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Financial Health Insurance Terms You Need to Know

No matter your familiarity with healthcare, you probably had questions you were embarrassed to ask about health insurance

Let’s face it: health insurance is a complex subject. From your deductible to your in-network providers, there are various important questions to ask about health insurance. And remember, there’s no stupid question, especially when it’s about something as crucial as health coverage!

Let’s take a look at financial health insurance terms you need to know to help you better understand how insurance works:

Financial Health Insurance Terms You Need to Know
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Preauthorization (or Prior Authorization)

An insurance company can preauthorize a surgery or drug before you receive it. Receiving preauthorization generally means your carrier will pay the expenses, but there’s no guarantee. Most of these costs fall under the “medically necessary” category. If you’re not sure about a particular price, you should speak to your doctor or insurance company beforehand. It’s also good to review your policy’s documents to see what your insurance company covers.


Out-of-pocket Limit

As an insured, you pay a lot more than your monthly premium. Other expenses associated with health insurance include out-of-pocket deductibles and copays. Insurance plans have an out-of-pocket limit – the maximum amount you’ll have to pay during a calendar year. This limit does not include your monthly premium (only your deductibles and copays). The United States government sets a maximum out-of-pocket limit for Marketplace plans (currently $8,700 for individuals and $17,400 for families). A higher out-of-pocket limit typically means an insurance plan will have a lower monthly premium.



Many people new to insurance might wonder, what’s my premium? This is one of the most important questions to ask about health insurance. A premium is an amount you pay to the insurance company to receive coverage. Most insureds pay their premium monthly. They typically only pay a percentage of their premium, and their employer covers the rest. If you were to stop paying your premium, your coverage would lapse.

Financial Health Insurance Terms You Need to Know
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Allowed Amount

Questions you were embarrassed to ask about health insurance may have included a policy’s allowed amount. The allowed amount is the maximum that your insurance company will pay for a particular treatment, drug, or equipment. Your insurance carrier has negotiated the price, and they aren’t willing to pay anymore. Therefore, you may incur out-of-pocket expenses if you receive a service above the allowed amount.



You’ll qualify for coinsurance after you pay your entire deductible for the calendar year. Simply put, coinsurance is the portion of your medical bills that you pay. For example, you might have a coinsurance rate of 20%. You’d pay 20% of your medical expense, and your insurance company would pay the other 80%. Coinsurance rates typically range from 10% – to 20%, which can change from year to year. You’ll generally pay a lower premium if your policy has a high coinsurance rate.



A deductible represents the amount you pay before your insurance carrier covers the cost of your medical care. The average deductible in the United States for a single person is around $1,950. The average deductible for a family is approximately $3,700. If you have a $2,000 deductible, you would have to pay $2,000 out of pocket before your insurance company foots the bill. Generally, high deductible plans have lower monthly premiums and vice versa. A deductible resets every calendar year. Therefore, you’ll typically pay more out-of-pocket expenses at the beginning of the year.


In-network and Out-of-network Providers

Before making a trip to the doctor, it’s essential to know whether you’re visiting an in-network or out-of-network provider. If you go to an in-network provider, your insurance company will typically pay for the entire visit (less any deductible or copay). However, your plan may not cover a visit to an out-of-network provider (or it may only cover a small percentage). Moreover, you could have to pay a higher deductible or copay for visiting an out-of-network provider. In-network providers are generally part of the same hospital system in your locale.



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