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A Millennial's Guide to Demystifying Insurance Jargon

Clay Coomer | Sep 24, 2015


All too often insurance lingo is thrown around as if everyone is on the same page and knows what each term or phrase means. Furthermore, I believe there's this massive assumption that all adults over the age of 18 know and understand insurance and how it affects them.

We all know what happens when people assume. It's clearly spelled out in the word itself.

Unfortunately insurance isn't all that simple. It might be to older populations but as more and more millennials enter the workforce, we get bombarded with health, dental, vision, life, auto and home insurance. Please forgive us for being confused and overwhelmed - especially since we weren't taught insurance 101 in college.

Unless you have savvy parents who taught you about insurance and how it benefits you (pun intended), chances are you're on your own with learning and understanding what all the jargon actually means. As a millennial, I share in your suffering. So, with my experiences, my new role within an insurance company, and many Google searches, I will attempt to demystify and decode those pesky insurance terms that confuse and frustrate us all.

Insurance Terms - Demystified

√ Insurance Premium

We'll start with an easy one to get the ball rolling...
  • What it means: Insurance premium is simply the payment you are responsible for making to (in lay-man's terms) pay for the policy. For medical insurance, if it's employer paid and you're responsible for a portion, it will be automatically taken out of your paycheck. For the context of travel insurance, the premium is the actual cost of the plan.

  • How it affects you: Because premium is paid out of pocket and does not go towards the deductible, there is no extra or secret benefit associated with it. You're just paying for insurance - simple as that.

√ Deductible

  • What it means: This one might be the most ubiquitous. It means the same across all insurance policies but the actual amount you pay can vary greatly. For medical insurance, you'll hear things like, "high and low deductible plans" and you'll be left wondering which one is better suited for you.

    Typically when you hear high deductible, anticipate paying a lower premium for the plan but understand should you have any medical expenses, you'll end up paying more money out of pocket over the course of a year to meet your deductible.

    Conversely, low deductible plans will have a higher premium but since you have a low deductible amount, you'll be required to pay less (total) out of pocket before your policy covers 100% of your medical expenses.

  • How it affects you: If you're married with children, the deductible amount will play a huge part in deciding which medical insurance plan you will enroll in. There are other factors to consider as well: coinsurance, out of pocket max, and in network vs. out of network cost variance but we'll get to those terms later.

    Essentially, the question you need to ask yourself is, "How much money can we afford to spend on healthcare and medical expenses?" Obviously health and well-being should be at the top of your list especially if you have a family. But, as my father taught me early on, expect for the best but plan for the worst. Aka, invest in you and your family's health and be prepared as possible for ... life.

√ Out-of-pocket limit (or max)

  • What it means: Not to be confused with deductible, out of pocket limit is the total amount you could possibly spend in a given year. Once the limit is met, usually your policy will cover 100% after that. It's important to know that premium, balanced billed charges, services not covered in your plan, and other preauthorization penalties are NOT included towards out of pocket cost.

  • How it affects you: More than anything, this affects your bank account and disposable income. Medical bills can be brutal but there is comfort in knowing there is a limit to what you will pay in a given year. Be mindful of the fine print within your policy. Some plans will have the same out of pocket limit as the deductible amount. This is typically the case for high deductible plans.

√ Coinsurance

  • What it means: Here lies the caveat. Even after your annual deductible is met, you still might be responsible for medical charges. Insert coinsurance. Plans that include coinsurance simply means you will pay 20-30% of the bills and your insurance will cover the other 70-80%. So yes, it's nice you're not responsible for the full cost but you're still out money until you reach your out of pocket limit.

  • How it affects you: Personally, if I can avoid it, I steer clear of plans that have coinsurance. Once my deductible is met, I don't want to be responsible for anymore medical bills. The only thing coinsurance really affects is your bank account. You'll simply continue to pay for medical bills but they won't be as expensive... Whoopie.

√ Copay

  • What it means: A copay is simply a fixed amount of money you pay for a health care service that is typically due at the time of the service. Copays vary in price depending on the service. For instance, a visit to your primacy care physician for a standard physical will be much less than an impromptu visit to the emergency room. You also might get hit with a copay on prescription medication.

  • How it affects you: Copays may or may not affect you depending on your benefits plan. My plan, for example, does not include copays. I'm only charged for services performed at the appointment and after my deductible and out of pocket limit is met, there's no charge. If you do opt for a plan with copays and you tend to make frequent trips to the doctor or pharmacy, if would be wise to enroll in a plan with low copays.

√ In network vs. out of network

  • What it means: I have to try and get through this one as unbiased as possible but my personal vendetta might show. My wounds are still healing from the time my wife and I paid hundreds of thousands of dollars in medical bills when nobody wanted to inform us we were seeing an out of network provider.

    I digress. You can understand by my comments how important it is to choose an in-network provider. This means your insurance is apart of their network and will be accepted come time when the claims are processed.

    Out of network = out of luck and out of money because you'll be spending exponentially more in health care costs. As an example, for my high deductible family plan, the variance between deductibles for in network and out of network is $17,000.

  • How it affects you: Similar to the majority of these insurance terms, the most substantial way this will affect you is in your bank account. Always, always, always be mindful of the healthcare providers you see and ensuring that they are in network. You will (literally) pay the price if you do not.

√ Provider Network

  • What it means: Before seeing a doctor or going to an appointment which your primary care doctor has referred you to, it's essential to check your insurance's provider network. If you don't have the link bookmarked in your browser, your best bet is to use your favorite search engine or check with an HR representative at your company to provide you with the link.

    When scouring through the network of providers that are covered under your policy, search based on the doctor's name - not based on the affiliated network. If the doctor is listed as a provider within your network, it's safe to say that hospital they're associated with is also covered.

  • How it affects you: See in network vs. out of network. You'll get hit hard with medical bills should you or someone on your policy see an out of network physician or specialist.

√ HSA account

  • What it means: HSA = Health Savings Account. Or some also refer to it as a health spending account. Either way, it's a smart way to stow away money dedicated to pay medical expenses. Typically people who are enrolled in high deductible plans will opt to open an HSA.

  • How it affects you: The affects are all positive. Most people who have an HSA will automatically deduct money from their paycheck. The added benefit of doing that is the deduction is pre-tax. You can also choose to deposit post-tax money into your HSA at any time. Bare in mind there is an annual maximum which you are able to deposit in the account.

    Lastly, HSA's will work with your insurance to cover a portion of your medical bills and will also cover your spouse and children's medical bills even if they aren't on your plan. (Source: Blue Cross Blue Shield)

√ HMO, PPO, EPO (Oh My!)

  • HMO: Health Maintenance Organization → You select one primary care physician and all services go through that doctor. The HMO option generally means less paperwork and lower healthcare costs for everyone because you're going through one provider. Be careful, though. If you need to be referred to another specialist, there's a good chance it will be out of network ($$).

  • PPO: Preferred Provider Organization → A PPO plan provides more flexibility compared to a HMO. With a PPO, you don't need a primary care physician. You have the ability to see any healthcare professional you want inside or outside of the provider network. Of course all in network providers will be less expensive and you'll have full coverage.

  • EPO: Exclusive Provider Organization → This plan is a combination of both in that you have flexibility to choose healthcare professionals without needing to have one primary care physician but you also get the cost savings similar to an HMO plan. The caveat: the network of covered doctors and hospitals is very limited. EPO plans also don't cover out of network - unless it's an emergency. (Source: Blue Cross Blue Shield)

We've only scratched the surface

Unfortunately for the "rational consumer", there are many more insurance terms out there we're "required" to know and understand. I hope that the aforementioned terms and their descriptions help provide clarity. Whenever you're faced with questions regarding any type of insurance matter, this post should arm with you knowledge in that you'll know what to intelligently say.

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