PCPs, PPOs, and Premiums: De-coding Health Insurance Terminology

Hello, blogosphere. In light of changes with Marketplace insurance plans (i.e. Affordable Care Act, or “Obamacare,” plans), the purpose of today’s post will be to define all of the terminology commonly used regarding health insurance.

I will be using a fictional family, the Waytes, for illustration purposes. The Waytes family consists of husband Bill, wife Sandra, and young children Timmy and Susie.

Healthcare Provider (or Provider): your physician (medical doctor, MD or DO), nurse practitioner (NP), physician assistant (PA), podiatrist (DPM), or other similar professional who provides you with medical care.

Primary Care Provider (PCP) vs. Specialist: A PCP is a physician or other provider who is your “main” doctor or provider. He or she is a generalist and can evaluate and address most of your healthcare needs. When you have a more complex health issue, your PCP will refer you to a specialist, who is more extensively trained in a particular field.

  • Sandra and Bill regularly go to see their PCP, Dr. Garcia, an MD who is board-certified in family practice. She performs their annual wellness exams, coordinates immunizations, manages Bill’s hypertension, and prescribes antibiotics for Sandra when she has a UTI. Sometimes, however, Dr. Garcia consults specialist providers for the Waytes’ care, for example referring Sandra to dermatologist for a funny-looking mole.

Referral: the directing of a patient to a medical specialist by a PCP or other provider, usually requiring documentation of such (eg. a paper slip signed by the provider). Some plans require you to have a referral from your PCP to see a specialist, while others do not.

Inpatient vs. Outpatient: you become an inpatient when you are admitted to the hospital. You are an outpatient at any other point, including while being seen in the emergency room before admission, and while having outpatient surgery (i.e. not spending the night in the hospital). If you go to see your PCP and then go home, you are an outpatient.

Coverage: when a bill is “covered” by the insurance, that means that it will be paid for by the insurance, after your deductible is met (see below for “deductible”).

Claim: a bill for medical services. The provider usually sends the claim directly to the insurance company.

Subscriber vs. Member: a subscriber is the policyholder (can be a person or an organization) whereas a member is anyone who is covered under the plan.

  • Sandra receives great insurance benefits from her job, so she signs up for a health insurance plan through her employer that will cover her spouse, Bill, and their dependent children. So Sandra would be the subscriber, and Sandra, Bill, and the kids would all be members. Alternatively, Sandra’s employer may be the subscriber, and she, Bill, and the kids still members.

In-Network vs. Out-of-Network: insurance plans make contracts with a wide range of providers, hospitals, labs, radiology facilities, and pharmacies in which they agree on special rates and assure a certain quality of care—these providers, hospitals, etc. are “in-network” with those insurance plans. All others are “out-of-network” and may charge higher rates. The member will have to pay whatever the difference with out-of-network costs (or, in the case of an HMO, the entire cost. See below).

PPO or an HMO? A preferred provider organization (PPO) plan allows more flexibility in choosing providers. With a PPO, a member can visit an out-of-network provider and still receive coverage. Staying in-network, however, provides more consistent coverage. A health maintenance organization (HMO) plan, on the other hand, is more restrictive and will only cover in-network providers.

  • Sandra thinks her insurance benefits are “really great,” so they are more likely a PPO than an HMO. She and Bill appreciate being able to see a wider range of providers.
  • PPOs are also known as Point-of-Service (POS) plans
  • HMOs are also known as Exclusive Provider Networks (EPOs)
  • HMOs will generally cover out-of-network care in the case of an emergency

Private vs. Hospital-based: when a provider has a private practice, claims will be sent to the insurance from his or her office (eg. The Office of Dr. Patel). When a provider is a hospital-employee and is seeing a patient at that hospital’s clinic, claims will usually be sent from that hospital (eg. Baxter Memorial Hospital).

  • This is relevant especially for HMO plans were the hospital might be in-network, but providers are not, so you can go see Dr. Patel when he staffs Baxter Memorial Hospital’s diabetes clinic, but you cannot see him in his private office.

What is a premium? This is what you pay every month in order to maintain your insurance coverage.

What is cost sharing? These are costs, other than your premium, that you will have to pay in order to use medical services. These cost sharing methods include deductibles, copays, and coinsurances (see below).

What is a deductible? This is the dollar amount of out-of-pocket expenses that your insurance requires that you pay before they will begin to pay for claims.

  • Sandra and Bill’s deductible is $500. That means that they will have to pay the first $500 of medical bills before their insurance will begin its regular coverage. So when Timmy falls and breaks his arm at the beginning of the year and goes to see an orthopedist in his private office for diagnosis (involving a consult, x-rays) and treatment (a cast), Sandra and Bill will have to pay the first $500 of bills before their insurance company starts to pay.

What is a copay? A copay is a fixed dollar amount that you pay every time you use a particular type of healthcare service.

  • Sandra has a $10 copay to see her PCP and a $25 copay to see a specialist. She has a $10 copay to fill a prescription for a generic drug and a $30 or $50 copay for a brand-name drug (depending on it’s “tier,” which is a category of price difference determined by the insurance company for drug coverage).

What is a coinsurance? This is the percentage of a medical bill that you will have to pay. Usually, an insurance company does not bill both a copay and a coinsurance for the same service, so it would apply to services outside of outpatient physician consults and drugs.

  • Sandra and Bill have a 20% coinsurance for lab tests, diagnostic imaging (i.e. x-rays, MRIs, CTs), and inpatient services. If little Susie is hospitalized for an asthma exacerbation, Bill and Sandra will have to pay for 20% of the bills, up to a certain maximum level.

What is an out-of-pocket maximum? The most you will ever have to pay out of pocket for deductible and coinsurance in a given year. Once this maximum is reached, the insurance company will pay 100% of the covered costs. This maximum does not include premiums, copays, or services that are not covered (eg. out-of-network services with an HMO plan).

The Patient Protection and Affordable Care Act (aka “Obamacare”, abbreviated here as ACA): a federal statue signed into law by President Obama in March 2010. The law expanded public and private insurance coverage and introduced mandates, subsidies, and health exchanges. The Supreme Court upheld the constitutionality of the ACA in June 2012, but held that states cannot be forced to participate in the ACA’s Medicaid expansion. As a result, changes vary by state.

  • Click for the full law
  • Nice video summarizing the ACA by the Kaiser Family Foundation

Some changes proposed by the ACA include:

  • The expansion of Medicaid eligibility to include individuals and families with incomes up to 133% of the federal poverty level (FPL), including adults without disabilities and without dependent children.
    • In states that did not expand Medicaid, those below the FPL do not qualify for subsidies, and those without dependent children or disabilities do not qualify for Medicaid, creating a “Medicaid gap.”
    • CHIP is generally extended to all low-income children
  • Federal subsidies (see below) on a sliding scale for any legal resident under 65 making between 100%-400% of FPL, as long as they don’t have access to affordable employer coverage. Subsidies are only offered on Health Insurance Marketplace plans.
    • In 2013, the subsidy would apply for incomes up to $45,960 for an individual or $94,200 for a family of four.
  • Health exchanges (see below) where individuals and small businesses in every state can compare policies and buy insurance (with a government subsidy if eligible).
  • Requiring employers with more than 50 employees to provide healthcare coverage or pay a penalty.
  • Penalties for individuals who qualify but do not enroll in healthcare under expanded Medicaid and/or the Marketplace, except for certain exempted groups.
  • Some preventative services are now fully covered, including several contraceptive options (eg. generic birth control pills).
  • Since 2014, insurance companies cannot deny coverage or treatment, or charge more based on pre-existing conditions (with the exception of grandfathered plans).
  • Children can seek coverage under their parents’ healthcare policy until their 26th birthday, even if the children are married, not financially dependent on or living with their parents, in school, or eligible to enroll in their employer’s plan.
  • Restructuring Medicare reimbursements from fee-for-service to bundled payments.

Health insurance marketplace (aka health exchanges, here shortened to Marketplace): these are state-based, regulated, online marketplaces where individuals and small businesses can purchase health insurance plans.

  • This past year, the open enrollment period in the Marketplace was from November 15, 2014 to February 15, 2015. For enrollment before January 15th, coverage would begin on February 1st.
  • Learn more at www.healthcare.gov

Subsidies for health coverage: money, that comes in some way from taxes, applied to your monthly premium that reduces how much you have to pay out-of-pocket, at the moment, each month. Subsidies can be one of three types:

  1. Advance tax credits paid directly to health insurers on the taxpayer’s behalf in order to lower monthly premiums.
    • Tax credits are based on income and cap your monthly premium between 2% and 9.5% of your total house hold Modified Adjusted Gross Income (MAGI) per household member.
  2. Cost Sharing Reduction: lower out-of-pocket costs (eg. deductibles, copays, coinsurance)
  3. Medicaid and CHIP
  • You don’t have to pay back Cost Sharing Reduction subsidies or Medicaid. You do have to pay back tax credits, but only up to the repayment limits.
  • If your financial situation changes throughout the year, the tax credit may have been an over or underestimation, and you may need to pay some of it back, or receive money back in your tax refund.
    • Tax refund: money given back to the taxpayer by the IRS at the end of the financial year. A refund given when the taxes paid exceed the taxes that an individual is responsible for. In 2011 the average tax refund was $2,913.
  • Form 8965 will decide if you owe a penalty for not having insurance, and Form 8962 will determine your appropriate subsidy. Estimate your subsidy here.
  • To be honest, it is nebulous to me exactly how subsidies affects the annual tax refund you would otherwise have received at the end of the year… I am a medical professional, not an accountant, financial advisor, or lawyer… If anyone can explain this more clearly, feel free to comment. (see tax credit law)

The five categories of Marketplace insurance plans are: (more here)

  1. Catastrophic: these plans have very high deductibles and do not cover most medical services. They are helpful in the event of a extreme emergency (eg. a car accident) where they will prevent you from having exorbitant costs in out-of-pocket expenses. They will also cover 3 primary care visits per year at no cost, regardless of whether you have met your deductible. You cannot use premium tax credits on catastrophic plans. If you are under 30 and meet certain criteria, you could qualify for a hardship exemption for these plans.
  2. Bronze
  3. Silver: for people making under 250% of FPL, cost-sharing subsidies are available on silver plans.
  4. Gold
  5. Platinum
  • Gold and Platinum plans cover more services, but have higher premiums. Bronze and Silver plans are geared more towards healthy people who are not on regular medications and do not expected to use health services beyond annual wellness check-ups. Click here for a less authoritative, but good breakdown.

I hope this was informative. If you have any other terms that you would like defined, please leave them in the comments.