Health Insurance and You: Learning the Basics

Health insurance is insurance that pays for medical expenses. It may be provided through a government-sponsored social insurance program or from private insurance companies. Health insurance plans vary greatly in both costs and benefits. It is important to understand the basics of health insurance as an educated consumer, and especially if you have cancer and need treatment.

A health insurance policy is a contract between an insurance company and an individual or an employer. The member contract or Evidence of Coverage booklet details the type and amount of health care costs that are covered by the health insurance company. You also have obligations as an insured individual, which may take several forms.

Some important points about health insurance policies are as follows:

•  You or your employer is responsible for paying the premium each month.
•  Some health insurance policies have deductibles. A deductible is the amount you must pay out of pocket before the health insurer pays its share.
•  A copayment is a predetermined fee an insured individual pays for health care services. For example, you may pay $10 each time you visit a doctor. Copayment amounts vary depending on the health service you are getting and the policy.
•  Coinsurance is the amount an insured individual must pay toward a medical expense after the deductible has been met. It is usually stated as a percentage. For example, you pay 20% of the approved amount and your health plan pays 80%. Coinsurance rates may vary for in-network versus out-of-network charges and may also differ depending on the type of service.

Besides understanding your financial obligations, you should know several other facts about health insurance:

• Some insurance plans have a list of services or items that are considered exclusions. You would be responsible to pay 100% of the cost for an item or service that is excluded.
• Many health insurance policies have maximum annual or lifetime coverage benefits, which are the total amount of benefits your insurance company will pay out while you have coverage. Be aware of what your maximum annual and lifetime benefits are.
• Some health insurance plans have out-of-pocket maximums. This is the most an insured individual is required to pay out of pocket during a year. Until this maximum is met, the plan and insured individual share the cost of covered expenses. After the maximum is reached, the insurer pays all covered expenses, often up to a lifetime maximum. After that amount is met, which for many companies is in the millions, your plan will not cover any more expenses. When comparing plans, it is best to choose one with a high lifetime maximum.

For a complete list of insurance terms and definitions see the Health Insurance Glossary.

To get the most from your health insurance, make sure you understand how your insurance works and what they will pay for. If you think your insurer should have paid for a service, but did not, make sure to file an appeal. The Kaiser Family Foundation and Patient Advocate Foundation offer advice on how to handle insurance coverage disputes.