Health insurance 101: Explaining hospital charges and patient costs

[Eighth in a series of posts to help you better understand health insurance and how recent changes affect you.]

If you’ve ever glanced at an Explanation of Benefits form, you know that it contains a confusing array of dollar figures, all for the same medical procedure.

The often wildly divergent figures illustrate how the modern health care system works.

For the sake of illustration, let’s say you go to the hospital, where you receive an outpatient colonoscopy procedure. And let’s say the hospital charges $2,000 (not necessarily a true average charge, but let’s use it for our purposes here.)

But “charges are not the same as cost,” as Ellen Ward, a project manager in Hospital Contracting and Policy for Blue Cross Blue Shield of Michigan, points out. “Charges are typically much higher than the total cost of providing a service.”

Health insurance 101 – How to read your Explanation of Benefits ( EOB)

[Seventh in a series of posts to help you better understand health insurance and how recent changes affect you.]

Many people find their Explanation of Benefits statements difficult to understand or confuse them with a bill.

Different insurers use different terms and formats, so you should direct specific questions to your insurance company. But here’s a general guide for how to make sense of your EOB:

Health insurance 101 – A glossary of common insurance terms

 [Sixth in a series of posts to help you better understand health insurance and how recent changes affect you.]

 

Confused about health insurance? You’re not alone.

 

The health care industry is a highly regulated, complex delivery system with multiple stakeholders, including you as a consumer and the insurance plan that helps you pay for care. And in an era when costs are rising, insurance plan benefit designs are changing and health care reform heralds big changes, it’s not easy staying informed.

 

To help you make better sense of the intricacies of your insurance plan, we’ve put together a reference glossary and explanation of health insurance basics. You can also check out our companion posts exploring emerging trends and products in health insurance.

 

What is a health insurance premium?

 

A premium is the amount that an individual policy-holder or, if you have coverage through your job, your employer pays to a health plan each month to purchase health coverage.

 

What’s a deductible?

 

A deductible is a fixed amount that a subscriber (the person who is covered by the insurance plan) is required to pay each year toward his or her medical services before the insurance company will begin to pay for services.

 

For example, if the insurance company specifies a $250 annual deductible, the subscriber must pay for medical services until that amount reaches $250 for the year. Then, the insurance company will begin to pay a portion of the costs.

 

The use of deductibles reduces the cost of premiums by sharing some of the risk with subscribers. It also helps predict the overall expected costs for a group.

 

What is a copayment?

 

A copayment is either a fixed dollar amount or a percentage paid by the subscriber for medical services. Once a subscriber pays an agreed-upon copayment, the insurance carrier pays the balance.

 

For example, the subscriber pays 25 percent of the total cost for services, and the insurance carrier pays the remaining 75 percent.

 

The use of copayments reduces overall expenses for insured groups because the subscriber is sharing costs. It also gives the subscriber an incentive to use fewer services, one factor contributing to health care cost inflation.

 

What is coinsurance?

 

Coinsurance is a provision by which an insured individual shares in the cost of certain expenses; sometimes the term is used interchangeably with copayment.

 

At Blue Cross Blue Shield of Michigan, we use the term copayment to designate flat dollar amounts, while coinsurance refers to percentage amounts. For example, if a person is responsible for a percentage of a particular charge, it is considered coinsurance.

 

What is an Explanation of Benefits, or EOB?

 

An EOB is a statement mailed to a subscriber or insured individual explaining how and why a health insurance claim was or was not paid. There are various types of EOBs, but all have the same general format and contain the same claim information. An EOB is not a bill. Your care provider (doctor, hospital, clinic, etc.) will send you a bill.

You can also find a comprehensive glossary of health care terms on our corporate website.

 

Next week: How to read your EOB.

 

See also:

• Health insurance 101: Rising health care costs
• Health insurance 101: Costs influence plan designs
• Health insurance 101: Consumer-directed plans
• Health insurance 101: Rewarding wellness
• Health insurance 101: Health savings accounts

Health insurance 101: Health savings accounts help consumers fill gaps in coverage

[Fifth in a series of blog posts to help you better understand health insurance and how recent changes affect you]

As we’ve noted throughout this series, consumers are shouldering more responsibility for their own health care spending. New consumer-directed health plans incorporate tools to ease the burden and help individuals make smarter decisions regarding their care. One way is through health savings accounts.

An HSA allows you to pay for current health care expenses not covered by your high-deductible health plan and save for future ones, all on a tax-free basis. The account is funded by the employee, the employer, or both, but the account is owned by the employee. Leftover balances can be rolled over from year to year.

Pairing an HSA with a high-deductible health plan, which generally doesn’t cover the first several thousand dollars of your health care expenses, can be a smart way to go for some. Withdrawals are tax-exempt when used to pay for qualifying medical expenses, and contributions to an HSA reduce your taxable income.

Money used to pay for nonqualified expenses, however, is subject to a 10 percent tax penalty, an amount that rises to 20 percent after Dec. 31, 2010. A partial list of qualified medical expenses is available on Publication 502 at irs.gov.

When you set up an HSA, you determine your annual contribution. You can estimate these needs by:

• Reviewing your eligible expenses from the previous year
• Determining how your upcoming expenses may differ from the previous year

For 2010, your contribution cannot exceed the maximum of $3,050 for individual coverage or $6,150 for family coverage. A variety of other rules apply, but money not used during the year rolls over to the next year and can earn interest tax-free. You can also place your unused funds in a longer-term investment through the bank that administers your HSA.

You can contribute money directly, through deductions from your tax return, or via withdrawals from your 401(k) or other retirement plan. Employer contributions are not subjected to payroll taxes.

The use of health savings accounts has risen dramatically since being introduced in 2004. The ranks of Americans who supplement their health plans with HSAs was expected to rise as high as 45 million by 2010, from 438,000 in late 2004.

Next week: A glossary of health insurance terms

Health insurance 101: How Blues plans reward individual wellness

Fourth in a series of blog posts featuring frequently asked questions about health care insurance.

Last week, we discussed the rise of consumer-directed health careamong insurance plans. Those plans sometimes involve provisions designed to encourage or even reward individuals who lead healthy lifestyles.

What incentives are insurance companies offering to members for pursuing healthy lifestyles?

An emerging subset of consumer-directed health plans involves wellness and care-management initiatives. These plans give members the opportunity to lower their premiums and copayments by taking steps to improve their overall health, such as quitting smoking or losing weight.

The Michigan Blues offer a variety of wellness-focused plans through the Healthy Blue Choices^SM  portfolio. Healthy Blue Outcomes^SM, our newest product beginning July 1, rewards people who demonstrate tangible improvements in their health with more affordable health insurance coverage.

All of our Healthy Blue Choices programs ask members to complete online health assessments and meet certain health criteria. They encourage participants at risk for certain chronic conditions to speak with health coaches about their personal health issues, goals, treatment options and ways to improve their overall health.

Next week:The rise of health savings accounts.

Health insurance 101: The rise of consumer-directed health care plans

Third in a series of blog posts featuring frequently asked questions about health insurance.

As we discussed in last week’s post, employers are passing more of the costs of health coverage to employees. In response, insurers are offering health plans that help individuals better absorb expenses and use their health care dollars more wisely.

What is meant by consumer-directed health care?

Health insurance 101: Rising costs spur changes in health plan designs

[Second in a series of blog posts to help you better understand health insurance and how recent changes affect you.We welcome your comments and questions]

 

As health care costs rise, the types of plans offered to employees are expanding. The following is a frequently asked question:

 

My employer provides me with health insurance but keeps asking me to chip in more money to cover costs. Why can’t I just get a PPO that covers everything without asking me for any contribution, like before?

Health insurance 101: Costs are rising. What’s a consumer to do?

[First in a series of blog posts to help you better understand health insurance and how recent changes affect you.]
 
Let’s face it: Health insurance can be a dry and complicated business. And it’s not easy deciphering the various concepts, jargon, and not-exactly-household words that define the business of insuring your health.
 
But your health insurance is important. And with health care reform, ever-rising costs for care and other trends that are transforming the industry, it’s a good idea to keep yourself abreast of what the changes mean to you.
 
That’s why we’ve put together this guide to help you understand what’s happening in health insurance, why it’s happening and what it means for you.