Health Insurance

B

Coinsurance

Many insurance policies also require policyholders to pay a certain portion of medical costs that exceed the deductible. This extra amount is called the coinsurance figure. For example, consider a person who has already paid her policy’s deductible for the year and then has a diagnostic test that costs $100. If that person’s health insurance policy sets the terms of coinsurance at 20 percent, the insurance company must pay $80 of the bill for the test and the policyholder must pay $20. Policies that do not require a coinsurance payment usually charge subscribers a relatively high premium.

C

Copayment

Most managed care policies require policyholders to make a modest payment—called a copayment—toward the cost of services for each visit to a healthcare provider. Copayments are usually $10 or less. Although the amount of money collected from copayments may contribute little toward the actual cost of medical services, it does force some cost onto consumers in a way that provides incentives against overusing the healthcare system. These policies also assume that unless patients pay something for the services they receive, they place little value on those services. Indemnity plans typically do not require policyholders to make a copayment in addition to the deductible amount.

D

Premium

Insurance policies charge a certain monthly amount—called a premium—to maintain an insurance contract. The premium is the payment an individual policyholder makes in exchange for the promise of financial assistance for medical costs. The premium charged for the insurance reflects the value of the benefits received. For example, insurance with a $500 deductible generally has a lower premium than insurance with a $250 deductible.

E

Terms and Limits

Most health insurance policies limit coverage to services that the insurance company defines as both “reasonable and necessary.” These terms are key to understanding the policy’s benefits because they define whether particular services are within the scope of coverage.

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Insurance companies carefully determine what they consider to be “reasonable” costs of medical services. To do this, an insurance company gathers statistics on what healthcare providers in a particular area typically charge for identical or similar services. That information helps the company determine the amounts it considers to be reasonable. For example, many insurance policies cover payment for an office visit to a doctor. If 90 percent of the doctors in a particular geographical area charge $60 or less for an office visit, an insurance company might logically decide to limit its policy’s coverage of office visits to the first $60 in charges. When a particular patient’s doctor charges $75 for an office visit, the insurance company may send the patient a bill—known as a balance billing charge—for the additional $15. Some benefit programs, such as Medicare, may not hold patients responsible for balance billing charges.

Insurance companies also determine what they consider to be “necessary” medical treatments. Health insurance contracts limit coverage to services that are considered important to maintaining sound health. For example, services such as cosmetic surgery usually are not considered necessary except in specific circumstances, such as after a disfiguring accident.

F

Out-of-Pocket Maximum

Health insurance policies define the maximum amount that an individual or family must pay each year for deductibles and coinsurance combined. This amount is called the out-of-pocket maximum. For example, a policy with a $250-per-person deductible might have a $1,000 limit on the total amount that a person would have to pay in both deductibles and coinsurance.

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