Buying health insurance is complex. It comes in flavours like indemnity plans (not so popular anymore), managed care plans, and now Obamacare. If this is not enough to confuse the average buyer then health insurance terms like HMO, PPO, POS, IPA, copayment (abbreviated as co-pay) or coinsurance, etc certainly would. This blog post to describe all health insurance terms in one place.
Why Am I Writing This?
Why is this blog post needed in a world with Wikipedia? Well, for one tests show Wikipedia is getting too complex. NBC News goes to the extent of saying that we are not smart enough to read Wikipedia articles. I personally feel the same. Secondly I think having all (at least a fairly large and growing number) health insurance terms in one place will make the reader a better informed buyer. Lastly there are more than 800 health insurance companies in The United States, so having one more blog post on health insurance terms should not be too painful. This list in not alphabetical. I am explaining the terms as they come to my mind.
The BIG List of Health Insurance Terms
Disclaimer: The terms are explained for informational purposes only. Before buying insurance consult a competent advisor/ broker. Read all relevant documents and ask questions before buying health insurance. You should also read all literature that your carrier and/or employer gives you.
Majority of health insurance plans are co-insurance plans. Co-insurance means the insured has to bear a percentage of health care cost. This percentage may be as low as 0% or as high as 30%. Let’s explain co-insurance with help of an example. Lets say the insured gets a chest x ray done for $300. Then for a 20% coinsurance plan the insured will have to pay $60 (20% of $300) out of her own pocket.
Here we are assuming that the insured has crossed her annual deductible limit.
Deductible is the big brother of co-insurance. Most health insurance plans have an annual deductible. This is the amount you have to pay out of your own pocket before health insurance benefits kick in. Let’s take an example of John who has purchased a PPO health insurance plan with an annual deductible of $1000. John falls sick and visits a general physician who charges him $150. John has to pay this money out of his own pocket. Sorry no health insurance yet! Next John visits a pharmacy to purchase the drugs. Lets say his bill at the pharmacy is $200. John has to pay this amount of his own pocket too. So far John has paid $350 out of his pocket and his deductible balance is $650. The deductible is reset every year.
To put it simply if your annual health care bill is less than the yearly deductible then you have to pay it out of your pocket. Sorry, but that is how it works.
Health Maintenance Organization (HMO)
Health Maintenance Organization or HMO is a part of managed care health Insurance plan. It is becoming popular because it costs less for the insured and whoever is paying for the insurance (usually the employer or the government). HMO is created by bringing together health care providers under a contract. Since HMO have a large number of members (Big HMOs have millions of members) the health care providers offer their service to these members at a much reduced cost. The set of all health care providers under a HMO is called a network. When a member enrolls with a HMO she chooses a personal care physician or PCP. The PCP acts as a gatekeeper and manages the member’s health care. Men can choose general practitioners, and women can choose a gynecologist as their PCP. Paediatric doctors can be chosen as PCP for children.
In this model you need approval of the PCP for medical tests, hospital visits, and visiting a specialist. If the member uses a service from outside of the network then he has to bear all the expense himself. HMOs allow emergencies to be treated outside the network. Benefits of HMO (vis-a-vis PPO) are lower premium, low out of pocket expense, and lower co-payments. Cons are a smaller network, and no coverage for out of network medical care.