Health Insurance Basics and Policy Provisions
Cost-sharing and contract terms
Health insurance pays for covered medical expenses subject to cost-sharing. A deductible is the amount the insured pays before benefits begin. Coinsurance is a percentage split after the deductible, such as 80/20. A copayment is a fixed dollar amount for a service. The out-of-pocket maximum caps covered in-network cost-sharing. Preventive services are often covered without cost-sharing. A waiting period is the time before coverage begins for a condition; an elimination period is a disability-income waiting period. A benefit period is the maximum time benefits are paid.
Other provisions include renewability, grace period, reinstatement, preexisting-condition rules, coordination of benefits, subrogation, claims procedures, and continuation rights. Under the Affordable Care Act, most individual and small-group plans cannot exclude preexisting conditions or set annual/lifetime dollar limits on essential health benefits. HIPAA restricts disclosure of health information, and ERISA governs many employer plans.
Traps
Questions often apply coinsurance before the deductible. Do not confuse a copayment with coinsurance; a copay is fixed, coinsurance is a percentage. Do not assume a deductible applies to every preventive service. For disability income, the elimination period is not the same as a benefit period.
Worked example
A plan has a $1,000 deductible and 80/20 coinsurance. A covered $6,000 bill produces $1,000 deductible plus 20% of the remaining $5,000, or $1,000 coinsurance. The insured pays $2,000, and the insurer pays $4,000, subject to the out-of-pocket maximum.