Health Insurance Basics
On this page, we try to explain a very complex issue in simple language.
A health insurance policy is a contract between an insurance company and an individual or a group that individuals are part of, like an employer or labor union. Basically, you pay the insurance company a set amount of money during the contract period and, in return, the insurance company agrees to pay for a portion of your medical care. Since your policy is a contract, its terms determine what coverage you may or may not get.
To get the most from your health insurance, it’s important to understand some basic insurance terms and their definitions:
Claim: Paperwork submitted to the insurance company for services covered under your policy. In-network providers usually handle the claims paperwork for you.
Coinsurance: The percentage you pay for services; often the percentage of your responsibility after the deductible has been satisfied. This is usually in lieu of a co-payment, but can sometimes be in addition to a co-payment. This will be determined by the contract you have with the insurance company. For example, you might have to pay 20% of the cost of a surgery, while the insurance company pays the other 80%. You could end up owing very little, or a great deal, depending on how much care you get in a year and whether your policy has an upper limit on coinsurance.
Co-payment (aka co-pays): This is a dollar amount that you must pay “out of pocket” before the health insurer pays for a particular visit or service. For example, your insurer might require a $30 co-payment for each appointment with your Emily Program therapist, while your insurance company pays the rest of the fee for that visit.
Deductible: A fixed dollar amount you pay during the benefit period (usually a year) before the insurer starts to make payments for covered medical services. Plans may have both per individual and family deductibles.
- Some plans may have separate deductibles for specific services. For example, a plan may have a hospitalization deductible per admission.
- Deductibles may differ if you get services from an approved provider or from providers not on the approved list.
It’s easy to get the deductible confused with the co-pay or co-insurance, but they are different things. Let’s say your policy has a $500 deductible per year. If each trip to one of your health care providers costs $250, then you must pay the full amount for the first 2 visits before the insurance company starts paying for your visits.
Coverage limits: Some health insurance policies only pay for health care up to a certain dollar amount (e.g. $500,000 or $1,000,000) for all of your health care or for a specific service. For example, many insurance policies have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when the benefit maximum is reached, and you must pay all the remaining costs.
Exclusions: Your insurance may not pay for every health care service you need. Exclusions are the services which are not covered. Generally, you’re expected to pay the full cost of “excluded” or non-covered services.
Explanation of Benefits (EOB): When you receive a health care service and the claim has been processed, the insurance company will often send you a document explaining how the services were covered and which services were not covered.
In-Network Provider/Contracted Provider: Most health insurance companies “preselect” a list of health care providers who sign a contract with the insurer. Generally, in-network providers agree to accept “discounted” rates for services. The client co-pay and/or coinsurance will be based on this amount. An insurer may also contract with specific providers because their success rate, quality of care, and other factors are good.
Insurance Policy: Another word for the contract you sign with the insurance company. Most health insurance policies are many pages long with a lot of fine print. As a practical matter, few of us need to read all of the fine print. But if you are struggling to get your insurer to pay for certain services—like eating disorders treatment—you will need to know your policy (including the fine print) well. See Advocating for Insurance for more.
Insurance regulation: The individual states have primary responsibility for most health insurance regulation companies and their practices. State legislatures write the laws and a state agency enforces them. Each state has a Commerce or Commissioner who oversees health insurance companies. Federal statutes—such as laws for health care reform and mental health parity (see advocating for insurance)—also govern some insurance practices.
In Minnesota, it's the Commerce Commissioner
In Wisconsin, it's the Commissioner of Insurance
In Washington, it's the Insurance Commissioner
In Ohio, it's the Department of Commerce
In Pennsylvania, it's the Commissioner of Insurance
Out-of-Pocket: This is a term to describe the money you pay from your own funds (that is, out of your pocket) for a health care service, even though you have health insurance. Some common “out-of-pocket” expenses are co-pays, co-insurance, and deductibles. Important: the same insurance policy may have a co-pay for some services and deductible for different services—it all depends on the details of your health insurance policy/contract.
Out-of-Pocket maximums: This is the highest dollar amount that your insurance policy requires you to pay out-of-pocket for covered services in a year. Let’s say your policy’s out-of-pocket maximum is $1,000 a year; once you spend $1,000 out-of-pocket, you may not have to pay anything else out-of-pocket—unless you exceed the coverage limits. Depending on your policy, some costs you pay do not apply to the out-of-pocket maximum. As usual, these issues are determined by your insurance company.
Premium (aka Rate): The amount of money that you or your group (e.g. an employer, labor union, etc.) pays to the insurance company to purchase health coverage. Most premiums are paid monthly. If you have insurance through your employer, the premium is usually deducted from your paycheck.
Prior Authorization: Before agreeing to pay for a certain service or procedure, an insurance company may require you to get permission in advance—prior authorization—for it. Many less expensive, routine services—like a physician’s visit for strep throat—may not require prior authorization. An insurer is more likely to demand prior authorization for more expensive, complex and long-term care—like residential eating disorders treatment.
The insurer usually requires the provider to produce documents and other data to prove that the proposed treatment is “medically necessary.” Some insurers use complex criteria in order to grant a prior authorization and may refuse to reveal the criteria they used to determine if a particular course of treatment can be covered. (Remember though, that a “medically necessary” treatment still won’t be covered if your insurance policy doesn’t include it among the services covered under your benefits.) Since eating disorders treatment can take a long time, The Emily Program often runs into “prior authorization” situations. Fortunately, we have good working relationships with most insurers, and can often agree with them on a course of action.