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Breaking Down Health Insurance, One Term at a Time

If you’ve ever felt confused about health insurance, you’re not alone. Although 9 in 10 Americans have coverage in place, many still struggle to understand the basics of health insurance. 

That health illiteracy comes at a cost. People with health coverage might not use it because they don’t fully understand its inner workings. And people who lack insurance coverage might give up trying to understand an overly complex healthcare system altogether. 

At Health Karma, we work every day to make sure this doesn’t happen. That work begins with empowering people to understand health insurance and take control of their healthcare journey. 

Let’s start by getting back to basics — basic health insurance terminology, that is. 

Knowledge Gaps and the Effects They Bring 

Health insurance vocabulary is complicated. One survey found that only 29% of respondents were able to correctly define “premiums,” “copays,” and “deductibles.” Meanwhile, another study found that 59% of respondents had delayed medical appointments because they were not sure what their plan covered. 

This uncertainty impacts how people make decisions about their healthcare — and that’s a problem. As Americans opt for higher-deductible plans in exchange for lower premiums while facing rising healthcare costs, they assume heavier responsibility for their care costs. Not knowing the basics of health insurance leads to a few common questions: 

  • Which doctors take my insurance? Not knowing the network status of your provider can lead to unnecessarily high medical bills when you opt outside of your coverage network. 
  • How much will insurance pay? Coverage details can be hard to grasp. That often leads to overlooking which services are covered, to what extent they’re covered, and whether the deductible first needs to be met for that coverage to kick in. 
  • Is there an out-of-pocket cost? All too often, policyholders don’t know that their insurance may require them to pay for a portion of a healthcare service out of their own pockets. 
  • Is that a fair price? Sticker shock is common when there is a lack of understanding around the costs of even basic medical exams and services. 
  • Will I have enough to cover this? The pressures of paying high healthcare costs and the emotions associated with feeling like you can’t pay those costs can lead to an incredible amount of stress. 

Ultimately, navigating an overly complex healthcare system can leave consumers feeling stranded. Lackluster patient servicing, crippling medical bills, and a lack of trust in healthcare providers can all contribute to the overwhelming effects of health insurance illiteracy. By gaining access to accurate information and easy-to-navigate tools, consumers can better understand their insurance plans and care options to make educated decisions. 

How to be Coverage-Savvy 

It’s important for you as a policyholder to understand healthcare costs and what your health insurance means for your personal financial responsibility. Getting familiar with basic health insurance terms is an excellent first step. 

Here are some of the most important terms to know as you get started:

  • Deductibles: Think of this as a threshold. It’s the amount you’ll have to pay out of pocket in a given year before your insurance kicks in (though copays and coinsurance must also be factored in). This is likely one of the biggest healthcare expenses to cover, especially if you have a high-deductible plan. 
  • Premiums: This is the fixed rate you’ll pay for insurance each month. It’s the most straightforward expense to include in your budget, and you can think of it like you would a monthly subscription fee. Note that some employers cover all or some of your premiums, so you might not need to budget for this expense at all. 
  • Out-of-pocket maximums: Maximums vary from plan to plan, but your insurance covers 100% of the remaining costs for covered services (including copay and coinsurance) once you’ve met those maximums. Expect this expense to be significantly larger than your deductible; you’re less likely to reach your maximum unless you have a serious illness or costly injury that requires prolonged treatment. A best practice? Set aside funds for your maximum each year, then use that money to cover health expenses as they come in.
  • Copays: These are the fixed amounts you’ll pay for covered appointments, services, prescriptions, or medical equipment. They do count toward your deductible. Although they’re smaller and more routine costs, they can quickly add up.
  • Coinsurance: This is the fixed percentage you’ll pay for services like a hospital visit, even after the deductible is met. A service costing $100 with coinsurance at 20% means you’d pay $20; the insurance company would pay the remaining $80.
  • Network: Your health insurance company works with specific networks of doctors, hospitals, clinics, labs, and pharmacies. Your coverage depends on whether a practice is in that network. 

Want to know more about health insurance? Our Beginner’s Guide to Health Insurance is an excellent resource for understanding your coverage options and removing any confusion surrounding healthcare. Because at Health Karma, we believe good healthcare starts with understanding it.