Healthcare expenses can destroy even the most carefully crafted budget. We frequently have clients who try to time pregnancies or surgeries to minimize cost based on their family health coverage. Beyond that, some estimates say up to 80% of medical bills contain errors, many of which can cost you if you don’t understand the terms of your plan well enough to contest them.

With these concerns in mind, we want to walk you through the anatomy of a health insurance plan. While it would be impossible to create an exhaustive guide, our goal is to help you understand the different terms and common tools included in employer-sponsored health coverage so you can select the right plan for you and better understand what it will or won’t cover.

Anatomy of health insurance

We’ll break this explainer down into two overarching sections: coverage and costs. While most people tend to focus on costs, the actual amount you pay can be highly dependent on how your coverage is structured, so we’ll start there.

MEDICAL COVERAGE

Medical coverage is the core building block of most health insurance plans. It usually includes routine and preventative care, specialist visits (such as an orthopedic surgeon to look at your knee or an ob-gyn during pregnancy), outpatient surgeries and procedures, hospital stays, emergency services, and maternity or newborn care.

PRESCRIPTION DRUG COVERAGE

Your prescription drug benefits cover medications prescribed by a doctor. Insurers sometimes call it a pharmacy benefit, and often insurers partner with a separate entity, called a pharmacy benefit manager (PBM), to handle this benefit. PBMs act as middlemen, negotiating specific prices that can have a big impact on what you pay.

The coverage drugs tend to fall into three categories: generic, brand-name, and specialty. Generic drugs tend to be the most affordable. Brand-name drugs tend to cost more, and if they’re patented, a generic option may not be available. Specialty drugs tend to cover rare or expensive conditions, such as autoimmune diseases or cancer.

Some PBMs offer mail-order services for ongoing prescriptions to keep costs down, and some may require prior authorization for specialty or even name-brand medications. Terms vary by plan and, because they are likely handled by a PBM versus your primary insurance provider, you may have to look at different documentation or call a different help line if you have questions.

A note about coverage: As you may have noticed, what your plan covers (and what it is required to cover) depend on the type of plan you have. Marketplace plans must follow certain rules. Large employer-sponsored healthcare plans have a separate set of rules; often, they must follow ACA guidelines, but not always, and the way employer plans are regulated depends on how your employer has structured their plan.

One important takeaway: If your employer-sponsored plan covers something that is mandated under ACA guidelines, then your employer must follow ACA standards and guidelines. So for example: If your workplace plan covers emergency services, then it cannot implement a lifetime cap on your ability to use those services.

BEHAVIORAL AND MENTAL HEALTH COVERAGE

This includes therapy, counseling, related medications, and even additional support and outpatient treatment for substance abuse.

Employer-sponsored plans may opt out of this type of coverage, though they rarely do. Mandates around mental health care are tied to more than just Affordable Care Act mandates, they are also influenced by the Mental Health Parity and Addiction Equity Act which requires insurers to offer the same level of coverage for behavioral services as for medical conditions.

In other words, if an employer-sponsored plan offers mental or behavioral health coverage, the degree of coverage and associated costs must be the same as with medical coverage.

DENTAL, VISION, AND WELLNESS CARE

Dental and vision care tend to be broken out separately from medical coverage. Similarly, wellness care—which includes things like cancer screenings—have evolved and are occasionally considered a separate type of coverage.

There is some overlap between medical coverage and all three of these areas. For instance, if you’re having jaw surgery, it is often considered both a medical and dental procedure. Some health plans may offer wellness care (like an annual physical or flu vaccine) independent of medical coverage.

The costs associated with healthcare

Now that you understand the various types of coverage, let’s break down what you may be expected to pay, and how these arrangements are structured.

PREMIUMS

Typically, you pay a monthly premium for your healthcare coverage. This likely includes a bundle of coverage—medical, prescription benefits, behavioral, and so on. (Dental and vision tend to have separate premiums from health coverage.)

DEDUCTIBLES

This is how much you’re expected to pay before your insurance starts kicking in to cover the cost of care. Families commonly look at deductibles when selecting their coverage based on how much they can afford to spend out of pocket on healthcare. What many may not realize, however, is that deductibles are not the only out-of-pocket cost.

COPAY

Most insurance plans require you to pay a flat fee for every doctor’s visit. The cost of your copay can vary significantly and may be different depending on the type of appointment. For instance, speciality providers and emergency services tend to carry higher copays than a visit to your general practitioner.

The terms for your copays may also vary based on whether a service is covered or not. For instance, your copay might be higher if a provider is out of network.

Prescription medications also carry a copay, though the details around this copay tend to be dictated by the PBM and your drug coverage, not your medical coverage. It can be helpful to think of these expenses as a slightly independent category. Whether they count toward your deductible and out-of-pocket max, for example, tends to depend on the terms of your specific plan.

COINSURANCE

Once your deductible has been met and your insurance begins covering your care, you may still be expected to pay a portion of the bill—known as coinsurance. The coinsurance amount can vary based on the type of care (routine versus specialized, and so on). Coinsurance expenses sometimes catch people off guard if they’re expecting full coverage once their deductible has been met.

OUT-OF-POCKET MAXIMUM

Many plans include an out-of-pocket maximum; once you hit this number, you won’t need to cover the cost of coinsurance or copays. Of course, there can be fine print involved here, as well.

For instance, it’s important to note what counts towards your out-of-pocket maximum. Copays or even coverage costs for treatments not included in your plan may not count toward this amount. Additionally, you may still need to pay for non-covered services after you’ve met your out-of-pocket max.

So, if your insurance doesn’t cover a specific medication that you need, and that medication is costly, the spend may not count toward your deductible or out-of-pocket max and you’ll likely still need to pay out-of-pocket for that drug even after you’ve met all of your spending obligations under your plan.

Types of plans

How coverage and costs work tends to depend significantly on whether services are in network or out of network, which means it’s important to know whether you have a PPO or HMO policy.

HMOs

Health maintenance organizations (HMOs) tend to cost less but include a much more regulated network of providers. Most of the time you need a referral from a primary doctor in order to see a specialist or get any kind of advanced procedures, and you may need to wait for preapproval.

PPOs

With preferred provider organizations (PPOs) you can generally see providers outside of the primary network, but you may pay higher copays, deductibles, and coinsurances.

NEW PLAN STRUCTURES

Insurers are now offering new categories of plans beyond basic HMOs and PPOs which may confuse anyone used to thinking in these more binary terms. Notably, point of service (POS) and exclusive provider network (EPO) plans have been billed as new options to help lower costs for consumers, but many of them function similar to HMOs but with a few adjustments.

While you may be tempted to select a certain plan based on headline numbers like premiums or deductibles, you could end up surprised by what you actually pay. It’s important to not only look at the type of plan, but which providers are considered in- or out-of-network in each. Plus, look at how out-of-network providers fit into the plan’s cost structure.

As you evaluate the details of your plan, we recommend checking a few specific things:

• Are your go-to providers in-network? Look at your primary-care doctor, any specialists you’ve seen in the past and might need to see again, and so on. If your doctor isn’t in-network, are other providers in their office?
• Which local hospitals are in-network? Oftentimes, insurers partner with specific hospital groups, making it easy to determine if certain doctors are in- or out-of network. While you may be tempted to check which hospital group your favorite doctors belong to, you should also check other hospitals in your area.
• Is your local emergency room in-network? It’s great if all of your doctors are in-network, but if they’re located across town, you may not be able to elect to travel there in a crisis. Emergency service providers will often take you to the closest hospital, so check to see how your insurance views the ERs closest to your home, work, and children’s school(s).

A real-life example: Coverage during pregnancy

Understanding the terms of a plan and what you’re expected to pay on paper can be very different than figuring out what you may or may not be responsible for in real life. While we’ve included a handful of examples throughout, let’s walk through two real-life examples so you can see what you might want to look for the next time you’re selecting your coverage or trying to estimate the cost of a medical procedure.

If you think you might be pregnant, your first step depends on whether you have an HMO or PPO. With an HMO, you’d need to visit your primary care doctor first to get a referral to an OB/GYN—that’s two doctors visits and two copays just to get your initial appointment under way. Some HMOs have a maternity exception that will allow you to make an appointment directly with an OB/GYN, but you’ll need to check the terms of your plan to see if self-referral is allowed.

With a PPO, you could make an appointment directly with your OB/GYN, and the cost of the visit will likely depend on your specialist co-pay as well as whether your doctor is in network.

Most pregnancies require a handful of labs and tests. Some doctors offices do these in-office, while others will send you to a lab. You’ll need to make sure, if you go to an independent lab, that they are in network, otherwise you could end up paying more.

Because routine pregnancies tend to require 10-15 doctor visits, as well as numerous scans and labs, it’s common for families to hit their deductible, and even their out of pocket max, early in the process. However, that doesn’t mean you won’t face additional expenses.

For instance, if you get an epidural during pregnancy, it’s usually administered by an anesthesiologist. These doctors aren’t always affiliated with the hospital where they’re stationed, meaning they may be out of network even if you’re delivering in a hospital that’s considered in-network.

If the anesthesiologist is out-of-network, you may be required to pay for their full fee out of pocket even if you’ve met your out-of-pocket maximum; it all depends on how your specific plan handles these expenses. The details matter, too. If the anesthesiologist is called in as part of an emergency procedure. If, for instance, you require an emergency C-section, you may be able to make the case that you weren’t able to arrange for an in-network provider, and get the expense covered.

This is where the details of your plan—things many of us tend to skim over when selecting benefits during employee onboarding or open enrollment—become critically important. Beyond that, the way your doctor bills the insurance company becomes incredibly important, too.

To continue the emergency C-section analogy—the doctor would need to code that it was an emergency procedure. If the administrator handling the paperwork simply notes that you had a C-section and an anesthesiologist was called in, that would allow your insurer to deny coverage; you would need to know that, catch the error, and ask your doctor to refile the paperwork with the proper (emergency) procedure code.

Next steps

We aren’t health insurance experts at Revo Financial, and this article is meant to be educational and illustrative. We can’t help you select health insurance; but we can help you evaluate how various costs may impact your spending and saving for other goals.

If you’d like to speak with a financial advisor about how to update your financial plan to include upcoming medical expenses, contact us today.