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Frequently Asked Questions
What is a deductible and how does it work?
Typically, a deductible is the amount of money you must pay each year before your health insurance plan starts to pay for covered medical expenses. For example, with a $100,000 heart surgery bill, you would be responsible for paying the first $1,000. After this $1,000 deductible is met, the insurance company will pay a percentage of the bill in what is called the coinsurance.
What is coinsurance?
Coinsurance is a cost-sharing requirement where you are responsible for paying a certain percentage and the insurance company will pay the remaining percentage of the covered medical expenses after your deductible is met. For a health insurance plan with 20% coinsurance, once the deductible is met, the insurance company will pay 80% of the covered expenses while you pay the remaining 20% until your out-of-pocket limit is reached for the year. Typically, the out-of-pocket limit is the maximum amount you will pay out of your own pocket for covered medical expenses in a given year. For a plan with a $2,000 out-of-pocket limit, you will pay a $1,000 deductible and $1,000 coinsurance while the insurance company covers the remaining $98,000 of the heart surgery bill. Even if you are hospitalized again in the same year, the insurance company will pay 100% of your covered expenses within the limit of the lifetime maximum.
What are co-pays?
A co-payment or co-pay is a specific flat fee you pay for each medical service, such as $30 for an office visit, after which the insurance company often pays the remainder of the covered medical charges. Let’s say you are not feeling well and went to see your doctor who charges $200 for the office visit. If your insurance plan has an office visit co-payment of $30, then you will only be responsible for the $30 and the insurance company will cover the remaining $170.
What is “Out-of-Pocket-Maximum?”
This is the amount of money one would pay out of their own pocket towards their medical expenses in any given year. An out of pocket expense can refer to how much the co-payment, coinsurance, or deductible is. Also, when the term annual out-of-pocket maximum is used, that is referring to how much the insured would have to pay for the whole year out of their pocket, excluding premiums. Usually, your maximum out-of-pocket is never more than a couple of thousand dollars over and above your chosen deductible.
What is a network?
A network is a list of doctors, hospitals and other providers that have contracted, or agreed, with an insurance company to do business with the insurance company. The providers fees have been pre-negotiated, which means that the insurance company will not necessarily pay the doctor or hospital what your actual medical bills are, but will pay a lower amount. For example, when you have a gall bladder removed at a hospital, the hospital’s charges, if you did not have health insurance, might be $10,000. But under the network pre-negotiated amount, the hospital may only receive $4,000 as payment in full. This saves you and the insurance company money. If you have a health insurance plan that utilizes a network and you use providers that are not part of the network, the amount of money that you would have to pay for those services will be considerably higher than if you had used providers that were in the network. Your insurance company will probably pay some part of those non-network bills, but you’ll be paying a whole lot more. Always stay in your network if possible.
What’s the difference between a Primary Care Physician (PCP) and a specialist?
A Primary Care Physician, or PCP, is the doctor you would go to on a regular basis, such as when you’re simply not feeling well, or have an ear ache or the flu. A specialist is a doctor that your PCP might refer you to if the problem you have requires a doctor with more experience in a certain area. For example, if you contacted your PCP complaining about chest pains, your PCP would most probably refer you to a heart doctor (a cardiologist) who would have more advanced equipment and training to help you.
What is a HMO?
A health maintenance organization (HMO) is a type of Managed Care Organization that provides a form of health insurance coverage that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. Unlike PPO health insurance, care provided in an HMO generally follows a set of care guidelines provided through the HMO’s network of providers. Under this model, providers contract with an HMO to receive more patients and in return usually agree to provide services at a discount. When you choose to become insured under an HMO plan, you must choose a doctor (who is contracted by the insurance company and called a PCP, or Primary Care Physician) and see that doctor for all of your health issues. If you end up needing to see a specialist, you’ll need your PCP first and get a referral from him or her to see the specialist.
What is a PPO?
A Preferred Provider Organization is a form of managed care closest to an indemnity plan. A PPO negotiates arrangements with doctors, hospitals and other providers who accept lower fees from the insurer for their services. As a result, your cost-sharing will be lower than if you go outside the network of providers.
If you go to a doctor within the PPO network, you will pay a co-payment for certain services, such as $20 for a doctor and then your PPO insurance policy will pay the rest of the doctor’s charges, no matter what they really amount to.
Another characteristic of PPOs is the ability to make self-referrals. PPO plan members can refer themselves to doctors of their choice, including specialists, as long as those providers are also part of your PPO network. With a PPO plan, you are allowed to see providers that are NOT members of the network, but in this case, your insurance company will only pay some of those charges, leaving you to pay the balance. If you have a PPO plan, in order to make it work well for you, you should always seek medical care from members of the PPO.
What is a HSA?
HSAs are confusing to most people, because the term HSA can be used in two ways. Some people call their HSA-qualifying health insurance plan an HSA. That phrase is actually incorrect. What those people actually have is an IRS-recognized qualifying high-deductible health insurance policy. The policy ITSELF is not an HSA, it’s simply a health insurance policy with deductibles that qualify you to legally open an HSA (or Health Savings Account) which is very much like an IRA. One may not open an HSA at a bank or other financial institution unless one has the qualifying high deductible health insurance policy. The second way people use the term HSA relates to the actual financial instrument known as the HSA, or Health Savings Account, which is recognized by the IRS in much the same way an IRA is recognized. If one has the accompanying HSA-qualified health insurance plan, one may also have an HSA. You are not required to open an HSA and put money into it if you have the insurance plan, but lots of people elect to go with the qualifying health plan simply because it allows them to sequester the HSA deposit amounts. You’re allowed to put up to 100% of your deductible amount into an HSA account annually, but you don’t have to. You don’t even have to open an HSA account.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires most employers with group health plans to offer employees the opportunity to continue temporarily their group health care coverage under their employer’s plan if their coverage otherwise would cease due to termination, layoff, or other change in employment status (referred to as “qualifying events”). The qualifying event requirement is satisfied if the event is the death of a covered employee; the termination (other than by reason of the employee’s gross misconduct), or a reduction of hours, of a covered employee’s employment; the divorce or legal separation of a covered employee from the employee’s spouse; a covered employee becoming entitled to Medicare benefits under Title XVIII of the Social Security Act; or a dependent child ceasing to be a dependent child of the covered employee under the generally applicable requirements of the plan and a loss of coverage occurs.