Understanding the Healthcare System

Health Insurance

This is the big one. Having health insurance means that an insurance company will pay for many of your medical costs (with a monthly fee, or premium). If you don’t have health insurance, you’re left with your entire doctor’s bill on your own. What type of insurance you have, and which company, can help determine which treatments are most affordable and best for you.

Insurer

The organization that provides a patient with health insurance for a monthly fee. In exchange, the insurer pays the majority of the costs for most treatments.

Provider

A general name for a doctor, clinic, or hospital.

Copayment (copay)

A small fee you pay each time you use a specific service. As an example, each trip to your primary care doctor might cost $20 up front.

Deductible

The amount of a payment that the patient must pay before the insurer will pay a claim. For instance, if your deductible was $500, and your treatment cost was $8,000, you would pay $500, and your insurer would pay $7,500.

Co-insurance

In some insurance plans, you will still pay a percentage of your costs after your deductible is met. So if you have a $3,000 deductible, you will pay all the costs until you reach that amount. If you plan has a 25% co-insurance, it means insurance will then pay 75% of your costs, while you pay the other 25%.

Premium

The monthly amount you pay for your health insurance plan.

In-Network

A list of doctors or providers pre-approved by your insurance company. The insurer has previously negotiated lower costs with these doctors, so by using them, you’ll have lower costs than if you saw a doctor not in the network.

Out-of-Network

Any doctor or provider that is not on your insurance company’s pre-approved list. The insurer hasn’t negotiated costs with them, so you’re likely to pay more.

Preventive care

A broad name for treatments such as immunizations, checkups and screenings. 

Out-of-Pocket Maximum

Under most insurance plans, this is the most you’ll pay in healthcare costs in any given year. If you have a plan with an out-of-pocket maximum of $8,000, for example, once you’re reached that amount, the company will pay the rest of your costs for the remainder of that year.

EOB, or Explanation of Benefits

The EOB is not exactly what it sounds like. Instead, it’s essentially a receipt that describes the services you received and the corresponding fees. It also notes what your insurance is paying for, and what you are required to pay, among other information. Be sure you read your EOB, and ask questions if you think there is a billing error.

Traditional Insurance Plan

This type of plan has high monthly premiums and little to no deductible. It’s best for people who are chronically ill or have a lot of health problems, since the premiums will end up being a good value based on how often the patients use healthcare.

Marketplace, Obamacare, ACA, Affordable Care Act, Exchanges, Healthcare.gov

These terms mean slightly different things, but we’ve grouped them all together here. Usually this refers to the federal government’s online exchanges, created under the Affordable Care Act, which offer a variety of health insurance options at various times of the year. Go to Healthcare.gov to learn more.

HMO—Health Management Organization

An HMO plan requires you to have an in-network primary care doctor. This doctor is the first person you’ll see, and their referral is needed if you need to see a specialist. HMOs require you to use in-network providers, and don’t cover out-of-network visits. Because of these restrictions, HMOs usually have low monthly premiums. 

PPO—Preferred Provider Organization

In a PPO plan, you don’t have to have a primacy care physician like in an HMO, and can receive care from any in-network doctor. You also have the choice to go to an out-of-network doctor, but you’ll pay a higher percentage of the bill.  As a trade-off, your monthly premiums are usually higher in a PPO than they would be in an HMO.

COBRA

Not a snake, COBRA is the acronym for Consolidated Omnibus Budget Reconciliation Act. If you were covered by a company health plan and lost insurance due to a “qualifying event” (usually being laid off), COBRA allows you to keep being covered by the company’s insurance at the company’s rate for a set period of time. It can be very helpful in staying covered while you are between jobs.

HDHP/CDHP—High Deductible Health Plan/Consumer Directed Health Plan

An insurance plan with low monthly premiums and high deductibles. This type of plan is best for healthy and/or younger people who don’t plan on using the healthcare system often, since you’ll save money on your monthly payments, but will end up spending more if you actually do need health services.

HSA—Health Savings Account

Only available in a CDHP, a health savings account allows you to set aside money before taxes into an account for potential health expenses. If you don’t use the money in your account during the year, they roll over into the next year. And if your HSA is through your company, you can take the funds with you if you leave.

FSA—Flexible Spending Account

Similar to an HSA, this account is only used by employers for their employees. The money is automatically deducted from your paycheck each month. There are two key differences between an FSA and an HSA: if you don’t use the account’s money during the year, you’ll lose it; and you if you leave the company, you lose the funds in the FSA.

HRA—Health Reimbursement Arrangement

An account your employer provides and funds with cash. It reimburses covered out-of-pocket medical expenses, but requires you to file a claim in order for it to be paid. HRAs roll over from year to year, but you will lose the money in the account if you leave the employer.