Health Insurance Features and Terms

Nearly all health insurance policies share common features. The specifics of the policies define the benefits provided by the health plan.

Deductibles

The deductible is a certain amount of money paid by the patient.  The insurance company will not pay for any care until the patient pays the deductible amount. For example, if a person selects a policy with a $500 deductible, he or she agrees to pay the first $500 of medical costs each year. Policies with a low deductible are generally more expensive than those with a high deductible. 

Coinsurance

Many policies also require policyholders to pay a percentage of all costs . It is common for an insurance company to make members pay 20 percent of all costs.  Policies that do not require a coinsurance payments are usually more expensive.

Co-payments

Most managed care plans require patients to pay for a part of each health care treatment. Co-payments are usually $10 to $40 per doctor's visit and may be higher for emergency room care.

Premiums

The cost of the insurance plan is called the premium. The premium is the payment an individual policyholder pays in advance so that the insurance company will later pay for certain medical costs. Generally the more you pay, the better the insurance.  Insurance is more expensive for older people and for those with medical problems.

Terms and Limits

Most health insurance policies only pay for care the insurance company considers “reasonable and necessary.” The meaning of these terms is key to understanding the policy’s benefits. 

"Reasonable" refers to whether the treatment is appropriate.  It is also used to limit payments.  If the company decides that a cost is not reasonable, they will only pay a portion (or may not pay at all).  If doctors in your area all charge more than your insurance pays, you may have to pay the extra charges, and your care may be very expensive.

Insurance companies also determine what they consider to be  "necessary."  Many common procedures are commonly called unnecessary and benefits are denied.  The cost of care not considered “necessary” becomes the responsibility of the patient.

To be considered “necessary,” a treatment must ordinarily meet the following criteria.  These criteria are a summary of those used by Blue Cross of California, but are common.  They sound appropriate, but the language is confusing and the insurance company often chooses to interpret all of the rules in their favor:

• a treatment must be appropriate for the person’s condition;
• the treatment must be recognized as the usual or average treatment for problem;
• the treatment cannot be done for the convenience of the patient;
• the treatment cannot be experimental; and,
• the procedure must be the least type of care possible.

 For hospital cases, additional rules apply:

• the  insurance company must agree that hospitalization is needed; and,
• the company must agree that the patient could not get care more cheaply.

The “fine print” is particular important when determining what is “necessary.”

Out-of-Pocket Maximum

Some health insurance policies have a maximum amount that an individual or family must pay each year.  For example, a policy with a $1,000 yearly limit will pay some costs above that amount.  This is a premium feature and often costs more.

Lifetime Limits

Some insurance companies have a lifetime limit.  This is the maximum that will be paid for a single person's medical expenses. Limits of  $500,000 are common.  A serious heart condition can cost more than this.  More expensive policies tend to have higher limits.

Preexisting Conditions

When a policyholder has a medical condition known before a policy is issued, the policy is not required to pay for treatment for that problem.

Catastrophic Coverage

Catastrophic health insurance, also known as major medical insurance, is a policy of health insurance with a high deductible and high lifetime limits.  They are less expensive and they do not cover routine care, but they can save a family from bankruptcy in the event of a serious illness.

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