About Health Insurance

Everything You Need to Know About Health Insurance for 2015 and Beyond

We take an in-depth look at health insurance in the US, including how it works, what key health insurance terms mean, and how ObamaCare changes things.

We touch on every detail you need to know to understand the complex gateway to health care in the US we call health insurance. This page will function like a big cheat sheet on what you need to know about health coverage under the ACA, but of course the subject is so vast we won’t go into detail on each point, so make sure to follow links for more information.

Below we will look at everything from the history of insurance in the US, how insurance works, to how to get it, how to get assistance on it, how to choose the right plan, what all the jargon means, and how your coverage works once you have it.

Summary of How Health Insurance Works

Health insurance requires you to pay a monthly premium and cover your share of out-of-pocket medical costs (like copays) on covered services.  Once your annual deductible is met, your insurance plan kicks in and it pays it’s share of costs (coinsurance) for covered services. If you reach your out-of-pocket maximum your plan will cover all covered expenses. It’s important to understand that health coverage is based on policy periods, so you’ll have to meet all deductibles and maximums each policy period. Also, health insurance only pays the full amount on covered in-network services. Out-of-network services or services that aren’t considered “covered services” may be subject to different rates.

That is the gist of things, get the details below or watch the following video for a more detailed explanation or check out our section on how health insurance works.

Health Insurance Defined

In the United States, health insurance is any program that helps pay for medical expenses, whether through privately purchased insurance, publicly funding programs like Medicaid and Medicare, or mixed method such as with ObamaCare’s subsidized marketplace insurance.

Synonyms for this usage include “health coverage,” “health care coverage” and “health benefits.”

Health Insurance, Health Care, and ObamaCare.

When we are talking about health insurance we aren’t just talking about “ObamaCare” (the Affordable Care Act) and we aren’t just talking about health care, we are talking about all methods of private and public coverage in the US. Below are the basic differences between health insurance, health care, and the Affordable Care Act.

Health Insurance: Any program that helps pay for medical expenses.

Health Care: Any program that administers care.

Affordable Care Act: A law that reforms public and private health insurance, and improves some aspects of health care in the US.

Health Insurance in the US

In the US, under the Affordable Care Act, health insurance is a mix of private and public coverage options with mostly private health care options. This system is supported through consumer purchases, taxes, mandates, and subsidies.

Types of Health Coverage in the US

In the US we have many types of public and private health insurance that all follow slightly different sets of rules and regulations.

The common types of private coverage include:

Private health insurance inside marketplace: Insurance purchased through the Health Insurance Marketplace (HealthCare.Gov or your state’s Marketplace), typically with publicly funded cost assistance.

Private health insurance outside marketplace: Coverage through a plan purchased by an individual from a private company outside of the health insurance marketplace.

Employer based insurance: Coverage offered through one’s own employment or a relative’s. It may be offered by an employer or by a union. Employer based coverage may be obtained using tax credits and other forms of public assistance.

The common types of public coverage include:

Medicare: A Federally funded social security program in the US that provides basic health coverage to all seniors 65 and older and for certain people under 65 with long-term disabilities. Original Medicare includes Part A as well as Part B for a monthly premium based on income. Medicare also includes a number of supplemental options. These options are provided by private companies and have additional costs and rules.

Medicaid: A program administered at the state level, which provides medical assistance to the needy. Families with dependent children, the aged, blind, and disabled who are in financial need are eligible for Medicaid. It may be known by different names in different states. Each state sets it’s own eligibility guidelines. In general Medicaid provides coverage to each states poorest with a mix of federal and state funding. However Medicaid is expanded under the ACA.

CHIP: A program administered at the state level, providing health care to low-income children whose parents do not qualify for Medicaid. CHIP may be known by different names in different states. The CHIP program may also be known by its former name, the State Children’s Health Insurance Program (SCHIP).

TRICARE, VA, Indian Health Service (IHS), state specific plans, and other Government health insurance types.

A Tiered Health Care System

Although since the signing of the Affordable Care Act all plans must offer minimum benefits and cost sharing, in the US the quality of care you get depends largely on how much you can pay. In general, plans with higher premiums have less out-of-pocket costs, better drug and doctor networks, and provide a wider array of covered treatment options. Those who cannot afford coverage either must go without health insurance or get access to Medicaid which provides little more than essential treatments. Other health reform options discussed in the U.S. have included a single payer system and a voucher based system.

The History of Health Insurance in the US

The history of health insurance in the US can be traced back to the 1800s and includes the rise of employer based coverage during WWII, a century of failed reform attempts, resistance from the AMA, the establishment of Medicare and Medicaid under LBJ, and the Affordable Care Act under President Barak Obama. Below we go into some detail to help you understand how we went from a fee-for-service, to an insurance based system.

“Although the history of insurance in the US goes back to the early 1800s health insurance is perhaps best traced back to the late 1800s when the first sickness insurance was offered. Although insurance existed it was something limited to mostly employers and functioned more like workers comp. Until the early 1920’s most health care was a fee-for-service business model where patients were expected to pay all other health care costs out of their own pockets.

During the 1920’s hospitals started offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations in the 1930s. The first employer-sponsored hospitalization plan was created by teachers in Dallas, Texas in 1929. Because the plan only covered members’ expenses at a single hospital, it is also the forerunner of today’s health maintenance organizations (HMOs).

In the 1930s, The Roosevelt Administration explored possibilities for creating a national health insurance program, while it was designing the Social Security system. But it abandoned the project because the American Medical Association (AMA) fiercely opposed it, along with all forms of health insurance at that time.

President Harry S. Truman proposed a system of public health insurance in his November 19, 1945, address. He envisioned a national system that would be open to all Americans, but would remain optional. Participants would pay monthly fees into the plan, which would cover the cost of any and all medical expenses that arose in a time of need. The government would pay for the cost of services rendered by any doctor who chose to join the program. In addition, the insurance plan would give a cash balance to the policy holder to replace wages lost due to illness or injury. The proposal was quite popular with the public, but it was fiercely opposed by the Chamber of Commerce, the American Hospital Association, and the AMA, which denounced it as “socialism.”

Then during WWII employers began to offer employee health insurance, and this helped to create the insurance industry we know today.

Federally imposed wage and price controls prohibited manufacturers and other employers from raising wages enough to attract workers. When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased offers of fringe benefits, especially health care coverage, to attract workers.  Public sector employers followed suit in an effort to compete.  By 1958, 75% of Americans had some form of health coverage

In the 1960’s Medicare and Medicaid were created as a public option for healthcare for our poorest and seniors (about half of whom weren’t covered at the time), however the rest of Americans would continue to rely on a insurers to pay for their coverage. This created a system where about 80% of folks can get coverage, but quality of coverage is based on ability to pay.

The health care reform debate continued through the following administrations including a failed attempt by the Clintons and many attempts at a universal single-payer system. Finally the Affordable Care Act was passed to address the growing health care crisis and large number of uninsured.

Other reforms include supplemental Medicare options.”

Above history of health insurance in the US paraphrased from Wikipedia.

The Health Care Crisis

“The health care crisis” is half buzz word half reality. The truth of the matter is the rising healthcare costs and the amazing percentage of our economy the nearly 3 trillion dollar system comprises, paired with the nearly 40 million uninsured, is a big problem (aka crisis).

Every year insurance gets more expensive for individuals and small businesses with premiums raising faster than inflation, this means two things: 1) Many go uninsured 2) Many go under-insured.

Being under-insured comes from the fact that our system bases quality of care on quality of insurance, and quality of insurance is based on ability to pay. In short insurance was getting more expensive, but peoples ability to afford it was not scaling at the same rate, this was leading to more and more people lacking proper care over time.

Folks lacking proper affordable coverage has continued for over a century with few significant reforms aside form Medicare, Medicaid, and the Affordable Care Act. Medicare helped get the half of seniors who went without insurance coverage, Medicaid has helped insure our nations poorest, and the Affordable Care Act provides assistance to Medicare, Medicaid and the “middle-class”. While the ACA does a lot to curb the issues related to the healthcare crisis, the law alone arguably isn’t enough to address all the issues with health insurance and health care in the US.

health insurance

Next Steps for Health Care Reform

As of today the Affordable Care Act (ACA) is the law of the land, but our country is being pulled in two directions politically (and has been in regards to healthcare for the past century).

On the right side we have a attempts to keep insurance and care private by eliminating the Affordable Care Act and opting for only key regulations and perhaps a type of voucher system.

On the left we have a push for a single payer “Medicare-for-all” system. In many ways the ACA can be seen as a compromise of these two ideologies since it embraces both private and public insurance options and has a focus on a mix of individual and shared responsibilities.

Health Insurance and the Affordable Care Act

Going over everything the Affordable Care Act does on this page would be tedious. Suffice to say our website provides a comprehensive overview of almost every aspect of the law. However below are a few bullet points with links to help you understand key provisions that improve and change health insurance and health care in the US.

Note: Going over these reforms in bullet-points hardly does justice to the fact that some of these changes were fought for tooth and nail over the past century to protect Americans. In 2014 alone over 15 million uninsured got insurance under the Affordable Care Act, many with cost assistance that allowed them to afford coverage for the first time.

• New Health Insurance Marketplaces (AKA Exchanges) allow shoppers to compare Health Plans that include all new benefits, rights and protections.

• Cost assistance to individuals, families and small businesses through the marketplace.

• Medicaid eligibility is expanded in 26 states to 138% of the federal poverty level giving millions of Americans access to healthcare.

• No annual or lifetime limits on healthcare.

• All major medical insurance is guaranteed issue, meaning you can’t be denied coverage for any reason.

• Insurance companies can’t drop you when you are sick or for making a mistake on your application.

• You can’t be denied coverage for pre-existing conditions.

• You have the right to quickly appeal any health insurance company decision.

• You have the right to get an easy-to-understand summary about a health plan’s benefits and coverage.

• Young Adults can stay on their parent’s plan until 26.

• A large improvement to women’s health services.

• Reforms to the healthcare industry to cut wasteful spending.

• Better care and protections for seniors.

• All marketplace plans have a maximum out-of-pocket cost of no more than $6,600 for an individual and $13,200 for a family for 2015.

• New preventative services at no-out-of pocket costs.

• Essential health benefits like emergency care, hospitalization, prescription drugs, and maternity and newborn care must be included on all non-grandfathered plans at no out-of-pocket limit.

• You can’t be charged more based on health status or gender.

• Plus many more benefits, rights and protections.

The Fee for Not Having Health Insurance

As of 2014 you must either obtain and maintain minimum essential coverage , get an exemption, or pay a per month fee for every month you go without health insurance. This is part of the ACA’s shared responsibility provision and is commonly referred to as the “individual mandate“.

Your tax penalty (shared responsibility fee) for not having insurance is paid on your federal income taxes at the end of the year. If your taxable income is below 133% of the federal poverty level you are exempt from this tax.

2014 = $95 per adult and $47.50 per child per year | or 1% of your income (whichever is greater)
2015 = $325 per person and $162.50 per child per year | or 2% of your income (whichever is greater)
2016 = $695 per person and $347.50 per child per year | or 2.5% of your income (whichever is greater)
2017 = Tax Penalty will increase by the rate of inflation going forward | or 2.5% of your income (whichever is greater)

Learn more about the individual mandate.

Minimum Essential Coverage and Health Insurance

It’s important to understand that only certain types of insurance will protect you from the fee, this is called minimum essential coverage. Minimum essential coverage includes the most common types of public and private major medical insurance and only excludes a few supplemental options, typically those found outside of Open enrollment.

Minimum essential coverage includes the following types of health insurance:

  • Employer-sponsored coverage (including COBRA coverage and retiree coverage)
  • Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace (also known as an Affordable Insurance Exchange)
  • Medicare Part A coverage and Medicare Advantage plans
  • Most Medicaid coverage
  • Children’s Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans Administration
  • Coverage provided to Peace Corps volunteers
  • Coverage under the Non-appropriated Fund Health Benefit Program
  • Refugee Medical Assistance supported by the Administration for Children and Families
  • Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
  • State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)

The following types of health insurance are not minimum essential coverage:

  • Short Term Health Plans
  • Fixed Benefit Health Plans
  • Supplemental Medicare like Part D and Medigap
  • Some Medicaid covering only certain benefits
  • Vision only, Dental only, and limited benefit plans
  • Grandfathered Plans (You will avoid the fee, but won’t get the new rights and protections)

Health Insurance Open Enrollment

Every type of health insurance has it’s own open enrollment periods where you can enroll, switch plans, and verify info. Outside of open enrollment you cannot typically obtain minimum essential coverage without qualifying for a special enrollment period. Below is a quick overview of open enrollment periods:

Private insurance inside and outside the marketplace: Nov 15 – Feb 15 each year for major medical, outside of open enrollment you can only find short term plans unless you qualify for special enrollment.

Medicaid and CHIP: 365 days a year.

Medicare: Medicare is generally the 7 month period surrounding your 65th, with supplemental becoming available when you enroll in Part B. Beyond that there are lots of rules, so see Medicare enrollment for details.

Employer: Depends upon company and hire date.

Other: See Open enrollment

How to Get Health Insurance

There are a number of ways to get covered including private insurance inside and outside of the marketplace, employer sponsored coverage, Medicare, Medicaid, CHIP, and more. Aside from traditional ways to get covered the Affordable Care Act also includes a new private option, the health insurance marketplace.

Paper applications and the telephone: The federal government created paper applications you can use to find out whether you qualify for government programs like Medicaid, or for tax credits that help cover the cost of private insurance premiums. You can also sign up for the marketplace by mailing in an on-line application (read these instructions first). The marketplace help line is available for 24/7 assistance (800) 318-2596.

Navigators and other in-person assistance: The health-care reform law created new types of workers whose job it is to help people apply for financial assistance, insurance and government benefits like Medicaid and the Children’s Health Insurance Program. These assisters can’t charge for their services, can’t take money from insurance companies and must show consumers all their options. Contact information for such organizations is available here LocalHelp.Healthcare.gov. While HealthCare.gov remains faulty, navigators and others can still get you started and follow up with you later about completing the process.

State Medicaid offices: If your income is low enough, you and your children may qualify for Medicaid or the Children’s Health Insurance Program, either under the existing rules or via ObamaCare’s Medicaid expansion. Eligibility rules vary widely from state to state. The federal government provides links to state Medicaid agencies on HealthCare.gov.

Medicare.gov: If you are 65 years or older you’ll get your health insurance through Medicare.

Health insurance companies: Insurers commonly allow sales through their websites and call centers. Consumers can review a list of what insurance companies and plans are available in their states — and even the average prices — via a section of HealthCare.gov that’s working.

Web-based insurance brokers: Not to be confused with the government-run exchange websites, these private companies offer some of the same conveniences, like the ability to compare multiple plans on price and benefits. Vendors including eHealthinsurance, GoHealth and GetInsured are approved to allow shopping and enrollment through the federally run health insurance exchanges. These brokers are paid by insurance companies, so consumers aren’t charged a fee.

Employer Sponsored Coverage: If your employer offers coverage you should get health insurance through them. Under the Affordable care Act employers must cover at least 50% of your costs and your premium can’t cost more than 9.5% of your families income.

The Health Insurance Marketplace

Although there are many options for getting covered, for anyone making under 400% of the Federal Poverty Level (FPL) your best bet will be to use the health insurance marketplace during open enrollment. Cost assistance can be obtained through the marketplace that includes assistance on premiums, out-of-pocket costs, and access to Medicaid and CHIP.

See our section on understanding plan types for plans sold on the Marketplace.

Health Insurance Cost Assistance

In order to make insurance affordable for more people the Affordable Care Act both provides cost assistance and expands access to Medicaid (in states that choose to participate). Let’s talk a quick look at cost assistance subsidies and Medicaid Expansion.

Cost assistance:

During open enrollment Americans making under 400% of the federal poverty level (FPL) can get a type of subsidy called premium tax credits. Tax credits lower premium costs. Those making less than 250% FPL can get cost sharing reduction subsidies to lower out-of-pocket costs. Those making less than 138% FPL (in some States) may be eligible for Medicaid (which subsidizes both premiums and cost sharing). Subsidies are only available through their State’s health insurance marketplace.

The best way to find out if you are eligible for a subsidy is to simply apply for your State’s marketplace.

Medicaid Expansion:

Medicaid Expansion expansion expands Medicaid to our nations poorest in order cover nearly half of uninsured Americans. The law previously required states to cover their poorest or lose federal funding to Medicaid (federal funding covers 90-100% of state costs) until the supreme court ruling on ObamaCare. State’s can now opt-out of Medicaid Expansion leaving millions of poor working families without coverage. CHIP is also expanded under the ACA.

FACT: Today only 26 states have decided to expand Medicaid leaving 5.7 million Americans without coverage.

Ways to Get Health Insurance and Types of Plans

Now that we have a basic understanding of health insurance definitions let’s take a look at the ways to get health insurance and types of plans you can get.

Health Insurance Marketplace:

The health insurance marketplace sells 5 levels of plans nick named “metal plans”, they include:

Actuarial value

Before you read this section it is very important that you understand actuarial value.  Actuarial value is the average amount a plan will pay for covered services for everyone using the plan, it is not what the plan will pay you specifically.  Premiums and costs not covered by your plan don’t factor into determining actuarial value, only costs insurers pay count.

Types of Metal Plans

Each metal plan has a minimum average actuarial value which can be used to tell how good a plan is, what type of subsidies it qualifies you for based on income, and if it provides minimum value.

NOTE: All plans have a maximum out-of-pocket cost no more than $6,350 for an individual and $12,700 for a family and must provide at least ten essential benefits as part of their covered benefits.

1. Bronze plans split covered expenses 60-40 on average.

Bronze plans are the cheapest plans.  All employer plans and non-catastrophic marketplace plans must provide at least the value of a bronze plan.

For a Bronze plan with 60% actuarial the insurer will, on average, pay 60 % of covered health expenses while the policy holder must come up with the other 40%. In other words a plan with 60% actuarial value covers 60% of out-of-pocket costs on average for all policy holders, not just you.

Bronze plans have the most basic benefits and most limited networks of doctors and hospitals.  The actuarial value reflects this since that percentage is determined by the average expenses your insurer will have.

A Bronze plan is a good choice for those who don’t plan on using many medical services.  Many low-income Americans may qualify for free or very low-cost Bronze plans.  That being said in many cases a Silver plan will provide better value as Bronze plans won’t qualify for Cost Sharing Reduction subsidies (CSR).  You will be getting a low premium in exchange for the fact that you will pay more out-of-pocket and have a more narrow network.

More than 50% of all medical costs are incurred by a very few unfortunate people.  Since your deductible will be high and all plans have the same maximum limits on the amount you can pay in a year, most of the costs you pay for a Bronze plan will go to the unfortunate people who get cancer or have a bad accident and reach their cost sharing limit.

2. Silver plans split covered expenses 70-30 on average.

Silver plans are “the marketplace standard” meaning that premium caps are based on the cost of Silver plans. A Silver plan on the marketplace can’t cost more than 9.5% of your income if you make less than 400% of the Federal Poverty Level (FPL) due to Advanced Premium Tax Credits. The less you make, the lower your premium cap is.

Like Bronze Plans, the actual value of Silver plans can range.  They simply must have at least a 70% actuarial value.

Silver plans are the only plans eligible for Cost Sharing Reduction subsidies (CSR)

A Silver level plan is a good choice for individuals and families who have access to marketplace subsidies, especially CSR subsidies.  If you make below 250% FPL the chances you won’t find your best plan to be a marketplace Silver plan is slim.  Go with an HMO when in doubt, you’ll need referrals, but this will be your cheapest option.  Like with any other plan, make sure your medical needs are covered in-network.

3. Gold plans split covered expenses 80-20 on average.

Gold plans cost a little more, but the lower deductibles and better out-of-pocket cost sharing coverage means that families won’t have to worry about health care costs stopping them from their families getting the care they need. Even if your premium is capped you’ll have to pay more to make up the difference if you want a gold plan.

Gold plans are smart for those who don’t get CSR subsidies and need the low deductible and robust networks some gold plans provide.

4. Platinum plans split covered expenses 90-10 on average.

Platinum plans have the lowest out-of-pocket costs and the highest monthly premiums. This is the right choice for anyone who wants “the best coverage” for them and their family and is a smart buy for those who are sick or who have dependents who are likely to use costly health services. Even if your premium is capped you’ll have to pay more to make up the difference if you want a Platinum plan.

Platinum plans only make sense if your total medical spending will exceed the amount you will pay in premiums or if you need very specific treatments.

5. Catastrophic Coverage

Catastrophic coverage is available to some people under 30 and those with hardship exemptions. Catastrophic plans only cover the bare minimum health benefits and has a very limited network. You’ll have high out-of-pocket costs and a high deductible but this type of plan will protect you in a worst case scenario and will ensure that you avoid paying the shared responsibly fee for not having health coverage. If you get a catastrophic plan you should assume most of your medical costs will be out-of-pocket.

NOTE: You can also get covered through Medicaid on the marketplace.  As a rule of thumb if you make less than 250% FPL a Silver plan is the way to go, if you make less than 138% and your state expanded Medicaid then you’ll go with Medicaid.

Outside the Marketplace:

Outside the marketplace you can shop for most plans offered through the marketplace in your area and plans not offered on the marketplace. Plans not offered on the marketplace are broken down into two basic types major medical and short term. Major medical coverage sold after 2014 is always minimum essential coverage that protects you from the fee and must offer at least the benefits of a bronze marketplace plan while short term won’t protect you from the fee and doesn’t have to follow the rules of the ACA.

Public Insurance:

Public insurance includes Medicaid, CHIP, and Medicare. While Medicaid and CHIP are pretty standard and based on your region, Medicare includes a number of supplemental options.

Supplemental Medicare:

Medicare often doesn’t cover all the medical needs of seniors in an affordable way, given this supplemental insurance is available from private companies.

Group Health Plans:

Insurance obtained through an employer or other type of group follows a slightly different set of rules than non-group health insurance. The specifics of those rules depends on where you get the coverage.

Insurance Plan Types and Medical Savings Accounts

There are four types of health insurance plans: Health Maintenance Organizations (HMOs), Participating Provider Options (PPOs), Exclusive Provider Organizations (EPOs), and Point of Service (POS) Plans. Consumer Directed Health Plans (CDHPs) can be paired with Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or, on some grandfathered plans, Archer Medical Savings Accounts (MSAs); allowing employers, employees, or self employed individuals to contribute tax free dollars towards their medical expenses.

FACT: A PPO doesn’t require that you get a referral from a doctor before getting treatment from out-of-network like an HMO. Regardless of your plan, if you get services out of network you will have to pay more for them.

Insurance Plan Types

HMO Health Maintenance Organization plans often offer the best pricing & the least flexibility. They serve up lower prices by limiting your care to the doctors, clinics & hospitals within the HMO’s network. HMOs require you to choose a primary care physician (PCP) who coordinates your health care & provides you referrals before you are able to get treatment from other network providers or specialists. If you go out outside the network your services won’t be covered except treatment for medical emergency.

PPO Preferred Provider Organization plans offer networks of doctors, hospitals & clinics that are deemed “preferred providers.” Go to them for treatment & you get lower rates negotiated by the insurance company. However, PPOs provide more flexibility than HMOs because they allow you to seek care outside the network, but doing so will likely cost you more in deductibles & co-pays. Unlike HMOs, PPOs don’t require you get a doctor referral before you see a specialist. Many of the plans, do require prior approval for certain expensive services.

POS Point of Service plans can reduce your out-of-pocket costs by choosing providers in the network — or you can seek services outside the network and pay more. It’s your choice. The exact definition varies from one state to another. Many POS plans are more like a HMO in that they require you to choose a PCP and get referrals for specialist care. Some even cover higher costs if your PCP decides to refer you to an out of network specialist.

EPO Exclusive Provider Organizations plans offer a managed care plan where services are covered only if you go to doctors, specialists, or hospitals in the plan’s network (except in an emergency).

ADVICE: Consider the tax benefits of using one of the health savings accounts below. Make sure you understand limits on the accounts & periods in which you must use the funds if applicable.

Types of Health Savings Accounts

FSA Flexible Spending Account. FSAs are set up through an employer plan & they allow you to set aside pre-tax dollars for certain health and dependent-care needs. For example, the money can be used to pay for deductibles, prescription co-pays and other treatments not covered by your insurance. A big downside for many: whatever you don’t use by the end of your company’s benefits year will be forfeited. Check with your employer’s Human Resources department for specifics on their FSA. They can provide a list of FSA-qualified costs that you can purchase directly or be reimbursed for. A few common FSA-qualified costs include:

  • Copays for medical treatments & doctor visits,
  • Hospital & doctor fees for medical tests & services (for example, X-rays & cancer screenings).
  • Physical Rehabilitation.
  • Dental & Orthodontic expenses (like cleanings, fillings, or braces).
  • Inpatient treatment for alcohol or drug addiction
  • Vaccines (immunizations) & flu shots.

HSA Health Savings Account. HSAs are tax-preferred savings accounts available to those enrolled in health plans. Employers & employees are allowed to contribute to them. HSAs allow you to set aside tax-free dollars to pay for routine, out-of-pocket health expenses. You also pay no federal taxes on interest earned by your HSA as long as you use the money to pay for eligible medical expenses, as defined by the IRS. Dental & vision are included.Unlike an FSA, HSA funds roll over annually & accumulate, even if an employee changes jobs. The accumulated funds can be removed for non-eligible expenses, but then will be subject Federal Income Tax and 20% penalty. Once an individual qualifies for Medicare these accumulated funds can still be used tax free for medical expenses Medicare doesn’t cover or can be used like an IRA or 401k (however you’ll still have to pay taxes on this, but no penalty). In addition, should a person decide they no longer want to use a high-deductible health plan, these funds can usually be rolled into an IRA retirement account without facing taxes.

MSA “Archer” Medical Savings Account. The Archer MSA was intended to be used by self-employed individuals & small businesses with fewer than 50 employees. The plan is entirely self-directed, including its initial setup & compliance with the plan thresholds. It works very closely to HSAs & have been replaced by HSAs since 2007, however some grandfathered plans may still use MSAs that have been “left open”.

The Importance of Networks

Probably one of the biggest complaints people have once they start using their insurance is that the drugs they need aren’t covered or the doctor they want to see is covered by their plan. This is due to the fact that every plan has a different coverage network (PPO tend to have wider networks than HMOs). Sometimes cheaper plans (those that are very cheap with subsidies or Medicaid), especially in areas with big populations and not enough providers, may offer narrower networks. However, cheaper plans may simply offer better cost sharing, with the same networks. When shopping for insurance you must consider:

Network: The facilities, providers and suppliers your health insurer or plan has contracted with to provide health care services.

Drug Formulary (Drug list): A list of prescription drugs covered by a prescription drug plan or another insurance plan offering prescription drug benefits. Also called a formulary.

Covered Treatments: The health care items or services covered under a health insurance plan. Covered benefits and excluded services are defined in the health insurance plan’s coverage documents. In Medicaid or CHIP, covered benefits and excluded services are defined in state program rules.

The covered benefits of your plan and what doctors, drugs, and treatments are available under that plan are available via a standardized benefit sheet for each plan. If you have a plan that doesn’t provide the coverage you need we advise you to switch to a different plan during your open enrollment period.

The Importance of Cost Sharing

As a rule of thumb the cheaper the plan, the less your insurer has to pay for your services, the more you have to pay out of pocket before services are covered, and the more narrow your network will be. All of these cons are weighted only by the fact that your premium will be lower and the fact that all major medical plans have basic rules in regard to what benefits and cost sharing must be included. If you predict you will be using your health insurance regularly or will have a fair amount of medical needs you could spend less and get much better care by picking a plan with a higher premiums, better cost sharing, and a wider network.

Health Insurance Terms Defined

Understanding health insurance terms like HMO, drug formulary, actuarial value, etc is the key to getting the right health coverage. If you have ever shopped health plans you know that they are both numerous and confusing. The truth is most private major medical insurance and all public insurance is heavily regulated and prices are tightly controlled by region. As such, it getting the best deal boils down to understanding your medical needs and your plans costs and coverage.

By familiarizing yourself with the following health insurance terms and understanding how they relate to your health care you’ll have most of the knowledge you need to make the right health coverage choices for you and your family. The following definitions are from medmutualhealthcare.gov, and ObamaCareFacts.

Actuarial Value The percentage of total average costs for covered benefits that a plan will cover for all participants. For example, if a plan has an actuarial value of 70%, on average, you would be responsible for 30% of the costs of all covered benefits. However, you could be responsible for a higher or lower percentage of the total costs of covered services for the year, depending on your actual health care needs and the terms of your insurance policy.

Advanced Premium Tax Credit The Affordable Care Act provides a new tax credit to help you afford health coverage purchased through The Marketplace. Advance payments of the tax credit can be used right away to lower your monthly premium costs. If you qualify, you may choose how much advance credit payments to apply to your premiums each month, up to a maximum amount. If the amount of advance credit payments you get for the year is less than the tax credit you’re due, you’ll get the difference as a refundable credit when you file your Federal Income Tax Return. If your advance payments for the year are more than the amount of your credit, you must repay the excess advance payments with your tax return.

Allowed Amount The amount that an insurer has agreed to pay its network providers for a service. This is often a fraction of the “list price” for that service and is the maximum you will pay if you go to an in-network provider.

Benefit Period A benefit period is the length of time during which a benefit is paid. It also defines the time when benefit maximums, deductibles & coinsurance limits build up. It defines the number of a specific treatments you may be allotted in a given time period. It has a start & end date. It is often one calendar year for health insurance plans. Although many essential treatments have no life-time or annual dollar limits, non-essential benefits may still be subject to benefit periods. In addition, at the end of each period your deductible & out-of-pocket maximums will be reset.

Coinsurance Your share of the costs of a covered health care service, calculated as a percent (for example, 20%) of the allowed amount for the service. You pay coinsurance plus any deductibles you owe. For example, if the health insurance or plan’s allowed amount for an office visit is $100 and you’ve met your deductible, your coinsurance payment of 20% would be $20. The health insurance or plan pays the rest of the allowed amount.

Coinsurance Limit (or Maximum) The maximum amount you will pay in coinsurance costs during a given benefit period.

Condition An injury, ailment, disease, illness, or disorder diagnosis.

Contract The agreement between an insurance company & the policy holder.

Copayment (AKA Copay) A fixed amount you pay to a healthcare provider at the time you receive medical services. You may have to pay a copay for each covered visit to the doctor or facility providing services, depending on your plan. Not all plans have a copay.

Cost Assistance Help paying your medical costs, commonly in the form of subsidies through the Health Insurance Marketplace or in the form of a publicly funded program like Medicaid or Medicare.

Cost Sharing The part of costs for medical services that you have to pay for “out of your own pocket”. It includes deductibles, co-payments and coinsurance.

Cost Sharing Reduction A discount that lowers the amount you pay out-of-pocket for deductibles, coinsurance, & copayments. You can get this reduction if you get health insurance through The Marketplace, your income is below a certain level, & you choose a health plan from the Silver plan category (See types of Marketplace plans in the following section). If you’re a member of a federally recognized tribe, you may qualify for additional cost-sharing benefits.

Covered Charges Charges for covered services that your health plan pay for. There may be a limit on covered charges if you receive services from providers outside your plan’s network of providers.

Covered Person/s Any person or persons covered by an insurance plan.

Covered Service A healthcare provider’s service or medical supplies covered by your health plan. Benefits will be given for these services based on your plan’s coverage.

Creditable Coverage Coverage of a person or persons under any of these:

  • A Group Health Plan. This includes church & governmental plans
  • Health Insurance Coverage
  • Medicare (Part A or Part B of Title XVIII of the Social Security Act)
  • Medicaid (Title XIX of the Social Security Act, other than coverage consisting only of benefits under Section 1928)
  • A health plans for active military personnel. This includes TRICARE
  • The Indian Health Service or other tribal related organization programs
  • A State’s health benefits risk pool
  • The Federal Employees Health Benefits Program.
  • A public health plan (defined by federal regulations)
  • A health benefit plan under section 5 (c) of the Peace Corps Act
  • Any other plan which gives complete hospital, medical & surgical services

Deductible The amount you have to pay before your plan pays it’s share of coinsurance for your covered costs. Deductibles are based on your benefit period.

Example: If your deductible is $1,000, you pay your share of out-of-pocket costs on covered services subject to a deductible until you’ve met your $1,000 deductible.  After the $1,000 deductible is met, your insurer pays the coinsurance amount on covered costs.  Once you reach your out-of-pocket maximum it pays 100% of covered costs. The deductible may not apply to all services and may not apply in full to out-of-network services.

Advice: It is important to understand that deductibles are defined differently by different plans. Some apply the deductible to all services, others only apply the deductible to services that do not have a co-payment. These plans may for example have co-payments for primary care, mental health and specialist office visits and most prescription drugs, so your plan will pay part of the cost of these services even if you have not met your deductible yet. Another plan may expect you to pay for all costs until you meet your deductible, with the copayment only applying after that point.

Also: Some plans have a separate deductible for prescription benefits. Even if you haven’t met your deductible it is important to show your insurance card: it will generally entitle you to the much lower rates that your insurance company has negotiated with that provider.

Dependent Coverage Coverage for your dependents who qualify. Emergency Medical Condition like a medical problem with sudden & severe symptoms that must be treated quickly.

Experimental or Investigational Drug, Device, Medical Treatment or Procedure These are not approved by the U.S. Food & Drug Administration (FDA) or are not considered the standard of care.

Exclusions Exclusions are medical services that the insurance policy does not cover.

Health Assessment A health survey that measures your current health, health risks & quality of life.

Inpatient Services Services received when admitted to a hospital or skilled nursing facility (nursing home), including room & board charges.

Institution (Institutional) A hospital or certain other facilities like skilled nursing facilities.

Legal Guardian The person who takes care of a child & makes healthcare decision for the child. This person is the natural parent or was made the child’s custodian or caretaker by a court of law.

Long-term Insurance A type of health insurance that covers certain services over a set amount of time (typically a 12-month period).  Intended to cover at least 6 months, as opposed to short term insurance.

Major Medical Insurance Health insurance designed to cover medical expenses due to severe or prolonged illness by paying all or most of the bills above a set amount.

Medical Care Medical Services received from a healthcare provider or facility to treat a condition.

Medically Necessary (or Medical Necessity) Services Supplies or prescription drugs that are needed to diagnose or treat a medical condition. Also, an insurer must decide if this care is:

Medicare A federal program for people age 65 or older that pays for certain healthcare expenses.

Metal Plan A type of plan sold through the health insurance marketplace. In general, the more precious the metal, the more a plan will cost, but the better the coverage & cost sharing is.

Minimum Essential Coverage The minimum medical coverage that protects you from the fee.

Non-covered Charges Charges for services & supplies that are not covered under the health plan. Examples of non-covered charges may include things like acupuncture, weight loss surgery or marriage counseling. Consult your plan for specific information about what is covered.

Non-network Provider/Out-of-network Provider A healthcare provider who is not part of a plan’s network. Costs associated with out-of-network providers are usually higher or not covered by your plan at all. Consult your insurance plan for more information about its out-of-network coverage.

Outpatient Services Services that do not need an overnight stay in a hospital. These services are often provided in a doctor’s office, hospital or clinic.

Out-of-pocket Cost Costs you must pay. Out-of-pocket costs vary by plan & each plan has a maximum out of pocket cost. Consult your plan for more information.

Out-of-pocket Maximum All marketplace plans have a maximum out-of-pocket cost no more than $6,600 for an individual and $13,200 for a family for 2015.  After you reach your maximum you are covered.

Network Provider/In-network Provider A healthcare provider who is part of a plan’s network.

Prescription Drug Any medicine that may not be given without a prescription from a doctor because of federal or a State’s laws.

Premium Payments you make to your insurance provider to keep your coverage. The payments are due at certain times.

Preexisting Conditions This is something someone had before obtaining the insurance policy. Some plans will cover pre-existing conditions while others may completely exclude them, In addition, some health insurance plans will cover pre-existing conditions after a certain time period.

Provider (Healthcare Provider) A hospital, facility, physician, or other licensed healthcare professional.

Short-term Insurance A type of health insurance that covers certain services for a set time period (6 months or less).

Urgent Care Provider A provider of services for health problems that need medical help right away but are not emergency medical conditions.

Waiting Period This is the time one would have to wait until certain coverages are available. This no longer applies to individual plans and is limited on Employer plans.  It still applies to short-term coverage.

Example: An employer’s insurer may require a waiting period of 90 days before coverage begins.

Using Your Coverage

Once you have health insurance you now have access to health care without relying on solely on your ability pay-per-service. Check out this road-map from coverage to care from cms.gov to understand how to use your health insurance now that you have it.


Understanding Health Insurance Under the ACA

Author: Thomas DeMichele

Thomas DeMichele is the head writer and founder of ObamaCareFacts.com, FactsOnMedicare.com, and other websites. He has been in the health insurance and healthcare information field since 2012. ObamaCareFacts.com is a...

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