A few years ago, the Journal of Health Economics found that 86 percent of Americans couldn’t define the basic terms associated with their health insurance – deductible, copay, coinsurance, and out-of-pocket maximum. And in 2016, a survey by PolicyGenius found that 96 percent of Americans overestimate their understanding of these terms, with only 4 percent able to define all four of the above concepts. The correlating result? This lack of knowledge or true understanding is likely leading to increased – and possibly unnecessary – healthcare spending.
So, what about you? How confident are you that you – and your employees – understand the terms and concepts associated with your organization’s healthcare plan? To help you out, we’ve created a “cheat sheet” of the most common terms that many healthcare consumers are encountering today as they navigate the complicated world of health insurance.
- Out-of-pocket costs: Healthcare expenses not covered by or reimbursed by insurance carriers. Out-of-pocket costs include deductibles, copays, and coinsurance.
- Deductible: The amount that must be paid out-of-pocket towards covered healthcare expenses before health insurance kicks in. Once a deductible is met, the employee covers copays and/or coinsurance costs for qualifying services and insurance pays the remainder until the out-of-pocket maximum is reached.
- Copay: A copay is a fixed amount that is paid at each provider visit for covered services; copay amounts under an insurance plan can vary for different services.
- Coinsurance: Coinsurance is a percentage of the cost of covered services that is paid (20% for example) at each provider visit after the deductible is met.
- Out-of-pocket maximum: The maximum amount an employee will pay for covered medical services in a year, including deductible, copay, and coinsurance expenses. Insurance carriers set limits for each plan, within the maximum allowed by law (in 2017, the maximum amount allowed is $7,150 for individuals and $14,300 for families).
- Alternative care: Chiropractic, acupuncture, naturopath, and/or massage therapy services.
- Health Savings Account (HSA): A tax-free savings account that both employers and employees can contribute to monthly to help cover the out-of-pocket costs incurred by the employee under a high deductible health plan (HDHP). A HSA can be used to pay for all qualifying medical expenses. HSAs are only available to employees who have a HDHP.
- Annual HSA contribution limits: The maximum amount that an employer and an employee can collectively contribute to an employee’s HSA account each year. In 2017, the maximum amount that can be contributed between both the employer and employee is:
- $3,400 for self-only employees (up from $3,350 in 2016)
- $6,750 for employees with families (no change from 2016)
- Tax-free HSA: A tax-free HSA means that employers and/or employees can contribute pre-tax funds to a HSA account. Funds can be withdrawn without tax penalty to help pay for qualifying medical expenses.
Educating yourself – and your employees – about healthcare terms is just the first step towards providing an affordable and accessible health insurance program. To truly save both your organization and your staff money, it’s important to dedicate time and resources towards finding a healthcare plan that provides better benefits for less cost than traditional plans. Nonstop’s unique approach to partial self-insurance does just that by providing a baseline savings of 12.5 percent for nonprofits while eliminating all employee out-of-pocket costs and improving access to services.
For more information, download our Quick Guide to PSI or contact us for a free and confidential savings analysis.
