First Job? Here Are 4 Key Health Insurance Terms You Should Know

Unless you have a background in insurance, you probably need to read insurance jargon at least twice before you comprehend what it means. In simple terms, health insurance is the protection you get by paying a fixed monthly premium. While there are many complicated terms, understanding these four concepts will help you navigate the process of securing the right coverage.

A deductible is the amount you pay in any calendar year for health care expenses before the insurance company covers the costs. Let’s say you have a yearly deductible of $2,000. You visited the doctor for the first time for an annual checkup and you’re charged $200 per consultation. You will pay $200 from your pocket, which will count toward your deductible.

In this case, your remaining deductible is $1,800. You’ll need to pay the subsequent doctor visits until you fully meet the $2,000 deductible. Once you’ve reached the threshold, your insurance benefits kick in.

Your deductible depends on your coverage, premium and the insurer. The following services often count toward your deductible:

– Hospitalization bills

– Laboratory tests

– Anesthesia

– Doctor and therapist visit not covered by a copay

– Surgery

– Medical devices

– MRIs and CAT scans

A copay or copayment is the fixed amount you pay for routine care expenses, such as doctor’s visits or prescription refills. You pay for this after you meet your deductible, which in this case, is $2,000. It’s another out-of-pocket cost different from the deductible. 

Each service has a different copay fee. For example, you need to pay $30 at the reception as a copayment every time you consult your doctor. In this example, your insurance will cover the $170 out of the $200 doctor’s fee. If you need to do lab tests, you will pay a separate bill as a copayment since the $30 copay for a doctor’s consultation does not cover lab tests.

You will usually have a copay for prescriptions, emergency room visits, office visits to your doctor or specialist and urgent care visits. Depending on your health plan, you can have both deductible and copay or only deductible. 

Generally, health plans with higher deductibles and copays charge lower monthly premiums. In contrast, lower deductibles and copays are higher-premium plans.

Coinsurance is the cost-sharing requirement of some insurers where you have to pay a certain percentage of the medical expenses after you satisfy your deductible. It’s similar to copay, except that you share a percentage of the costs, so it’s not a fixed amount. 

For example, you have a vision problem and must undergo cataract surgery costing $4000. If your coinsurance rate is 20%, you will pay $800 and the insurer will cover the remainder of the bill, which is $3,200.

The out-of-pocket maximum is the most you’ll spend on medical care services in one year. For 2023, the out-of-pocket limit for individual insurance is $9,100 and for the family it’s $18,200. 

If you’re single and you’ve paid from your pocket a total of $9,100 from the combined deductible, copays and coinsurance, your insurer will be 100% liable for all your health care expenses for the remaining months you’re insured. 

For example, the doctor recommended a covered procedure costing $50,000. You’ve paid $9,100 out-of-pocket maximum from your previous checkups, lab tests and other care services. Your insurer will fully pay the $50,000 for you.

The insurance landscape is challenging to understand. If it’s your first job, knowing the fancy insurance vocabulary you’ve probably never heard before can feel overwhelming. Starting with these four terms is your jumping-off point in familiarizing your financial obligations when you enroll in a health plan.