Understanding Health Insurance: Common Terms to Know

The American health care system is complex and it’s easy to get lost in the maze of options and abbreviations.

This article is meant to help you better understand the common terminology so you can make a more informed decision when selecting your health care coverage.

1.     Open enrollment. Open enrollment refers to the yearly period when people can enroll in a health insurance plan. Absent certain life events like marriage or childbirth, this is the only time you can select your coverage for the year.

 2.     HMO. This stands for Health Maintenance Organization. An HMO is the entity that provides health services to its subscribers. An HMO will contract with a network of primary care physicians, specialists, and facilities that its subscribers can use by paying a monthly or annual premium. The upside is that by staying in this network, medical costs decrease. The downside is that subscribers are limited to receiving care from the medical providers in the network.

3.     PPO. This stands for Preferred Provider Organization. A PPO is an alternative to an HMO. Under a PPO, medical professionals and medical facilities contract with an insurance provider to offer their services to subscribers at a reduced rate. PPO rates tend to be higher than HMO rates, but the benefit is that subscribers can access a much larger network of providers.

 4.     Deductibles. Deductibles in health insurance are like those under other insurance agreements. A deductible is the balance you must pay before your coverage picks up the tab. So, if your plan has a $2,000 deductible, you must pay $2,000 before your plan starts sharing the cost.

 5.     Copays. Short for copayment, a copay is the amount you must pay for a health care service, like visiting the doctor or filling a prescription. The amount varies depending on the service.

 6.     Coinsurance. Coinsurance is like copay, but instead of a flat fee, it operates as apercentage. The percentage is what you pay after you’ve met your deductible. An example will help tie all this together. Let’s say your plan is structured like this:

• Deductible: $2,000
• Coinsurance: 20%

 7.     FSA. This is a Flexible Spending Account, which is a specific type of savings account set up by employers for their employees. Basically, employees contribute a portion of their pre-tax earnings into an FSA to cover qualified expenses, including medical expenses. These funds can’t be used to pay for your premiums, but they can cover a deductible, copay, and coinsurance.

8.     HSA. This is a Health Savings Account. In most respects, an HSA works just like an FSA. An HSA offers a higher contribution limit and is normally owned by the individual who sets it up rather than the employer.