Insurance Terms You Should Know

As we get into open enrollment for individual health insurance, Medicare Part D Drug plans, and many group insurance plans, it’s probably a good idea to review some important terms.

Deductible – the dollar amount an insured individual must pay for covered expenses during the plan year (often the same as the calendar year) before the plan begins paying any benefits.

Co-pay/co-payment – the amount an insured individual must pay toward the cost of a particular benefit. For example, a plan might require a $25 co-pay for each doctor’s office visit. This may or may not apply to the deductible. Read the fine print!

Co-insurance – the percentage of covered expenses an insured individual shares with the carrier. For example, for an 80/20 plan, the health plan member’s co-insurance is 20%. So the insured will pay 20% of the covered expense. If applicable, co-insurance applies after the insured pays the deductible and is only required up to the plan’s stop loss amount.

Stop-loss or Maximum Out of Pocket- the dollar amount of eligible expenses at which the insurance begins to pay at 100% per insured individual. Stop-loss is reached when an insured individual has paid the deductible and reached the out-of-pocket maximum amount of co-insurance. ACA (Affordable Care Act, also known as Obamacare) said that all plans compliant with the ACA must include the deductible amount in the stop-loss. You don’t have to add the deductible to that number to get to the total amount that you would be expected to pay in a calendar year.

In 2019 the Stop-loss our Out of Pocket maximum numbers are increasing. Be sure to read your renewal to see your plan’s increase.

HSA (Health Savings Account) Eligible: Certain high deductible health plans allow the insured to qualify to contribute to a special tax-favored savings account called an HSA. Not all high deductible plans qualify, so be sure to verify that your plan qualifies.

HSA-Health Savings Account: This is a separate tax favored savings account, that allows the participant to contribute to be used to pay for qualified medical expenses such as deductibles, coinsurance, copays, dental, vision etc. Basically anything that the IRS allows as a medical expense deduction can be paid from an HSA. The contributions are deductible for Federal Income Tax purposes as an “above the line” deduction- no need to itemize. The account can be opened at your local bank, where you control the funds. Most come with a debit card to make it easy to pay qualified expenses as they arise.

If the funds are not used by the end of the year, they simply roll over. There is no “use it or lose it” rule. For 2019 the maximum contributions are $3500 for an individual and $7000 for a family. A $1000 catch-up contribution may be available for those age 55 and over.

What is community rating and how does it affect rates?

Along with guaranteed issue, health care reform required health insurance companies to move to modified community rating for individuals and small businesses. By pooling a group of people together, healthy people help balance health care costs for people who aren’t healthy. The risk and cost is shared among everyone in the pool.

Health care reform introduced new rules for community rating, which is why it’s called modified community rating. Insurance companies can’t base rates on any person’s health history. Instead, rates can be based on age, tobacco use (but not in California), family size and location. The law limits how much coverage can cost. The highest rate for a given plan can’t be more than three times the lowest rate.

All individual customers in a state will be in one risk pool and all small business customers will be in another risk pool. In addition: These laws prevent insurance companies from creating separate risk pools that charge higher or lower rates.

Unfortunately this new 3:1 ratio raised rates for younger people. It will also reduce rates for older, but not all that much, from what I have seen. That is why it’s important that young people with a grandfathered plan must be cautious.

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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