Because of the Affordable Care Act (ACA), millions of Americans are now confronting the daunting challenge of picking health insurance. Millions more are considering their options during open enrollment at their jobs. But how many of us truly understand what's being offered by the insurance companies?
Insurance speak can sound like a bunch of gobbledygook. Even some of the most basic terms can be confusing.
Before you or a loved one enrolls in a new health insurance plan, you'll want to be able to answer these five questions about insurance industry terms:
1. What is a premium? While the word is also synonymous with cool things - like free stuff you might get with a purchase - a premium in the health insurance world is what the insurance company charges you for your policy. It can be paid in monthly, quarterly, or semi-annual installments, or in a yearly lump sum. Forget to pay it and you may lose your coverage.
Another thing to know about premiums is that they're only one factor to consider when searching for an affordable health care policy.
"You may find a plan with a low premiums comes with very high cost sharing," says Larry Levitt, senior vice president at the Kaiser Family Foundation. By cost sharing, he's referring to your other insurance costs, which include deductibles, copayments and coinsurance (described below).
2. What is a deductible? This is the amount you'll need to cough up during the year before your insurance coverage kicks in. Depending upon the policy you choose, the annual deductible will range anywhere from hundreds of dollars to as many as $10,000 for a family.
Usually a plan with a high deductible will have a lower premium. And if you really don't use your insurance much, this type of policy may be a good bet for you. On the other hand, if you need a lot of medical care, you may want to consider paying a higher premium for a lower deductible - and for more coverage from the insurance company for your other expenses, such as copayments.
3. What is a copayment? This is the fixed dollar amount you're required to pay for a health service, such as a doctor visit or prescription drugs. Copayments, also known as "copays," are paid to the provider at the time you get the service. For instance, you may be charged a copay of $20 to $50 each time you visit your doctor - no matter what he or she charges your insurance company. Copayments are typically made to the provider of the health service.
4. What is coinsurance? It sounds like insurance you'd share with somebody, but it's not. Coinsurance is the percentage of covered expenses you share with your insurance company for a health service. It's different from a copay in that it's not a fixed amount. For example, if your plan stipulates that your insurer pays for 70 percent of hospital stays and you pay 30 percent, the amount you end up paying will depend on how long you stay in the hospital.
5. What is actuarial value? This sounds really wonky, but it's actually a very simple concept. Actuarial value is basically a measure of a plan's generosity.
"A plan with a higher actuarial value will generally pay more for your medical care, meaning you'll pay less," Levitt says. "A plan with a lower actuarial value means they'll be paying less and you'll be paying more."
So for a plan with a 70 percent actuarial value, you'd be responsible for 30 percent of the expected medical expenses covered under the plan. Exactly how much you would end up paying can vary, depending on the terms of your policy and the way you use it.
The ACA makes figuring out the relative generosity of plans a bit easier by ranking them by their actuarial values: 60 percent for Bronze plans; 70 percent for Silver plans; 80 percent for Gold plans; and 90 percent for Platinum plans.