April 2015
Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
A small step toward financial security that everyone should take is to become health insurance literate. An increasing area of concern, as the Affordable Care Act is implemented, is low health insurance literacy. According to a recent survey of 1,008 adults, 51% could not correctly identify at least one of three common terms- premium, deductible, and co-payment. Another survey of young adults found that only 14% could correctly define four insurance terms: deductible, co-payment, co-insurance, and out-of-pocket maximum.
Selecting health insurance is complicated with many “moving parts” including cost, quality of care, plan features, availability of desired service providers, and, in the case of health insurance exchanges, potential tax subsidies. Not surprisingly, studies have found that many people are overwhelmed by health plan options and lack confidence in their ability to select a plan. The term “health insurance literacy” refers to a person’s knowledge, ability, and confidence to effectively choose and use health insurance. A key component of health insurance literacy is an understanding of basic insurance terms such as those listed below:
- Co-insurance - An insured person’s share of the costs of a covered health care service, calculated as a percentage of the allowed amount for the service. For example, 20% of a $1,000 medical procedure would result in a $200 co-insurance payment. The health insurance plan would pay the remaining $800.
- Co-payment - A fixed amount (e.g., $25) that an insured person pays for a covered health-care service, usually at the time that the service is received. The amount can vary according to the type of health care plan and the type of covered service (e.g., doctor’s office visit vs. hospital emergency room visit).
- Deductible - The amount that an insured person owes for health care services before a health insurance plan begins to pay. For example, a $450 medical expense with a $250 deductible would result in a $250 deductible payment. The health insurance plan would pay the remaining $200 assuming that a co-insurance provision does not also apply.
- Maximum Out-of-Pocket Limit -The most amount of money that an insured person has to pay during a health insurance policy period (usually a year) before a health insurance plan begins to pay 100% of the allowed amount.
- Open Enrollment - The annual period, typically in the fall of each year, during which an insured person can sign up for health care coverage, or make changes to existing coverage, through an employer or government-facilitated health insurance marketplace (exchange).
- Premium - The amount that is paid by an insured person to obtain health insurance coverage. Premiums may be taken out of a worker’s paycheck or billed on a periodic basis such as monthly.
- Qualifying Life Event -A change in an insured person’s life that qualifies him or her for a special enrollment period to enroll in a health insurance plan. Examples of qualifying life events include moving to a new state, certain changes in income (e.g., losing eligibility for Medicaid), adding or losing a family member (e.g., marriage, birth of a child, adoption, divorce), gaining citizenship, leaving incarceration, and losing other health coverage.
- Special Enrollment - Time period for persons with a qualifying life event to purchase health insurance: within 60 days of a triggering event for marketplace coverage and within 30-60 days for job-based plans.