6 Health Terms Most People Get Wrong — Do You?
Start with these 6 terms to understand the basics of healthcare benefits.
Health insurance can feel complex, especially with all the unique jargon used in the industry. As a small business owner, it’s essential to understand key health insurance terms, especially if you’re responsible for selecting plans for your employees. Terms like premium, deductible, maximum out-of-pocket, pre-existing condition, co-payment, and co-insurance are critical when evaluating and choosing the right health coverage.
In this blog, we’ll break down each of these common terms and provide clear examples to illustrate how they work in practice.
1. Premium
The premium is the amount you or your business pays on a regular basis to maintain health insurance coverage. This is usually a monthly payment and must be paid regardless of whether you or your employees use any healthcare services.
Example: If your health plan has a premium of $300 per month, you pay this amount to the insurance company every month to keep the policy active. Whether you go to the doctor or not, the premium is a fixed cost that ensures your coverage stays in place.
“A deductible is the amount you need to pay out-of-pocket for healthcare services before your insurance plan begins to cover costs.”
2. Deductible
A deductible is the amount you need to pay out-of-pocket for healthcare services before your insurance plan begins to cover costs. Once you’ve paid enough medical bills to meet the deductible, the insurance company will start sharing costs for covered services, although you might still have co-pays or co-insurance to cover.
Example: If your plan has a $2,000 deductible, you’re responsible for paying the first $2,000 in healthcare costs each year. For instance, if you have a medical procedure that costs $3,000, you will pay the first $2,000. After that, your insurance will help cover the remaining $1,000, depending on other terms of your plan.
3. Maximum Out-of-Pocket
The maximum out-of-pocket is the highest amount you will pay for covered healthcare services during a policy year. This includes your deductible, co-pays, and co-insurance. Once you reach this limit, your insurance covers 100% of the costs for the rest of the year.
Example: If your plan’s maximum out-of-pocket limit is $5,000, you will only be required to pay up to that amount in a given year. So if you’ve paid $2,000 in deductibles and another $3,000 in co-pays and co-insurance, you’ve hit your maximum out-of-pocket. For the remainder of the year, your insurance will fully cover any additional medical expenses.
4. Pre-Existing Condition
A pre-existing condition refers to any medical issue or health condition that existed before enrolling in a new health insurance plan. Some health insurance plans used to be able to deny coverage or charge higher rates for pre-existing conditions, but under current law, ACA plans cannot refuse coverage based on these conditions.
Example: If an employee has asthma before enrolling in your company’s health plan, asthma would be considered a pre-existing condition.
“Once you reach your maximum out-of-pocket limit, your insurance covers 100% of the costs for the rest of the year.”
5. Co-Payment (Co-Pay)
A co-payment (often called a co-pay) is a fixed amount you pay for a healthcare service at the time you receive it. Co-pays often apply to services like doctor visits or prescription medications. They are typically due at the time of service and don’t count toward your deductible but do count toward your maximum out-of-pocket.
Example: If your plan includes a $30 co-pay for a doctor’s visit, you’ll pay $30 out-of-pocket when you see your doctor. Even if the full cost of the visit is $150, you only pay the co-pay amount, while your insurance covers the rest.
6. Co-Insurance
Co-insurance is the percentage of healthcare costs that you are responsible for once you’ve met your deductible. Instead of a fixed amount like a co-pay, co-insurance represents a share of the overall cost of a service.
Example: If your plan has 20% co-insurance, and you’ve already met your deductible, you will be responsible for 20% of any covered healthcare expenses, while the insurance company covers the other 80%. For a $1,000 medical procedure, you’d pay $200 (20% of the total cost), and your insurance would cover the remaining $800.
Conclusion
Understanding basic health insurance terms such as premium, deductible, maximum out-of-pocket, pre-existing condition, co-payment, and co-insurance can help you make more informed choices for your small business and your employees. Having clarity on these terms ensures that you’re aware of how much you’ll be paying for health insurance and what kind of coverage you and your employees can expect.
By breaking down these terms and knowing how each factor contributes to overall healthcare costs, you can better compare different plans, manage your budget, and explain these concepts to your team, ensuring that everyone has a clear understanding of how their insurance works. Empowering yourself with this knowledge will allow you to select a plan that best meets the needs of your workforce and contributes to the well-being of your company.
