Intro to Health Insurance: Basic Terminology and Concepts
by Rynae Golke
Basic knowledge of health insurance terminology and concepts is necessary in many healthcare roles above and beyond those who work in billing. Doctors, nurses, receptionists, coders, benefits managers, social services employees, collections workers, diagnostic staff and patient accounts representatives are just a few of the key players in a healthcare organization who can benefit professionally from basic knowledge of insurance. All employees can benefit personally when they better understand their own benefits.
How Health Insurance Works
Let’s start by answering the most basic question, “How does health insurance work?” The concept is relatively simple; consumers or their employers pay a monthly premium for coverage. In exchange, the insurance company pays a portion of the medical bills. In most cases, insurance companies have agreements with healthcare providers that require the service provider to write off a portion of charges that falls over the agreed-upon threshold. This means that most charges are paid like this: A portion is paid by the patient, part is paid by the health insurance company, and a portion is written off by the service provider.
According to BlueCross BlueShield, the most important terms to know and understand in health insurance are:
- Allowable charge — Can be called “usual and customary charge” or “allowed amount” as well; refers to the dollar amount a health insurance company considers to be reasonable for a certain service.
- Benefit year — The 12-month period that the plan is in effect before renewal is required.
- Coinsurance — The portion the patient pays of services, most commonly a percentage; for example, many plans require a 20% coinsurance, which means that after the deductible is met, the insurance company pays 80% of allowed charges, and the patient pays 20%.
- Copayment — A flat fee due to the facility by the patient for certain services; for example, your plan might have a $25 copayment for office visits, which the service provider often collects during registration.
- Deductible — The total dollar amount you must pay during the benefit year before your insurance policy begins paying for services.
- Explanation of benefits (EOB) — A form that details how your medical bills have been paid by the insurance company (i.e., which amounts are allowable, how much the insurer paid, how much was written off based on an agreement between the two parties, and how much you owe).
- Network — The group of healthcare providers that contract with your insurance company.
- Out-of-pocket maximum — The maximum amount of money you will pay out of pocket in a single benefit year, including copayments, coinsurance and deductibles.
- Premium — The amount of money you or your employer pays for your health insurance plan.
Understanding the basic terminology can make utilizing health insurance and caring for covered patients easier and prevent errors.
Types of Insurance Plans
The four common plan types are:
- Health Maintenance Organizations (HMOs) — An HMO delivers services through a network of facilities and providers and requires a referral before the patient can see a specialist; the patient is responsible for the entire amount due if they choose to see an out-of-network provider under an HMO plan.
- Preferred Provider Network (PPO) — Patients can seek healthcare in or out of the network, but insurance typically covers more when patients stay in their preferred provider network.
- High-Deductible Health Plan (HDHP) — High-deductible health plans have deductibles exceeding $3,000 per benefit year, but the premiums are significantly lower than low-deductible plans. High-deductible health plans can be a good option for people who rarely see the doctor since they can provide protection from extensive bills in the event of an illness or injury but provide little assistance with day-to-day medical bills. HDHPs are often paired with a health savings account (HSA).
Other Kinds of Coverage
Patients seeking care may have any variety of arrangements for healthcare coverage, including self-pay, employer-provided benefits, Medicaid, Medicare, other state-provided programs or Marketplace coverage. Patients listed as self-pay have no insurance and are responsible for any costs incurred. Self-pay patients do not have the benefit of having a portion of their bills written off.
Patients with group health insurance (employer-provided health insurance) will be able to better understand their coverage by reading their insurance policy. Deductibles, copayments, coinsurance, and out-of-pocket maximums vary from one plan to another.
Medicaid, which may go by different names in different states, is state-provided health insurance for low-income families (and some families who qualify for other reasons, such as having a disabled child). Copayments and coinsurance are very minimal in most cases, but covered services are also limited.
Medicare is typically only available to those age 65 and over and may be paired with additional supplemental health plans to cover out-of-pocket expenses remaining after the plan pays. Other programs are administered by the state, and they go by a number of names and often cover children who fall between the gaps, that is, families who earn too much to qualify for Medicaid but not enough to purchase health insurance.
When you understand the basics of health insurance, not only can you be a better resource for your patients, but you can also better understand your own coverage.