Understanding health insurance coverage in the USA

Signing up with a US health insurer for the first time means a lot of reading. Health insurance can be a tricky subject in itself, and the terms used may be new to you. If some of the wording in your policy confuses you, you are not alone. But learning the language matters, because it tells you what is covered and what is not.

Below is a list of common health insurance terms, what they mean and how they are used, so you can make informed decisions about the care you use.

1What is health insurance?

Health insurance is coverage you pay into that later helps cover part of your medical costs. As with most insurance, you pay a base premium every month. That money goes into a pool the company uses to pay claims. Your policy contains many provisions, including which doctors or providers you can see, how much you have to pay up front, what share of the total cost the insurer covers (and what share you pay yourself), and much more.

When you need medical care, you or your provider file a claim with the insurance company for the services you received. The insurer then pays the claim to the extent set out in your policy. You will probably also get a bill for part of the cost.

There are many kinds of health insurance plans, and their benefits can differ. The scope of coverage can vary widely too. So make sure you know which treatments your plan covers and what each service will cost you.

US health insurance explained simply: Health insurance in the USA is vital financial protection for every individual, family and business. It helps cover medical costs when a person or family needs care. Generally, health insurance is offered by an employer, bought on the marketplace, or obtained through public programs such as Medicaid and Medicare.

2Coinsurance

Coinsurance is the cost you share with your health insurer. It is a percentage of the total cost of a service after the deductible has been applied. Sometimes one rate applies to all services, but usually it differs by type of service. You might pay only 10% for a standard checkup, but 50% for a complex procedure.

The usual form of coinsurance, and the one you will find in your policy, is a split: you pay a set share of a service's total cost and the insurer covers the rest. The most common split is 80/20. That means the insurer covers 80% of the cost and you pay the remaining 20%.

3Coinsurance and your deductible

Coinsurance works together with your deductible to shape your final bill. Take the total cost and subtract the deductible. What is left is the amount the coinsurance clause applies to.

Say you have a bill for $1200, a deductible of $200 and a coinsurance clause of 80/20. The total for the service ($1200) minus the deductible ($200) comes to $1000. Under the 80/20 coinsurance, you would pay 20% (or $200, that is 20% of $1,000). The insurer would cover 80% ($800). All in all, you have paid $400 and your insurer pays $800 to cover the total cost of $1200.

4Coordination of benefits

Coordination of benefits applies when your doctor or another provider can have a service paid for by more than one health insurer. In other words, you can receive benefits from more than one plan. When that happens, your provider checks exactly how each health insurance plan covers the costs, then arranges payment from one or both sources according to the terms of each policy.

If you have only one health plan, coordination of benefits does not apply, because there is no other plan to coordinate with.

5How coordination of benefits works

To show how it works, say you have a health plan that pays up to a maximum of $1000 per year for a certain service. Say you are also covered under your partner's plan, which pays up to $500 per year for the same service. This is called dual coverage. Once you have used up your primary plan and hit its annual limit, you may still be able to have costs covered under your partner's plan. The provider would coordinate the benefits so each plan covers part of the cost.

If your primary plan has an 80/20 coinsurance clause for a certain type of service and you have dual coverage, it covers 80% of the cost and your second plan covers the 20%. Because coordination of benefits between the two plans gives you double coverage, you end up paying nothing out of pocket.

If both your primary and your second plan have 80/20 coinsurance, however, this does not work. After your primary plan has paid its 80%, the second plan does not cover the rest, because it would also only have paid 80%.

Now say your primary plan has 50/50 coinsurance and your second plan has 80/20 coinsurance. Coordination of benefits would then have the primary plan pay 50% and the second plan 30%. The total you receive always comes to 80%, and there is no way to be paid twice.

6Copay

A copay is a fixed amount you pay when you use certain medical services. Your insurer decides which services carry a copay. Copays may or may not apply the same way across everything a plan covers. That is one of many reasons to get to know the details of your policy: you should know which costs you cover in full and which you only pay part of. Copays mostly apply to routine doctor visits and prescriptions. They are often confused with coinsurance, but they are not the same thing.

7Deductible

The deductible is the amount you have to pay before your insurer steps in and covers costs. It is a fixed amount you pay out of pocket.

The higher the deductible on your plan, the lower your premiums usually are. That is because with a high-deductible plan you agree to pay more of your medical costs out of pocket, so the insurer charges you less in premiums.

A high-deductible health plan (HDHP) may save you money on premiums. If you have an HDHP, also consider a health savings account: a tax-advantaged savings account that can help you save even more.

8Your deductible in action

To show how a deductible works, say you have a $50 deductible on the dental part of your policy. Your dental bill is $475. When you submit it, you are reimbursed only $425, because you pay the first $50 yourself through the deductible.

The good news: once you have met your deductible, it no longer applies until the new policy period starts, which in most cases is a full year. If you go back to the dentist a month later, you do not pay the deductible again, because you already paid it with the first bill for that period.

The deductible does not apply to every service in the same way and can vary by type of service within the same plan. For example, you might have a $10 deductible for vision care, a $50 deductible for dental work and none at all for prescription drugs.

The deductible is usually set as an annual amount, which means it resets when your plan renews. Some services, such as routine doctor visits, are available to you without first meeting the deductible. If your health plan covers both you and your family, each member may have their own deductible.

9Dual coverage

Dual coverage means you are insured under two health plans, or you have taken out supplemental health insurance. This often happens when you enroll in health insurance through your employer, who may offer many options for a main health plan plus extra options for dental and vision.

A person can be covered under two health plans but is listed as the primary policyholder on only one of them. The primary policyholder is the insured person named first on the policy. The insurer that covers you as the primary policyholder is called your primary insurer or primary carrier.

How you are defined in these policies matters for the coordination of benefits. Your primary carrier pays most of the cost of a service and bills you first. If you are covered under more than one plan, coordination of benefits rules decide the order in which each insurer pays.

10The advantage of dual coverage

Who benefits from dual coverage? Someone insured under two health plans can make the most of both and save a lot of money on healthcare. When the main plan stops paying, for example because of a cost-sharing clause, the second plan can step in and cover the rest. The insured person may then have nothing left to pay.

11Grace period

In healthcare, a grace period is the time an insurer gives you to pay your health insurance premium after the due date. If you miss the payment and still have not paid once the grace period ends, your plan can be canceled.

Every health plan is different, so check the terms in your policy.

Keep in mind that the insurer may hold back payment of claims during the grace period until the premium is paid.

11.1The grace period under the Affordable Care Act

Under the Affordable Care Act (ACA), people who receive advance premium tax credits and have not paid their monthly premium bills in full get a 90-day grace period. This only applies if they have paid at least one month of their policy. If they do not pay in full within the 90-day grace period, their coverage can be terminated.

12Lifetime maximum

As the name suggests, the lifetime maximum is the most the insurer will pay over the entire life of the policy. Read your policy carefully, because there may be two maximums, one for you and one for your family, and they are not necessarily the same. Good to know: ACA-regulated plans are banned from setting lifetime dollar limits on essential health benefits; you will mostly find such limits in travel and short-term policies.

13Multi-state health insurance

Multi-state health insurance means the insurer runs a plan in many states. That does not always mean you are covered in all of them. Again, read your policy carefully before getting treatment anywhere other than the state where you live (and which is listed in your policy).

14Out-of-pocket

Out-of-pocket costs are what you pay yourself, without help from your insurer. They can mean your copay, your coinsurance, your deductible or all three, depending on which bill you are paying and where you are in the plan's payment schedule. The "out-of-pocket maximum" is the most you have to pay on your own for the whole year, not counting premiums.

15Pre-existing condition

A pre-existing condition is an illness you already had before your policy started. Some plans cover pre-existing conditions, while others may exclude them entirely.

Health plans bought on the government Marketplace must cover treatment of pre-existing conditions.

Pre-existing condition exclusions are very common in travel health insurance, and standard plans may apply them while you are traveling.

16Living in the United States and planning a trip abroad?

Getting international health insurance is an essential part of traveling from the USA. Whether it is a short visit or a longer stay, you need to be sure your medical needs are covered in an emergency.

International health insurance or travel health insurance? International health insurance is designed for people who plan to spend a longer time outside the United States. It covers you medically while you are abroad, including doctor visits, hospital stays and other medical treatment. Travel health insurance is meant for travelers staying abroad only for a set period.

17The bottom line

Health insurance can be confusing. Always talk to a representative of the insurer and have them explain how it works before you sign up. If you have questions about new terms or rules, or want to know whether something is covered, they can help you sort it out. For the big picture, see our pages Healthcare in the USA and Health insurance when moving to the USA; the differences between plan types are explained in HMO, PPO, POS & EPO.

In short

• In the USA you get health insurance through your employer, through the Marketplace or through public programs such as Medicaid and Medicare.
• First you pay the deductible, then you share costs through coinsurance, usually 80/20. With a $1,200 bill and a $200 deductible, you pay $400.
• Copays are fixed amounts per doctor visit or prescription. The annual out-of-pocket maximum caps what you pay yourself in total.
• With two plans, the insurers coordinate benefits. Neither pays out more than the cost of the treatment.
• Marketplace enrollees receiving advance premium tax credits get a 90-day grace period. Marketplace plans must cover pre-existing conditions.

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