Editor’s note: This article provides general information to help you better understand health insurance and is not personalized insurance, financial, or legal advice. Coverage, costs, and enrollment rules vary by plan and individual circumstances. Review your plan documents and contact your insurer, benefits administrator, or a licensed insurance professional with questions about your specific situation.
Have you ever celebrated meeting your deductible for the year, only to be surprised by still getting a bill for a medical service? Do you prefer to keep your head down and hope for the best when it comes to how your medical bills are processed? Welcome to an Indianapolis Moms quick info session on health insurance buzzwords, just in time for open enrollment! The more you know….
When you receive a medical service — a routine annual physical with bloodwork, an urgent care visit, a preventative mammogram, an elective surgery — the provider’s office puts each line item onto a form and sends it to your insurance company. Your insurance company confirms that your monthly premiums have been paid to keep your coverage active at the time you received the medical services, and then they look at the claim. To be honest, I think they make it complicated and confusing on purpose, but I can’t confirm that isn’t just my own frustration with the system. Most medical offices have contracts with certain insurance companies, telling them how much the insurance team has determined they are allowed to bill for each item. An office visit is capped at one amount, a blood draw at another, a strep test another. That determines the total amount that the provider is “allowed” to bill for the service. After that, a few things influence what happens next and what the patient is responsible for.
Deductible — Your deductible is the cumulative amount you must pay in a year out of your own pocket before insurance will begin taking over payment. Usually, it’s one amount for an individual, and a higher amount for the entire family. The dollar amount of your deductible depends on your plan — often, a lower yearly deductible comes with a higher monthly premium, and vice versa. After insurance writes off a medical bill according to its contract with your provider, the “allowed amount” you pay goes toward your deductible. Once you meet your deductible, insurance will start paying toward your medical bill. Unless you have a co-insurance responsibility, insurance covers the entire amount that is left over after their write-offs.
Co-insurance — Some plans also have co-insurance requirements. Co-insurance refers to how you and your insurance company split the bill after you meet your deductible. You may meet your annual deductible and still be responsible for a percentage of your medical bill. You pay a percentage of the bill, and insurance pays the rest.
Co-payment — A co-pay is a flat fee that you may owe for a specific service. The amount depends on the service itself and is determined by your insurance company. You usually pay this amount up front to your provider when you are there for your visit, and it pays down the total bill before it goes to insurance for processing. Co-pays typically do not go toward your deductible and still apply even after you’ve met your deductible, but do count toward your out-of-pocket maximum.
Out-of-pocket maximum — Your out-of–pocket maximum is the highest amount you will pay for your medical care before insurance starts covering 100%. Your deductible, coinsurance, and copays all count toward this total, and once you reach it, insurance pays everything for the rest of the year. Usually, there is an in-network and out-of-network number for the out-of-pocket maximum.
In-network vs. out-of-network — Insurance companies reach agreements and make contracts with providers, which makes them “in-network.” This is where insurance’s “allowed amounts” cap what a provider can bill for specific services. If a provider is out of network with your insurance, these agreements do not exist, and the provider may bill you the full amount. Whether or not a provider is in network may also affect how your payments to those providers count toward your deductible and out-of-pocket amounts.
PPO vs. HMO — A PPO (Preferred Provider Organization) usually offers more flexibility in choosing providers and is more forgiving in what they will cover with out-of-network providers. An HMO (Health Maintenance Organization) is stricter in which providers they want you to see and will not cover services rendered outside their (usually local) network. HMO structures also require all care to be coordinated by a primary care provider, and all specialist services require a referral. Typically, the flexibility of a PPO results in a more expensive plan than an HMO.
Explanation of benefits (EOB) — This info sheet explains how a medical claim was processed for a particular service on a particular date, based on your active coverage at the time. You will see the total amount the provider billed to insurance for each line item, the amount insurance allowed of that total amount (sometimes listed as an “insurance deduction” or “discount amount”), any payments made by insurance toward the final owed amount, and your patient responsibility. This responsibility number is typically divided into what amount goes toward your deductible, copay, and coinsurance. The bill you receive directly from the provider should match the patient responsibility on your EOB.
Most traditional insurances use some combination of these pieces in your coverage to ultimately lower what you owe to a provider for a medical service, in exchange for your monthly premium paid to them. There is always fine print regarding caveats and exceptions in each individual plan, so be sure to familiarize yourself with what those are so you can be prepared and informed, and operate within the guidelines of your plan for maximum benefit.
