How to Understand Commercial Health Insurance Policy

Commercial insurance: Health insurance is an important investment in your future, and potentially your family’s future – so understanding your policy is essential. However, there are many terms that have a specialized meaning within the insurance industry, which can make policy documents confusing. To understand your health insurance policy, you must break the information down into smaller parts to figure out exactly what costs are covered and how much you’ll have to pay out of pocket.

Commercial insurance

Read your summary of benefits. Your health insurance company is required by law to provide you with a “Summary of Benefits and Coverage.” This document explains your health insurance policy in plain language.

  • The summary includes a glossary of words and phrases that are commonly used in the insurance industry. Study this glossary to better understand the summary.
  • You also can read details using two examples, diabetes and childbirth. These examples explain what your policy would cover in either of those situations, but can be used to understand other medical situations as well. For example, you could use the diabetes example to understand how your health insurance policy would cover any chronic medical condition that requires regular treatment.
  • A summary of benefits is provided for both individual plans and for plans you get through work. You may have to ask a manager or human resources employee for a copy of your summary of benefits.

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Understand the law regarding essential health benefits. Under federal law, any health insurance policy sold either to individuals or to small businesses, including any plan purchased through the marketplace, must cover at least 10 essential health benefits. These 10 benefits include:

  • Emergency care
  • Hospitalization
  • Rehabilitation
  • Laboratory tests
  • Childbirth and newborn care
  • Treatment for mental health and substance abuse
  • Doctors and medical care outside the hospital setting
  • Health and dental services for children
  • Prescription drugs
  • Preventive care and chronic condition management

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Find out whether your doctor or hospital is covered. Each insurance plan has a network of doctors and hospitals that are covered by the policy. If your doctor or local hospital is not in the plan’s network, you may have to pay more for those services.

  • Some health insurance policies provide limited coverage for out-of-network health care providers. For example, you may only have to pay a $20 copay for doctors in your network, but 50 percent of the cost for doctors that are out-of-network.
  • Other health insurance polices provide no coverage at all for out-of-network healthcare providers.
  • You typically can find out if a particular doctor or hospital is included in your plan’s network by calling your health insurance company or checking on their website. On the website, look for a tab labeled “network” or “find a doctor.” From there you can search for the name of the doctor or hospital you want to check.
  • If you travel frequently, you may also want to check your health insurance policy to find out if it will cover any treatment you get away from home. Most health insurance networks are local, but you may have other benefits available if you’re traveling to a different state or country.
  • You also want to check limits on the number of visits your health insurance will cover, particularly if you have a chronic condition. For example, many insurance companies only cover a limited number of visits to a physical therapist, or for mental health or addiction treatment.

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Check if your medication is covered. If you take regular prescription medication for a chronic or long-term medical condition, you typically want to make sure the health insurance policy you choose will cover that medication.

  • Your health insurance company will have a list of drugs covered by your policy. The easiest way to find out if a particular drug is covered is to search for it by name on the list on your health insurance company’s website.
  • You also may be able to find out if a particular drug is covered by calling your health insurance company’s customer service number.
  • If your medication is covered, how much you’ll pay depends on your particular policy. With some plans, you only have to pay a small copay for covered medications. Others require you to meet your deductible before there is any drug coverage.

Total your premiums. Your premium is the amount of money you must pay each month for health insurance. Premiums typically are annual, but are split into 12 monthly payments for your convenience.

  • Keep in mind that you must pay your premium every month or you will lose your coverage. If you lose your coverage, you may not be able to re-enroll until the open enrollment period at the end of the calendar year.
  • Your premium won’t change over the course of the year, regardless of whether you use your health insurance.
  • If you never go to the doctor or hospital at all over the course of a year, the total amount of your premium also represents your total healthcare costs for that year.

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Distinguish between copayments and co-insurance. Copayments and co-insurance are both names for the amount you will pay for health treatment and services. However, they have differences that may dramatically affect your overall out-of-pocket costs.

  • Co-insurance payments typically go towards paying down your deductible. Copayments, however, do not.
  • Copayments typically are low payments for standard services or for prescription drugs. For example, you may have a copayment of $10 for generic drugs and $20 for brand-name drugs. This means that if your doctor writes you a prescription, you will never pay more than $20 for that medication.
  • Copayments may be better for you if you only go to the doctor occasionally, or when you are sick. However, if you have a chronic health condition that requires regular medication and treatment, you may save more money with a co-insurance plan where you pay a small percentage of your health care costs until your deductible is met, at which point your health insurance company will cover 100 percent of your expenses.

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  • To compare copayments and co-insurance, assume you have a medical condition that requires you to purchase a brand-name prescription that costs $100 every two weeks. With a plan that had a $20 copay for brand-name prescriptions, you would pay $20 every time you filled your prescription ($520 for that prescription alone over the course of a year). If you had a plan with 20 percent co-insurance, you would still pay $20 when you got your prescription filled. However, once you’d met your deductible the insurance company would cover it 100 percent. If you had a $300 deductible, you would save $220 in out-of-pocket costs with the co-insurance compared to $20 copays.

Review your deductible. Your deductible is the total amount you must pay for health care each year before your insurance covers 100 percent. A higher deductible means you’ll incur more of your health care costs during the year, but typically will pay a lower premium.

  • Generally, the lower your deductible, the higher your premium will be. For example, you may get a policy with a $5,000 deductible for $70 a month. However, if you want a policy with a $500 deductible, you must pay $300 a month.
  • If you don’t have a chronic medical condition, you may want a higher deductible to save on your annual health care costs. Keep in mind that if you rarely go to the doctor, you probably won’t meet your deductible in any given year.
  • However, if there is an emergency, you typically must pay your deductible for emergency medical and hospital care before your insurance kicks in.

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Check the maximum out-of-pocket. Maximum out-of-pocket includes both your deductible, copayments, and co-insurance payments. For any given year, this amount is the most you must spend on health care services and treatment under your insurance plan before the insurance company starts paying for 100 percent of your health care expenses.

  • The ACA sets limits for maximum out-of-pocket, which may change each year. In 2014, an individual health plan purchased through a state marketplace could not have a maximum out-of-pocket of more than $6,350 (not including premiums). Your policy will state whether it is compliant with ACA requirements.
  • Insurance companies are not required by law to include the cost of your premiums in the maximum out-of-pocket figure they give you, although some do. When you evaluate this number, make sure you know what it includes.
  • If maximum out-of-pocket does not include premiums for your health insurance policy, you may want to add the annual total of your premiums to that number to get a more accurate picture of how much you’ll actually have to pay.

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Determine if you’re eligible for a subsidy. Under the Affordable Care Act (ACA), you may be eligible for a tax subsidy that will help you pay your insurance premium each month. The law is designed to ensure that your health insurance premiums will not be more than 10 percent of your monthly income.

  • The amount of subsidy for which you are eligible depends on how much money you make each year. As an individual, you are entitled to a subsidy if you make less than $46,000 a year. For a family of four (two adults and two children), subsidies are available for incomes below $94,000 a year.
  • You can only get the subsidy benefits if you purchase an individual insurance plan through your state’s marketplace. If you make too much money to qualify for a subsidy, you may be able to find a less expensive policy by going through an insurance company directly rather than purchasing your insurance through the marketplace.

List your typical yearly medical costs. If your employer does not provide health insurance, you’ll have to choose an individual plan to get your health insurance coverage. Start by listing the medical expenses you normally incur in an average year.

  • Totaling your typical medical costs allows you to plug that information into the information you get about different plans from the summary of benefits so you can compare plans more accurately using your own information.
  • Don’t include over-the-counter drugs or other non-essential health treatments that wouldn’t be covered under your insurance plan. You’ll have to pay for those yourself anyway.
  • Rather than a dollar amount, you also may list the number of times you typically go to the doctor, and the reasons for those visits. For example, if you only go to the doctor if you’re sick, you want to assume you’re going to go to the doctor at least once or twice a year.
  • If you have a chronic medical condition that requires consistent monitoring or drug treatment, list the number of appointments you have each year and the names of the drugs you take. In that situation, you want to make sure your doctor and your regular medications are covered by any plan you choose.

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Decide what level of coverage you want. Medical coverage generally is divided into bronze, silver, and gold levels. For a gold plan, you will pay a higher premium for a lower deductible and lower maximum out-of-pocket costs. You’ll pay the lowest premium for a bronze plan, typically for less coverage and a higher deductible.

  • Silver plans typically provide the best balance in terms of coverage and out-of-pocket costs. If you aren’t sure which type of plan you need, a silver plan may be your best bet.
  • On the other hand, you may want to choose a bronze plan if you don’t have any chronic medical conditions and go to the doctor only occasionally – particularly if you have a tight budget.
  • Gold plans typically will be your best choice if you or a covered family member has a chronic medical condition such as diabetes that requires regular medical visits and treatment. Although you’ll pay a higher premium, a gold plan will cover more of your medical expenses.

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Evaluate health plan structures. Your health insurance typically will be set up as a health maintenance organization (HMO), an exclusive provider organization (EPO), a preferred provider organization (PPO), or a point of service (POS) plan. Which structure you prefer depends on how often you seek health care treatment and services.

  • With an HMO, you must select a primary-care physician (PCP), who is responsible for coordinating your general treatment plan. In most cases, you must receive a referral from your PCP for insurance to cover treatment from specialists. An HMO typically will be best for you if you don’t have a chronic health condition that requires continuing treatment from a specialist.
  • If you do have a chronic health condition, you may favor an EPO, in which your treatment plan won’t be coordinated by a PCP. With an EPO, you don’t even have to designate a PCP. However, you will pay significant out-of-pocket if you use a healthcare provider who is not in your insurance company’s network.
  • PPOs are similar to EPOs, except that they cover more out-of-network costs than EPOs do. If you have a chronic health condition and some of the doctors or specialists you see are out-of-network, you may save money with a PPO over an EPO or HMO.
  • POS plans are similar to HMOs in that you must designate a PCP. Out-of-pocket expenses typically are higher on POS plans than other plan structures if you receive out-of-network services or treatment.

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Review the covered network. If it is essential to you that you continue treatment with the same doctors or specialists, you must make sure that the plan you’re considering includes those health care providers in its covered network.

  • If you already visit specific doctors or specialists for treatment on a regular basis, you can look them up by name on the insurance company’s website.
  • You also want to look up hospitals in your area. Your health insurance will provide extensive benefits if you have to get emergency care or be hospitalized for any reason. Make sure your preferred hospital is in-network for the plan you’re evaluating.
  • To make sure all your bases are covered, you probably want to look at the number and types of in-network doctors in your area just to make sure there’s a wide selection. You can’t predict the future, so you have no way of knowing what types of health care services you may need over the course of a year, but you can make sure there are doctors available should something happen.

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Networks may change. Double-check with your health care provider when you make an appointment so you know how much you’ll have to pay.

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