Five Common Health Care Concepts That Employees Misunderstand
Health care is confusing. To help improve your health care benefits understanding, here are five comparisons and explanations of similar terms that consumers often mix up when talking about their health plans.
1.Premium vs Deductible
The premium is the amount of money that must be paid (usually monthly) for your health insurance or plan. Think of it like a fee to use your policy each month (or however often you must pay the premium as defined by your health plan).
A deductible is the amount of money you must pay for covered health care services before your insurance plan starts to pay. For example, a $2,000 deductible means you must pay the first $2,000 of covered services yourself before insurance kicks in to pay. At the beginning of each year (or “plan period”), you’ll have to meet the deductible again.
2.Copay vs Coinsurance
Both these terms refer to a form of cost-sharing between insurers and policyholders for health care services, such as annual check-ups and prescription drugs, but they differ in how the costs are shared.
A copay is a flat fee for a health care service or drug that is predetermined by a member’s insurance plan. For example, you may need to pay a $25 copay for annual checkups with your primary doctor and $250 for emergency room visits.
Coinsurance is a percentage of a medical charge that you pay for covered services, with the rest paid by your health insurance plan, after you’ve met your deductible. For example, if you have 20% coinsurance for a medical service and that service charges you $2,000, you would pay $400, while the insurance company would pay the remaining $1,600 (assuming you’ve met your deductible).
To help with the difference, remember that a copay is a flat fee, while coinsurance is a percentage of the cost determined by your plan.
3.In-Network vs Out-of-Network Providers
In-network providers are ones contracted with the health insurance company to provide services to plan members for specific pre-negotiated rates, while an out-of-network provider is not contracted with the health insurance company.
Typically, if you visit an in-network physician or provider, the amount you’ll be responsible for paying will be less than what you’d pay to visit an out-of-network provider. As a result, it’s best to stick with in-network providers when possible to reduce your overall health care spending.
4.Preferred Provider Organization (PPO) vs Health Maintenance Organization (HMO) vs Point of Service (POS)
These terms refer to different types of health plans, which have different pros and cons associated with each of them.
PPO plans typically have high premiums and a deductible you need to meet before the plan pays, unlike HMO plans. However, as a benefit, they typically have larger provider networks without the requirement to coordinate care through a single primary physician, and they allow you to go out-of-network for care (at a higher cost than in-network, of course). As a result, you can also see a specialist without a referral, although check your specific plan for notes regarding specialist referrals for any approval rules you might need to follow.
HMO plans usually have lower premiums and no deductible (or a lower one) compared to PPO plans. The downside includes that you need to stay in-network for care, as well as needing a referral from your primary care physician to receive specialist care. Overall, you’re sacrificing flexibility for lower upfront costs when choosing an HMO plan.
Lastly, POS plans are a hybrid of HMOs and PPOs. The rules are like HMO plans, but you can see an out-of-network physician for a higher fee in a POS plan, as well as not needing a referral to visit a specialist. The downside to this is that you need to file claims if you go out-of-network for care (better keep those visit receipts!) and deductibles are typically higher than PPO and HMO plans.
5.Flexible Spending Accounts (FSAs) vs Health Reimbursement Arrangements (HRAs) vs Health Savings Accounts (HSAs)
While these are all different types of savings accounts for health care, the differences are rather large. We’ll cover a few of the most important differences here, but for a more detailed comparison, check out our FSA vs HRA vs HSA comparison document.
FSAs are funded by employees but owned by employers. They have contribution limits per plan year by law and can be used to pay for IRS-approved medical, vision, and dental expenses for participants and qualified dependents. Contributions and withdrawals are tax-free. However, you can’t rollover unused funds at the end of the year in FSAs, although some allow you to either rollover up to $500 or provide a small grace period to spend unused funds.
HRAs are both employer-owned and funded. Contribution limits are set by your employer and the funds can be used to pay for employer-approved medical expenses for both the employee and their qualified dependents. Contributions are tax-free to employer and withdrawals are tax-free to participating employees. Rollovers of unused funds are allowed only if your plan allows it, and you lose the account if you leave your employer.
HSAs are employee-owned and funded and have contribution limits set by law. The funds can be used to pay for IRS-approved medical, vision, and dental expenses, but they require a high deductible health plan (HDHP) to be eligible for use by employees. Contributions are tax-free, withdrawals for qualified expenses are tax-free, and interest earned on the account balance is tax-free. You can roll over funds at the end of the plan year, and unlike FSAs and HRAs, if you leave your employer, the funds are still available for use at a future date.
(Bart Yancey is president of engagement at DirectPath)