The rising cost of healthcare makes insurance a necessity and not a luxury. If you still view it as an unnecessary expense, now is the time to rethink! Consider the uncertainty that the future holds and the possibility that you will suffer from a health condition that can potentially have debilitating impacts, especially from a financial perspective. However, health insurance can be confusing, especially if you are a first-time buyer. You must understand the costs involved, so you can ensure that it suits your current financial situation and future needs. With that, read on as we run down some of the most important health insurance terms to fully comprehend your costs. Check out the terms such as allowed amount, HMO, PPO, out-of-pocket maximum, deductible, etc.
Defining Cost-Related Health Insurance Terms
A healthy lifestyle is a financial investment. It is a way of being proactive and doing something to ensure a financially secure future. More than having a healthy lifestyle, however, you also need health insurance, which can provide a safety net. The benefits and conditions will differ from provider to provider. Nonetheless, by learning about the basic terms, it is easier to understand what you are getting into.
Let’s go through some of the insurance terms that can be confusing to most people.
1. Allowed Amount
It is the maximum payment an insurance plan will cover for healthcare services. Other terms are used, such as negotiated rate, payment allowance, and eligible expense. If the healthcare provider charges more than the allowed amount of the health insurance, you might need to settle the excess.
2. Coinsurance
3. Copayment
A copayment is a fixed amount that you must pay for a healthcare service after the deductible. It is a form of cost-sharing in a health insurance plan. Because it is fixed, you will know in advance how much you will pay.
For instance, if the copayment is $20, it means that you will pay $20 when you visit a doctor and use your insurance under its terms.
4. Deductible
5. Health Maintenance Organization (HMO)
If you are an HMO member, the insurance company pays for the agreed healthcare costs based on a network of facilities and professionals, which are called in-network providers.
6. Medicare
A health insurance program of the U.S. government, covers people who are 65 years old and above, as well as younger patients who have end-stage renal disease and disabilities. Medicare has four components:
- Part A: A hospital insurance that includes in-home care, skilled nursing facility, and hospice.
- Part B: Provides coverage for out-patient care, preventive screenings, doctor’s visits, and durable medical equipment
- Part C: Also known as Medicare Advantage, it is an additional insurance option that covers both Parts A and B, as well as additional services, such as hearing, dental, and vision coverage.
- Part D: Even if you are a healthy person, there might come a time when you will need prescription drugs for various health problems, and Part D can cover such.
7. Network
It refers to a group of healthcare providers whom the insurance company has a contract with. It will include physicians, therapists, surgeons, laboratories, pharmacies, and hospitals. Reviewing the list is important so you will know where you can use your health insurance and maximize your coverage.
8. Out-of-Pocket Maximum
Also called out-of-pocket limit, it refers to the maximum amount that you pay during the policy period, which is usually a year. After this, the insurance company will pay 100% of the remaining bill. It covers deductibles, coinsurance, and copay.
9. Preferred Provider Organization (PPO)
10. Premium
This is perhaps one of the most common insurance terms you will encounter. It is also for other types of insurance such as car insurance, property insurance, and life insurance. For example, if you buy life insurance for someone else, let’s say, your spouse, the premium is the amount that you will pay over a fixed period to ensure that the person is covered. It determines the cost of the insurance plan. It is the amount that you will pay monthly or annually, depending on the chosen plan.
Health insurance can be a financial savior during uncertain times. The choices abound, but it does not mean they are all the same. As you narrow down your options, take note of the cost involved and understand the terms mentioned above.
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