These health insurance terms are common to most health plans and are very important to our cost-cutting strategies. Understanding the impact that adjustments to your deductible and maximum out-of-pockets expenses can have on your health plan costs can help you to choose the right plan at the right price. The federal government also has a helpful list of Health Insurance Terms.

Premium – With any health plan, this is how much you pay, usually monthly, to buy health insurance coverage. In addition, there are often other payments you must make, which will vary by plan.

Deductible – In addition to your premium, the deductible is your out-of-pocket cost each year before the health plan begins to contribute to your medical expenses. For example, if you have a $1,000 deductible and incur $3,000 of medical expenses during the year, you will pay the first $1,000 of your medical expenses before receiving any benefits from your health insurance plan. Unless your health coverage provides otherwise, last year’s medical expenses do not apply toward your deductible this year. Some plans have separate deductibles for different services, such as a deductible for each hospital admission.

Co-Payment – Most health insurance plans require that you pay a part of the cost for certain health benefits, like a doctor’s office visit, or for part of the cost of a prescription. For example, you might have to pay $20 for an office visit.

Co-Insurance – Co-insurance is the percentage of covered medical expenses that you share with your health plan. If your medical plan has 80/20 co-insurance, your health plan with pay 80% of your medical expenses after you have covered expenses for the year equal to your deductible. You will then pay 20% of any additional expenses for the year.

Out-of-Pocket Maximum – Your out-of-pocket maximum is the maximum amount you have to pay in any one year before the health plan pays 100% of covered expenses. If you have a $5,000 out-of-pocket maximum, you would pay no other costs for covered expenses.

For example, suppose you had medical expenses of $50,000 in the current year, and your health plan had a $1,000 deductible, an 80/20 co-insurance and an out-of-pocket maximum of $5,000. First, you would pay for all expense up to your deductible, $1,000. You would then be responsible for 20% of expenses up to your $5,000 out-of-pocket maximum. At that point, assuming your deductible is included in the out-of-pocket maximum (in some plans it is additional), your health plan would pay 100% of all remaining covered expenses over $5,000
Lifetime Limits – Health insurance plans protect themselves with a maximum amount that will be paid out over the lifetime of the plan. Typically, lifetime maximums range between 1 and 5 million dollars.

Pre-existing conditions – Medical conditions for which you have been or are being treated by your doctor and are part of your health records. An insurance company may deny issue of private health coverage based on pre-existing conditions.

Health Savings Accounts – A Health Savings Account is a tax-sheltered savings account for medical expenses.

With a HSA, you can:

save on health insurance by purchasing a lower-cost, high-deductible health plan
fund your HSA account with pre-tax dollars (like an IRA)
accrue interest on a tax-deferred basis
withdraw funds to pay for a wide range of medical expenses tax-free and without penalty
allow unused funds to accumulate tax-deferred for retirement

HIPAA – HIPAA is the acronym for the Health Insurance Portability and Accountability Act passed by the U.S. Congress in 1996. HIPAA protects health insurance coverage for workers and their families when they change or lose their jobs, even if there are pre-exisiting conditions.