Health insurance coverage. Your guide to understanding health insurance policies

Mark Vallet - Last updated: Oct. 17, 2017 Insurance policies.

While the Affordable Care Act (ACA), also known as Obamacare, has helped simplify certain aspects of the health care system, health insurance is still incredibly difficult to understand.

Health insurance policies are legally binding contacts, which can have a major impact on both your health and financial life, so understanding your coverage is extremely important. Waiting until you are seriously ill or involved in an accident to investigate your health plan is major mistake.

Our guide will help you understand the basics of health insurance, how to read your policy, understand your type of coverage and how to make changes to you plan, if necessary.

Where is your health insurance coming from?

It’s important to know who provides your coverage and where to go if you have questions. The following are the three most common sources of health insurance:

Employer: If you work for a company that has 50 or more full-time employees, they must offer health insurance to full-time employees.

Employer-based plans are referred to as group or workplace health coverage, and it is a policy that is purchased by an employer and offered to the eligible employees as a benefit.

One of the major benefits of a group plan is that most employers (but not all) make a contribution toward the cost of your premium. Therefore, employer-based plans are most often ( but not always ) the cheapest option.

Marketplace: The Marketplace was created by the ACA to help people shop for health insurance. The federal government operates a number of Marketplaces, which you can access at HealthCare.gov. However, some states run their own Marketplaces, so you would have to shop at your specific state Marketplace.

Those who do not have access to employer-based plans and whose income level is such that it would qualify them for subsidies would be ideal customers for the Marketplace exchange.

The Marketplace provides health plan shopping and enrollment through the website, call centers and in-person help.

Individual Plans: Just like most other insurance products, you can purchase an individual health plan from the best health insurance companies, broker or through the Marketplace. If you are shopping on your own, make sure you have a complete understanding of the policy, if you have questions, get them answered before signing on the dotted line.

If your income does not qualify you for subsidies, and you do not have access to employer-based health insurance, then you might have better luck shopping with individual health care providers.

Common terms that can be confusing

Because health insurance policies are written in legal language and filled with medical jargon, they are often difficult to read and understand. You’re not alone if you find the wording intimidating and confusing.

“We find that quite a few health insurance consumers are confused about what a deductible is as well as how it differs from their plan’s Out of Pocket Maximum,” says Marc Lewandowski with Planning Needs Financial Group.

A good place to start is the “Definitions” section that will define the words used in the policy. It’s helpful to review this section when reviewing your policy details.

Here are a few terms that can be confusing in your health insurance policy:

What type of plan do you have?

There are a variety of plans available, whether you are choosing an individual plan, a Marketplace policy or a workplace plan. Knowing the difference between the various plans can help you select the right plan for you or your family.

Here is an overview of available options:

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How to make changes to your plan

If you are unhappy with your current plan, you can compare different plans at any time, however you can only enroll in a different plan two ways: during an open enrollment period or during a special enrollment period because of a qualifying event.

For employer-based plans, your company will inform you of its open enrollment period when you are hired, and employers typically notify employees of upcoming open enrollment well in advance.

For the marketplace or individual plans, the open enrollment dates change each year.

The Summary Plan Description

The Summary Plan Description (SPD) is the equivalent of a declaration page. It acts as a high-level overview of the plan and contains information on how to find more detailed plan information.

The SPD should be reviewed carefully to make sure all of your personal information is correct as well as the details of your plan.

The Department of Labor requires insurers to send a paper copy of your Summary Plan Description, but it should also be online when you log into your account.

Here are a few of the more important details an SPD includes:

Plan Name: This is simply the name of your plan.

Plan Numbers: This is the plan number and the Employer’s Identification Number (EIN), which is the number assigned by the IRS to the Plan Sponsor.

Type of Plan: This details the plan type, an HMO, PPO, HDHP etc.

Type of Benefits: This lays out the plan benefits, for example, medical, dental, vision etc.

Plan Year: This outlines the plan year or the dates that your health insurance policy is in effect.

Plan Administrator: The details of the plan administrator are listed here so you know who to call when you have questions about your policy.

Summary of Benefits and Coverage (SBC)

The ACA requires that health insurance plans provide you with a Summary of Benefits, which is an easy-to-understand summary of benefits and coverage. It will also include a Uniform Glossary of terms used in health coverage and medical care. The SBC was designed to make “apples-to-apples” comparisons of plans quick and easy.

It answers many of the most common questions shoppers have in short concise language. Its shows the plans deductible amounts, out of pocket limits, as well as what happens if you go outside the plans network of providers.

The SBC also details your costs for common medical situations and spells out your rights. The SPC should be reviewed in detail when shopping for coverage.

What is covered by your health insurance plan?

Like most insurance products, what is covered and coverage levels will vary depending on the choices you make. While more expensive policies will carry higher coverage levels, they come at a price.

The ACA requires the following 10 items and services, referred to as Essential Health Benefit Packages (or EHBPs), to be covered by all insurance policies. Coverage limits can vary by plan, so make sure you review your limits.

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It is important to remember that coverage levels can vary between plans, and you will almost always be responsible for co-pays, co-insurance and deductibles.

Example of cost structure

Assume you need gallbladder surgery that has covered costs of $30,000 and the following are your health insurance figures:

Out-of-Pocket Maximum: $5,000

Follow the calculation below to understand the sample costs and patient responsibility:

$ 5,700 coinsurance payment

+ $40 co-pay for two post-surgery prescriptions

$7,240 total patient charges

-$5,000 your maximum out-of-pocket

$2,240 the amount over your maximum which your insurer pays

Your maximum out-of-pocket amount for the year is $5,000, so all expenses related to the surgery above $5,000 are paid by your insurance coverage. In addition, your insurer will pay any covered medical expenses for the rest of your plan year.

Additional health coverages

Prescription Drug Coverage: The majority of health insurance plans offer some sort of prescription drug coverage, but the details can vary dramatically.

Your drug plan will usually allow you to get prescriptions filled at a variety of locations but those details can vary. As an example, Blue Cross/Blue Shield works with 60,000 pharmacies across the country. Kaiser-Permanente on the other hand usually requires patients to use their in-house pharmacies.

In addition, prescription drug pricing varies depending on the plan you have and the drug you need. Generic drugs may fall into a lower pricing category (also referred to as tier one), which comes with a $15 co-pay, while a name brand drug may require a $40 co-pay.

If your insurance plan does not offer prescription drug coverage you need, it may be possible to possible to purchase a standalone drug plan for additional drug coverage.

Vision Coverage: Vision is not always an option with a health insurance plan, and if it is, it may not be worth the cost. If you don’t currently have vision problems or use corrective lens, you might not need vision coverage.

All plans sold in the Affordable Care Act Marketplace must include vision coverage for children. It’s also possible to purchase a standalone vision plan, but in most cases, medical issues related to the eyes, cataracts or glaucoma are not covered by a vision plan. Those issues fall under regular health insurance coverage.

If you suffer from poor vision or are already wearing contacts or glasses, a vision plan can be well worth the cost.

Dental Coverage: Dental coverage is frequently offered as an add-on to a health insurance plan. Coverage levels vary, but in most cases, preventive services such as cleanings and checkups are covered at 100 percent, while more basic services (such as fillings) are paid at 80 percent, leaving you responsible for 20 percent of the cost.

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Major dental work is usually limited to 50 percent of the cost. If you are in need of an implant, bridge or root canal, you will be paying for half of the procedure’s cost. Many plans do not cover the cost of orthodontia, especially for adults.

The ACA requires that health plan for anyone under the age of 18 must offer dental as part of the plan or as a standalone.

Best practices and expert advice

There is no doubt that health insurance is complicated, and even the most savvy consumers may need help understanding their coverage. Do not hesitate to contact your agent or insurer for clarification.

Our health insurance experts have put together a few best practices when it comes to shopping for and understanding your coverage:

Shop your options

Federal law prohibits you from changing plans except during your employer’s or the Marketplace’s open enrollment period, unless you have had a qualifying event, such as a job change or divorce.

“During that period, shop your coverage. If you miss it, you will be stuck with your current plan for another year,” advises Mike Raines with Raines Insurance Group. “Verify the new policy meets the ACA requirements and that your preferred doctors are in the plan,” says Raines.

When shopping for a health care policy, it’s important to compare your options. “Oftentimes, we see clients who want to skip right to the cheapest plan rather than considering what their true health care needs may be in the future. Eventually they may come to regret their decision as the coverage is lacking,” explains Lewandowski. “We also see the same thing in the opposite direction, with clients wanting the best plan available yet they underutilize the plan over the year or just find it unaffordable,” he continues.

Mind the exclusions

Every insurance policy has standard exclusions and insurers may impose additional exclusions and limitations. No health insurance plan is available that will cover every single medical expense.

Review all exclusions and make sure you can live with the services and medicines that may be excluded by your policy.

Double check your doctor

Having your preferred medical providers in your network is important, but it can be challenging to know if the insurer’s provider list is

current, despite requirements for up-to-date directories.

“Don't believe that the doctors and hospitals listed in the insurer's booklet or website are still on the plan,” advises Adria Goldman Gross, with MedWise Insurance Advocacy.

“When a provider is no longer credentialed with the insurance company it often takes 3 to 5 years for the list to be updated. I always recommend contacting the medical providers and the hospital to verify,” she continues.

Keep your summary of benefits handy

“It’s important that you become familiar with how your plan operates. The best way to achieve that is to review and keep handy your Summary of Benefits. This is like your health insurance roadmap, and it tells you how your plan operates, what’s covered, how much your deductible, out of pocket maximum and co-pays are and what services are and aren’t covered,” advises Lewandowski.

Take charge of your health plan

If your policy doesn’t match your needs or your favorite doctor is not considered in-network, it may be time to start looking for a new policy so you’re ready to change when your enrollment time arrives. We can help you find an affordable and comprehensive policy to protect you and your family.

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