Step 1 – Learn the Basics – Health Insurance 101





How Health Insurance Works

Deductible = $3000      Coinsurance = 80/20          MOP = $6350

how-health-insurance-works

*The plan year typically coincides with the calendar year, however,some group plans may move the plan year to align with their renewal date.

 

 

The first thing to do when selecting a Colorado health care plan is to understand some of the terms you will encounter.

Basic Terms To Know..

Network – A group of physicians, therapists, hospitals, and other care givers who accept the insurance plan one carries; two main types are:

  • Preferred Provider Organization (PPO) – Covers in-network and out-of-network providers

  • Health Maintenance Organization (HMO) – Covers only in-network providers

Copay – The portion of the medical bill paid directly to service provider that the insurance company doesn’t cover. Typically for a pharmacy drug, general practitioner, specialist, or ER visit. Applied toward the deductible and maximum-out-of-pocket

Deductible – Total amount of all out-of-pocket medical expenses for the policyholder that must be paid in the plan year before the insurance company chips in to share a portion of the cost. Certain prescription plans have a brand name deductible which must be paid first by the policyholder before the drug copay applies

Inpatient vs. Outpatient – Two different ways to classify a patient. Typically starting the day one is formally admitted into the hospital with a doctor’s order, he or she is considered an inpatient. The day before he or she is discharged is considered the last inpatient day. All other costs fall under outpatient services

Coinsurance – Percentage of costs covered by the insurance after the deducible has been met for the plan year. For example, the coinsurance is listed as 80/20, meaning the insurance company pays 80% of the costs and you pay the remaining 20% up to the maximum-out-of-pocket limit

Maximum-out-of-pocket – The total out-of-pocket costs the policyholder can pay in the plan year; after the policyholder hits the max-out-pocket. The insurance company will pay 100% of the health care costs for the rest of the plan year

Plan Year – The 12 month period used for the deductible and max-out-of-pocket. Unless stated otherwise the plan year runs from January 1st to December 31st. On the first of January, the costs applied to the deductible and max-out-of-pocket reset to zero

Drug Formulary – List of prescription drugs covered by the insurance company. This list is typically divided into 4 or 5 tiers based on the cost of the drug. If not listed the drug might still be covered after prior authorization

Effective Date – The date the policy goes into force. Typically the first of any month for small groups and the first or 15th of any month for individuals. Retroactive effective dates can be issued in most cases

Renewal Date – The policy’s anniversary date, one year after the effective date. The insurance company has the right to adjust the policyholder’s monthly premium at any time, however, typically the insurance company will only adjust the rate every 12 months

Monthly Premium – The amount paid to the insurance company for coverage. Typically the payment is due within a 30 day window or grace period before coverage is canceled. Rates for new applicants are cyclical like most industries which is why it pays to shop around. Small group and individual rates aren’t negotiable. Rates are based on three factors: Age, location, and tobacco use

Explanation of Benefits – Letter sent to policyholder with list of claims. Shows how the claims were adjusted (how much the insurance company paid), the total amount applied towards the deductible and maximum-out-of-pocket, the remaining amount to be paid to the provider. Numbers should match up with the provider’s bill

If you have questions about these terms, or anything else regarding your health care plan, please contact Applegate Consulting today. We serve clients in the Denver Metro area, as well as the entire state of Colorado.