Health Insurance Terms

1) Premium.  
Definition: The amount of money a person pays for health insurance coverage.  An individual premium for one person costs less than a family premium that provides health insurance coverage to an entire family.

Example 1.  A single person purchases an individual health insurance policy for $6,000 a year or $500 per month. For this health insurance coverage, the annual premium is $6,000.

Example 2.  A family purchases a family health insurance policy for $30,000 a year or $2,500 per month. For this health insurance coverage, the annual premium is $30,000.

Please note that by a having health insurance policy premium paid, a person or family is still responsible for paying additional medical costs associated with medical care including co-pays, co-insurances, non-covered medical services and deductibles as described below.

2) Co-pay.
Definition: A flat fee paid by the patient for a medical service at the time of service.

Example 1. A patient goes to see his doctor and has to pay a $30 co-pay for the doctor visit service. 

Example 2. A patient goes to the pharmacy to purchase a prescription antibiotic prescribed by her doctor. She pays a $20 co-pay for the antibiotic prescription regardless as to whether the antibiotic costs $25 or $100. 

3) Co-Insurance.  
Definition: The amount of money the patient has to pay for medical care that is the balance of what the health insurance company does not pay. 

A common health insurance plan that requires the patient to pay or “pitch in” for his or her health care is set up as an 80/20 plan. In this scenario, the health insurance company pays 80% of a hospital bill for medical services rendered. The patient is responsible for the other 20% of the bill to get to 100% medical payment to the hospital for the hospital bill.

Example 1. A patient has a carpal tunnel release surgery and receives a $1,000 total medical bill for this service. The patient will have to pay $200 and the health insurance company will have to pay $800 in this 20% co-insurance example.

In general, the higher the percentage of co-insurance toward medical care payment the patient is responsible for, the lower the annual health insurance premium in dollars. 

4) Deductible.
Definition: The amount of money that must first be paid out-of-pocket by the patient before the health insurance company pays for medical care. 

Deductibles for health insurance are like deductibles for car or homeowners’ insurance. For example, if a person has a $50 car deductible, she can expect to pay a higher annual car insurance premium than if she had a $1,000 deductible. Similarly, a health insurance annual premium for a family of five people with a $5,000 deductible might be $26,000 whereas that same policy may cost $35,000 if there was only a $1,000 deductible. The higher the deductible, the lower the annual health insurance policy premium.

5) High deductible.
Definition: health plans with deductibles in the $2,500 and above range. These are referred to as high deductible health insurance policies. These are becoming very common as employers have shifted the financial burden of paying for health care to their employees. 

In this setting, health care consumers have “skin in the game.” If they stay healthy, their medical expenses are low out-of-pocket. If consumers are unhealthy, they pay more out-of-pocket medical expenses until the deductible is met at which point the insurance company pays for medical care. The best way to keep medical costs down is to stay healthy.

6) Charge. 
Definition: the retail or “rack” rate price for medical care. The charge represents the maximum consumer financial risk. It is what the consumer will have to pay if his or her claim is denied by a health insurance company.

7) Claim allowable.
Definition: the discounted rate off of the charge retail rate that the health insurance company has negotiated as the real final price tag for medical care. It represents what a consumer will pay for a medical care item if his or her deductible has not been met. This is the price tag of care when a medical claim is accepted by a health insurance company, also referred to as a covered service.