What is a deductible? What is an EOB? What's coinsurance?
We regularly get questions like these from parents trying to get help for their child while feeling helpless in their own struggle of navigating the complexities surrounding health insurance.
Health insurance plans can be a bit tricky to understand, especially when it comes to coverage for children's therapy.
In today's post, we will help you untangle these complex terms into simple ideas. We will achieve this by showing you real-life examples where possible.
Not only will you understand the limitations of your insurance coverage but you will leave with the knowledge to discuss any concerns with your insurance agent confidently.
Before we proceed any further, please note that each insurance company and coverage plan is different. The purpose of this guide is to give you an overview of what everything means and how it works in general. However, you must consult your insurance provider to understand the specific limitations of your plan.
With that out of the way, let's get started.
1) Deductibles
A deductible is an agreed upon amount you must pay yearly or monthly for a given period of time. During this time, the insurance company will NOT cover any of your medical expenses.
Once you have paid the deductible, the insurance company will start to pay their agreed-upon share for your medical expenses.
Example:
Let's suppose you just got an insurance plan and haven't paid the full deductible yet. After a consultation, you decide to take your child for speech therapy. The bill comes out at $1,500 after the first 10 sessions. In this scenario, you will have to pay the full amount out of your own pocket.
A few months go by and your deductibles are paid in full. The next 10 therapy sessions for your child come out at $1,500 again. However, you won't have to pay the full amount on your own this time as you've already paid the deductibles.
2) Copay
A copayment is a fixed amount you must pay each time you visit a doctor. All health insurance plans don't work the same way. Some don't require copay or deductibles while others require both.
Copay typically begins after you have paid the deductible but again, this is a general case and yours may be different.
Example:
Let's say you visit a pediatrician because your child is sick. Suppose your imaginary insurance plan has a fixed copay requirement of $20.
For the complete checkup and treatment, you will only have to pay $20 as the copay. The rest will be covered by your insurance.
3) Coinsurance
Coinsurance is the percentage of the medical bill split between you and the insurance company.
Coinsurance and copay plans are much the same. You have to pay an agreed upon amount of money after deductibles have been paid.
The most common type of coinsurance is a split of 80/20 in which you pay 20% and the insurer pays the other 80% of your total medical expenditures.
Example:
Suppose your insurance plan offers a split of 80/20.
If you get an MRI for a cost of $500, then you will only have to pay $100. The insurance company will pay the remaining bill of $400.
4) Out-of-Pocket Maximum
An out-of-pocket maximum is, as the name suggests, the maximum amount you can be asked to pay for medical expenses in a year. This typically includes all payments such as copays, coinsurance, deductibles, and so on.
If the cost of treatment exceeds the out-of-pocket maximum then the rest of the money will be paid by your insurance provider.
Example:
Suppose your insurance plan has an out-of-pocket maximum of $5,300 and a coinsurance split of 80/20.
Between a number of doctor visits, scans, therapy sessions, and other expenses, you end up with a bill of $15,000 for the year for your whole family.
Even though your medical bill stands at $15,000, you will not have to pay a cent more than the $5,300 out-of-pocket limit.
Since this imaginary plan has a coinsurance split of 80/20, this means you will have to pay just $1,060 out of your own pocket. Everything else will be covered by the insurance provider.
5) Prior Authorization
Prior authorization (PA) is a common restrictive clause in many healthcare plans. You are required to obtain prior approval from your insurance company for any medicines, medical procedures, or medical devices required.
Without a PA, you will have to pay for the medical treatments on your own. This is done to ensure that whatever treatment you get is medically necessary.
Example:
You visit a pharmacy and buy some medicine for a cost of $120. The pharmacy will try to confirm PA from your insurance provider.
If the insurance company denies the PA, you will have to pay the bill of $120 by yourself.
6) In-Network Provider
An in-network provider is any doctor or healthcare provider approved by your insurance company. Insurance providers negotiate lower fees with these networks to help you save money as well.
However, an in-network provider and a provider that accepts your insurance are not the same. How? An in-network provider gives generous discounts because they are in a contract with your insurance company.
A provider that accepts your insurance plan will not give any discounts. This is best explained with a simple example.
Example:
Say you get a treatment from an in-network provider which costs $300. A negotiated discount of $100 is applied and the payment is reduced to $200. According to your coinsurance, you only pay $40.
If you get the same treatment from another provider that accepts your insurance but is not an in-network provider, there will be no discount. The cost will remain unchanged at $300.
This is where many people get a shock when the time comes for the payment. Since there was a coinsurance split of 80/20, you might think that you only have to pay 20% of the bill, i.e., $60.
However, that's not the case because the insurance provider will only cover 80% of the $200 bill. That means they will cover $160 for you. You will have to pay the remaining $140 on your own as the $100 extra bill could have been avoided by going with an in-network provider.
7) Out-Of-Network Provider
An out-of-network provider is basically anyone outside the insurance company's list of approved providers. This means your insurance company doesn't have any discounted rates negotiated with these providers.
If you get a treatment from an out-of-network provider then you will have to pay a considerably higher percentage of the bill. So wherever possible, please make sure to check in with your insurance company to see if a doctor or facility is a part of their in-network list.
If anything is still not clear, please see the example in the previous section.
8) Medicaid
Medicaid is a state program in the United States that provides health coverage to millions of Americans. The people eligible for Medicaid are usually adults with low-income, qualified pregnant women, children, and disabled people.
Due to their generosity, millions of families with low-income get health coverage every year. Medicaid spent $330 billion in 2007 alone.
The good news is that child therapy is generally covered by Medicaid with an affordable out-of-pocket limit.
Eligibility criteria include the following considerations:
- Age
- Family Income
- Disability or health conditions
For more information, please visit their official website.
9) Explanation of Benefits
An Explanation of Benefits (EOB) is a document your insurance provider will send you upon the successful payment of any medical bill. This document is an important part of keeping a record of medical expenses.
An EOB covers all the details on how the insurance company paid for your treatment. It typically contains the following information:
- Insured name
- Insured ID number
- Insurance provider
- Healthcare provider or doctor name
- Type of service
- Date of service
- Uncovered amount
- The amount the health plan paid
- Total cost
The insurance company should send you an EOB regardless of the amount they paid.
In the long run, these documents provide convenience to both the insured and insurer. By keeping a record of your medical expenses, you can avoid many billing errors.
10) Medical Necessity Letter
There are some cases where your healthcare provider might order some medical treatment that is not covered by your insurance plan. This is when a medical necessity letter is written to inform the insurance company why the treatment is necessary.
A medical necessity letter is ideally written by a healthcare professional. This is because a professional is much more likely to make a strong case for you.
Writing a compelling medical necessity letter is crucial. If an argument is not presented strongly, the insurance company will likely deny the request.
The most common cause of rejection is missing information. A lot of people miss out on crucial coverage because of a weak Medical Necessity Letter. Please try to get your letter written by a medical professional.
Conclusion
Now that you understand the 10 most important health insurance terms, you are in a much better position to discuss your coverage with your insurance provider.
We understand that caring for children with a disability can be very challenging. We also believe that seeking professional help shouldn't add to the stress.
So we hope our guide has helped you understand some of the complexities surrounding health insurance and child therapy.