Health Insurance Literacy: Understanding Your Coverage and Care
Health insurance is a basic need, but policies are commonly complicated and full of unfamiliar terms. This makes it difficult for many people to compare policies and fully understand their insurance coverage.
Health insurance literacy is the ability to seek, obtain, and understand health insurance plans and, once enrolled, use health insurance to seek covered services. In a survey of over 15 thousand adults, 51% reported difficulty understanding basic insurance terms, and 48% had low confidence in their ability to use their health insurance to access care.1
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Health insurance literacy is essential for consumers to effectively use their health insurance benefits, manage their out-of-pocket expenses, and understand their rights and responsibilities as policyholders. Nearly half of U.S. employees spend 30 minutes or less understanding and enrolling in healthcare benefits. If you need help understanding the options available in the Marketplace, help is available at Local Help.
Understanding the basics of health coverage can help you find medical care covered by your insurance. However, if you are one of the 27.5 million people under the age of 65 who were not insured in 2021, it is also important to know the best ways to see a doctor without insurance. Online medical care through Telegra MD provides a cost-effective way to seek quality healthcare when you do not have insurance coverage.
Understanding Health Insurance Basics
The first step to improving your health insurance literacy is to review the key insurance terms used by insurance companies.
Key Health Insurance Terms
Key insurance terms found in most insurance policies include:
- Coinsurance: The percentage of medical expenses the policyholder must pay after reaching the deductible. For example, if your coinsurance is 30%, you pay 30% of the cost, and your insurance company pays 70%.
- Copayment (copay): A fixed amount (dollar amount or percentage) that the policyholder must pay each time they use their insurance for doctor visits, hospital visits, or prescription drugs.
- Deductible: The amount the policyholder must pay out-of-pocket for covered medical services before the insurance company begins payment. The deductible varies between insurance plans.
- Essential health benefits: A set of health benefits your insurance policy must cover, including preventative services, hospitalization, prescription drugs, and other services.
- Explanation of Benefits (EOB): This statement is sent to policyholders after a claim is processed. It details the services provided, the amount billed, the amount covered, and the policyholder’s responsibility for payment.
- Formulary: This is a list of prescription medications the insurance company covers, along with the associated copayment or coinsurance amounts.
- Network: The group of healthcare providers who sign a contract with your insurance company to provide care at a discounted rate.
- Open enrollment: A specific period typically at the end of the calendar year when you can enroll in or make changes to your health insurance plans without needing a qualifying event.
- Out-of-network provider: A provider who has not signed a contract with your insurance company to provide services at a discounted rate, which results in higher costs for the consumer.
- Out-of-pocket maximum: The maximum amount a policyholder will pay for covered medical expenses in a policy year. When you reach this point, your insurance provider pays for all covered expenses in full.
- Preauthorization: This is the process of seeking approval for a medical service or procedure from your insurance company to ensure that the services are considered medically necessary and covered.
- Pre-existing condition: A medical condition that has been identified before a policyholder seeks insurance. Some plans have waiting periods or exclusions for pre-existing conditions.
- Premium: The monthly payment paid to the insurance company to maintain health insurance coverage.
- Qualifying life event: An event such as marriage, childbirth, loss of insurance coverage, or relocation that triggers a special enrollment period outside of regular open enrollment.
When evaluating your choices for healthcare insurance coverage, it is important to consider how much you typically spend on doctor’s visits and prescription medications. Learn more about how much a doctor’s visit costs and read a guide to online prescriptions.
Types of Health Insurance Plans
Several types of healthcare plans are available, including:
- Health Maintenance Organization (HMO): A plan in which you are restricted to a network of healthcare providers who contract with the HMO.
- Preferred Provider Organization (PPO): A plan in which your costs are lower if you stay in the network. However, there are in-network and out-of-network options.
- Exclusive Provider Organization (EPO): A managed care plan in which you are only covered if you stay within the plan’s network (except in an emergency).
- Point of Service (POS): Combines elements of a PPO and HMO.
|HMO (Health Maintenance Organization)||PPO (Preferred Provider Organization)||EPO (Exclusive Provider Organization)||POS (Point of Service)|
|Cost-sharing||Generally lower premiums and out-of-pocket costs||Typically higher, especially for out-of-network care||Moderate premiums but typically lower costs than PPOs||Similar in cost to HMOs|
|Provider Network||Narrow and restricted network||Broader network with in-network and out-of-network options||Limited network of providers||Offers a broader coverage network but frequently requires a designated primary care physician (PCP)|
|Need for a primary care provider||Yes||No||Often||Yes|
|Need for a referral||Yes||No||No||Yes|
|Need for pre-authorization||Yes||No||Usually no||Yes|
|Out-of-network coverage||Only in an emergency||Yes||Only in an emergency||Yes|
Comparing FSAs and HSAs
Besides managed insurance plans, some options reimburse healthcare costs. These plans help you lower your income taxes and save money to pay for healthcare costs.
|Health Savings Accounts (HSA)|
Flexible Savings Account (FSA)
|Eligibility requirements||Must include a High-Deductible Health Plan (HDHP).||Must be offered by your employer.|
|Spending requirements||HSA funds can be used to pay for deductibles, copayments, coinsurance, and other qualified medical expenses.||FSA funds can be used to pay deductibles and copayments, but not insurance premiums.|
|Contribution limits||The maximum is $3,850 for singles and $7,750 for families in 2023. Those age 55 and older may contribute an additional $1,000.||The maximum is $3,050 for 2023.|
|Rollover||Unused balances roll over to the next year.||A cap of $570 for rollovers. If employers permit rollovers, all other funds are forfeited.|
|Portability||HSAs can follow you from employer to employer.||You will usually lose your unused FSA contributions when you leave an employer, unless you are eligible for COBRA.|
|Access to funds||Anytime.||Access throughout the year, even before contributions are made.|
|Ownership||You own the account and the funds.||Your employer sets up the accounts and the requirements.|
|Investing options||You can invest unused funds in accounts selected by your HSA provider.||No investing options are available.|
|Effect on taxes||Contributions are tax deductible if not taken pretax from your paycheck. Growth and distribution are tax-free as long as they are used for medical expenses.||Contributions are pretax, and distributions are untaxed.|
|Effect on switching insurance plans||If the new plan is not HSA-qualified, you won’t be able to make contributions but can make withdrawals.||FSA accounts do not follow you after you leave your employer.|
Decoding Your Health Insurance Coverage
Whether your employer offers several healthcare coverage options or you purchase coverage from the Marketplace, it is essential to understand what each plan covers and how well it matches your healthcare needs.
Reading Your Policy
Your health insurance policy is a legal contract between you (the policyholder) and your insurance company. When reading your insurance policy, look for information on coverage, exclusions, coverage limits, and policyholder responsibilities. If you have questions after reading the policy, call the customer service department for clarification.
Look for these details on your policy:
- Effective date and policy period: The date when the policy becomes effective and the term of coverage.
- Premiums and payment information: How much your insurance premiums are and how often you must pay them.
- Coverage: This section of your policy provides information about medical services and treatments covered by your policy. Check to see the extent of coverage for hospitalizations, doctor’s visits, prescription drugs, preventative care, mental health services, physical therapy, and other specialty services.
- Exclusions: This section of your policy discusses medical services and treatments not covered by your policy. This varies by policy and frequently includes elective and experimental procedures and treatments.
- Claim filing: Instructions on how to file a claim to seek reimbursement for medical expenses.
- Termination and cancellation: This is a list of conditions under which your policy can be terminated or canceled.
- Appeals and grievances: This provides instructions on how to appeal denied claims or file a grievance with the insurance company.
- Coordination of benefits: If you have insurance coverage under multiple plans, this explains how your primary and secondary coverage work together.
Understanding Your Benefits Summary
A Summary of Benefits and Coverage (SBC) summarizes your coverage information. SBCs are required to present information in a consistent format to make it easier to compare insurance coverage types.
Under the Affordable Care Act (ACA), health insurance plans are required to cover a set of preventative care services without a copayment, deductible, or coinsurance.
Covered services may include:
- Routine preventative care physical exams
- Preventative counseling and screening
- Blood pressure, diabetes, and cholesterol tests
- Cancer screenings
- Counseling, screening, and vaccines for healthy pregnancies
- Regular well-baby and well-child visits up to age 21
Preventative healthcare exams can identify serious health conditions early, decreasing overall healthcare costs. For example, identifying early signs of heart disease can enable people to make lifestyle and dietary changes that add many years of healthy living to their lifespan.
Navigating Care with Your Health Insurance
Understanding your health insurance coverage can help you make healthcare choices that provide the care you need in the most cost-effective way possible.
Choosing Providers and Services
When selecting your healthcare coverage plans, consider the doctor visits and healthcare services you and your family have sought over the last several years. In-network providers and services are typically covered at a much lower cost than out-of-network ones. If your preferred healthcare provider is not “in-network” on your plan, determine the cost of continuing to see your doctor.
Also, consider whether you and your covered family members are typically healthy and only require preventative services and emergency care or have medical conditions that require specialist care.
Understanding Medical Bills and Explanations of Benefits (EOBs)
Your explanation of benefit (EOB) is a statement your insurance company sends after you have received a healthcare service that resulted in submitting a claim to your insurance company. An EOB is not a medical bill. It is an informational statement in which the insurance company explains how they have processed your claim.
Key sections of an EOB include:
- Policyholder information: your name, address, phone number, etc.
- Service date and other details: describes the health services you received.
- Total charges and insurance payments: describes the provider charges, the allowed charges, and the amount paid by the insurance company.
- Adjustments made to charges: adjustments made to the total charges based on the insurance company’s maximum allowed charges and contractual agreement.
- Patient responsibility: describes the amount you owe.
- Coordination of benefits information: explains the responsibility of primary and secondary insurance coverage.
- Non-covered services: describe services your insurance does not cover.
- Comments: notes from your health plan.
Your explanation of benefits should include a customer service number. If you have questions about your charges, contact a representative at that number. Like all documents, EOBs can have errors, so it is essential to watch for errors in service dates, charges, copayments paid, etc. The bottom of your EOB should describe how to appeal your charges, especially if you disagree with your insurer’s coverage statement or payment decision.
Making Informed Health Insurance Decisions
Choosing a health insurance plan is an important financial decision. Understanding the vocabulary and how to compare plans helps you determine which plan is best for you and your family—it provides good health coverage at the best price point.
Evaluating Health Insurance Options
There is a veritable alphabet soup of potential health insurance options. To choose the best one for you, consider how you have spent your healthcare dollars over the past two years. Are you generally healthy and need preventative and emergency care? Or, do you have chronic health conditions that make specialist coverage, both in and out-of-network, important?
Making the Most of Your Coverage
In today’s world, online telemedicine doctors and online pharmacies provide even more cost-effective healthcare options, even if you do not have insurance. Research all your options to identify how best to maximize your health insurance benefits. If you have a qualifying life event, and during each open enrollment period, review your insurance policy use from the previous year and compare your current benefits with any other plans available.
To further reduce healthcare costs, consume a healthy diet, get plenty of restful sleep and exercise, learn to manage stress, use all preventative care options provided, and manage chronic conditions. For example, high blood pressure is a silent killer with no symptoms and increases your risk of cardiovascular disease, including coronary artery disease and stroke. Read tips for managing blood pressure. If you have questions about your health or a medical condition needing treatment, contact the healthcare providers at Telegra MD.
While we strive to always provide accurate, current, and safe advice in all of our articles and guides, it’s important to stress that they are no substitute for medical advice from a doctor or healthcare provider. You should always consult a practicing professional who can diagnose your specific case. The content we’ve included in this guide is merely meant to be informational and does not constitute medical advice.
1. Edward J, Wiggins A, Young MH, Rayens MK. Significant Disparities Exist in Consumer Health Insurance Literacy: Implications for Health Care Reform. Health Lit Res Pract. 2019 Nov 5;3(4):e250-e258. doi: 10.3928/24748307-20190923-01. PMID: 31768496; PMCID: PMC6831506.