Everyone needs health insurance, but few understand how it really works. A survey published in 2008 by the Department of Health and Human Services found that more than one-third of Americans ranked poorly on healthcare literacy. Since then, not much has changed. Fall 2013 data recently published in Health Affairs reveals that three out of every five consumers approached by the health insurance exchanges had trouble understanding vital insurance concepts.
It’s easy to see why. Health plan coverage and pricing structures are complex and many of the new Affordable Care Act regulations only add to the confusion. Here are few terms to help you understand your healthcare coverage better.
As they say on Project Runway, you’re either in or out, and when it comes to your healthcare network, it pays to be in. Your network is a collection of doctors, specialists and other service providers with whom your healthcare plan has a contractual agreement. Go to an “in-network” doc and you’ll receive discounts your insurance company has negotiated with the service provider. Go out-of-network and you may pay the full cost of the service without any discounts or help from your provider.
The cost of out-of-network services “varies from plan to plan and each plan’s design can be quite different,” says Robin Gelburd, president of FAIR Health, a nonprofit that promotes transparency in the healthcare field. “Beneficiaries have to be particularly cognizant in understanding what those cost-sharing formulas are.”
Coinsurance refers to the percentage of costs your health plan will cover for a particular service. Often available as 80/20 splits wherein insurance pays 80 percent of costs (including in-network discounts) of a particular service and the plan holder pays 20 percent, co-insurance rates are crucial in figuring out how much a procedure will be.
Understanding the percentage you’ll pay means little if you don’t know the total cost of the procedure, insurance discounts included, says Lynn Quincy, associate director for health reform policy for Consumers Union, the policy and action arm of Consumer Reports.
“That’s something called the ‘allowed amount,'” Quincy says. “…you [generally] don’t know the allowed amount until you get your explanation of benefits and coverage.”
If you know you’re having a procedure, Quincy recommends asking your insurance provider for an estimate of out-of-pocket costs.
The formulary attached to your healthcare plan is a list of preferred medications, usually organized by what percentage of the cost your plan will cover, says Mark Tinsey, vice president of marketing for Cigna-HealthSpring.
“[A formulary] is fairly straight-forward when it comes to generic medication,” Tinsey says. “…There is [cost] variability when you get into brand-name drugs. That is an area where I think it’s important for customers to educate themselves.”
If you’re on long-term medications, ask your provider if those drugs are covered. Those on Medicare can search for plans that cover their current prescriptions by using the plan finder tool here.
If you have Medicare Part D prescription drug coverage, that plan covers up to $2,850 in medications. Plan holders who go beyond that will be in the donut hole, a coverage gap where they won’t receive full coverage on their prescriptions. Medicare Part D holders in the donut hole pay approximately half price on brand name drugs and just over one-quarter of the price of generic medicines. Once the insurance company has been charged $4,550 in total drug charges, “then [Medicare] pays 95 percent of all their drugs after that,” says Matt Tassey, past chairman of the life insurance nonprofit, Life Happens.
But you can sidestep the donut hole, Tassey says. Individuals with limited income and resources may qualify for the Extra Help program which provides up to $4,000 annually in financial help with monthly premiums, deductibles and drug coverage. Those who don’t qualify for Extra Help can buy a Medicare Advantage plan that includes its own prescription drug coverage. Medicare Advantage plans are only available through private insurance companies.
Ancillary services is a catch-all phrase referring to tests or services your primary care doctor may order to help treat you.
“Ancillary services fall into three broad categories, diagnostic, therapeutic and custodial,” explains Tinsey. He adds that diagnostic services include screenings such as X-rays that may be necessary for diagnosing conditions, therapeutic services include treatments like physical therapy that aren’t typically delivered directly by a primary care physician, and custodial services include those designed to improve the patient’s daily life, such as nursing home care.
Many ancillary services are covered under both private and Medicare, but if you’re relying on Medicare, you’ll need to make sure that you’re using Medicare-licensed providers, says Tassey.
Many private plans and all individual plans sold through the healthcare exchange fully cover 15 services specifically designed to prevent health issues before they start. These include immunization vaccines; alcohol, depression and diet counseling; and screenings for everything from diabetes to HIV. A full list of preventive services is available here.
Consumers should be aware that preventive screenings that are fully covered by insurance are different from medical treatments which may have a different pricing structure, says Gelburd.
Gelburd encourages plan holders who are getting preventive screenings to ask their doctors about potential treatment options in case a screening were to reveal a particular health issue, and the costs associated with that treatment.