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Joanne’s Journal Digest July 2019 – Health Literacy

Dr. Conroy standing next to window

I’ve been sharing an important topic with our staff at Dartmouth-Hitchcock Health that I think is also important for members of our community—health insurance literacy. Health insurance terms can be challenging to understand, so I hope this might be helpful.

According to an article in the Journal of Consumer Affairs, called “Health Insurance Literacy of Older Adults,” health insurance literacy is the “degree to which individuals have the knowledge, ability, and confidence to find and evaluate information about health plans, select the best plan for their own (or their family’s) financial and health circumstances, and use the plan once enrolled.” The literature suggests that employees who may not fully understand how their health insurance works may not make the right choices regarding health care services.

In a 2017 survey, United Healthcare discovered that only 9 percent of the U.S. population showed an understanding of the following basic health insurance terms:

Premium: The premium is the amount you pay for your health insurance coverage each pay period.  Employees and their employer often share in the total cost of the premium. Working with actuaries (professionals who analyze financial risks), an employer calculates the anticipated costs for covering employee health care expenses for the next year based on the historic claim trends. They then add in administrative costs and divide the total into individual premium costs that are then shared by enrolled employees and the employer.

Copay: A copay is a flat dollar amount that you pay for covered health care services. For example, under some health care plans, you pay a flat dollar amount for physician visits or to purchase prescription drugs. The copay amount is usually charged at the visit. The amount can vary by the type of service and is managed by the health insurance plan. Copays may contribute to paying toward the deductible.

Deductible: A deductible is the amount you'll spend on medical services before your insurance plan begins to pay for your care. Some plans have a lower deductible, paired with copays. High-deductible plans have a higher individual and family deductible that must be met before the insurance coverage kicks in. In some high-deductible policies, you will have to pay in full (full retail) for all medical services up to your deductible amount.

Aggregate or Embedded Deductible: This applies to family plans. If you’re on a family plan, then you’ll want to know whether you have an aggregate or an embedded deductible. An aggregate deductible (used by most high-deductible plans) means that’s the amount that has to be paid out of pocket on any (or all) of the people covered by the plan before insurance starts paying for services. If that overall deductible is $5,000, then it doesn’t really matter how the family gets to $5,000 in spending, whether from one person or from several different enrolled member’s medical care. An embedded deductible just means that a single member of a family doesn't have to meet the full family deductible for after-deductible benefits to kick in. Instead, the person's after-deductible benefits will kick in as soon as he or she has met the individual deductible, even if the coverage is through a family plan.

Co-insurance: The percentage of the cost for covered medical, dental and prescription drug expenses that you pay, generally after you meet your plan deductible. It's usually figured as a percentage of the amount allowed to be charged for services.

Out-of-pocket maximum: Those post-deductible charges add up, which is where the out-of-pocket maximum comes in. Once you spend this much on in-network services, your insurance covers 100 percent of covered benefits for the rest of the year. Which medical costs count toward your deductible and out-of-pocket maximum depend on your health plan, so it’s important to read your policy summary. Depending on your plan, your insurer may need to authorize in advance a diagnostic exam, such as blood tests, or imaging exams like MRIs or X-rays. If you don’t get prior authorization, the insurer might deny the charges and what you pay will not count toward your spending limits.

Medical Savings Plans: There are a group of medical related savings plans, which are collectively referred to as medical reimbursement arrangements (MRAs). They are not health insurance plans, but generally work in conjunction with health insurance. Though one of the plans may be used to actually purchase health insurance, they mostly work to pay for the expenses that health insurance plans don’t cover. This can include copayments, deductibles, and certain medical expenses that are not covered by health insurance at all. There are three basic variations of MRAs, including Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs). Here are the specifics of all three programs:

  • HSA: Health Savings Accounts allow you to pay for certain medical expenses with money free from federal taxes. Because this is an IRS tax-exempt vehicle, there are lots of rules! It is used in conjunction with a high-deductible health plan (HDHP), which must have a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments and coinsurance) cannot be more than $6,650 for an individual or $13,300 for a family….but this limit does not apply to out-of-network services.
  • FSA: Flexible Spending Accounts are special savings accounts that allow employees to save money on a before-tax basis each year (up to IRS limits) to pay for eligible expenses incurred during the year. Eligible expenses may include medical, dental and vision-related expenses. Much like an HSA, contributions that you make to the plan are tax-deductible. However, the FSA has a catch: any contributions made to the plan that have not been spent by the end of the year are forfeited. Much like an HSA, an FSA can be used to pay the expenses that are not covered by your health insurance plan.
  • HRA: A Health Reimbursement Account is a plan in which an employer reimburses an employee for both health insurance premiums and out-of-pocket medical costs. “Reimbursement” refers to expenses that are actually incurred by the employee. This can include premiums paid for long-term care and travel expenses incurred in connection with medical treatment. However, an individual employer may further reduce the list of allowable expenses. Depending upon the type of HRA, unused funds may or may not be rolled over from one year to the next. There are no limits to how much an employer may contribute to the plan, and it is owned entirely by the employer, not the employee.

I recognize that some of this information is still hard to digest and there may be some differences in what is generically described here versus the health insurance plans in which you and your family are enrolled. So if you have questions, I recommend you contact your employer’s Human Resources department. We also have some helpful information on the Dartmouth-Hitchcock website linked here.