doctor bill your insurance will pay $80 and you will pay $20. Usually there is a maximum dollar figure cap for out-of-pocket costs after which the plan pays 100%.
Knowing what these terms mean can help you determine what your out-of-pocket costs for health care might be as you evaluate health insurance options.
However, there are other terms and policy provisions that you need to have an understanding about in order to make the best decision for you and your family.
For a great resource on understanding the financial implications of health insurance as well as increasing your financial literacy in other areas, go online to the 360 Degrees of Financial Literacy website provided by the AICPA. You can find it at www.360financialliteracy.org.
