Consumer Driven Health Care: Health Insurance Terminology

Consumer-driven or consumer-directed health care (CDHC) is designed to allow you to have more power over your health coverage and options. CDHC plans are becoming increasingly popular and truly put you, the consumer, in the driver’s seat. Feel more confident about controlling your health coverage with the most common CDHC terms defined below.

Health Terms Defined

Archer medical savings accounts (Archer MSAs) – These tax-deductible medical savings accounts are available on a limited basis to self-employed individuals and employees of certain small employers. The MSA has been used less frequently since the creation of creation of the more favorable Health Savings Account (HSA) plan option.

Coinsurance – The amount or percentage that you pay for certain covered health care services under your health plan.

Consumer-driven or consumer-directed health care (CDHC) – Health insurance programs and plans that are intended to make you more informed about your health. Under these plans, you have more control over your health care dollars and may use health care services more efficiently, so these plans tend to be more affordable. These medical plans also offer reduced premiums in exchange for higher deductibles. Plus, they offer incentives and tools to manage health care decisions and costs, including Web tools to make decisions about health care plan choices, education information about health care, preventive coverage at little or no cost, disease management programs and the use of care coaches. Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are common examples of CDHC plans.

Consumerism – A marketplace trend that empowers and supports individuals in their use of health care services by allowing increased flexibility, credible prices and quality health care information to make informed decisions.

Cost sharing – Provisions within a health care plan that require you to pay for a portion of your health care services in the form of copayments, deductibles and coinsurance.

Covered expenses – Health care expenses that are covered under your health plan.

Deductible – Before benefits are available through a health plan, you must pay a specific dollar amount out-of-pocket. Under some plans, the deductible is waived for certain services such as preventive care.

Defined contribution health plan – These plans are an employer-provided CDHC arrangement intended to encourage the efficient use of health care by fixing employer contributions at a certain level, rather than promising a specific benefit regardless of cost.

Flexible spending account (FSA) – An account that allows you to save tax-free dollars to pay for qualified medical and/or dependent care expenses. Both and you can contribute to the account. Health insurance is not required to open an FSA. You determine how much you want to contribute to the FSA at the beginning of the plan year. Any funds left in the account at the end of the plan year are forfeited back to the employer.

Generic drug – A term used to describe an identical or medically equivalent option to a brand name medication. Generic medications are sold significantly cheaper than their branded counterparts, though they are chemically identical, and share the same dosage form, safety, strength, quality, performance and intended use.

Health reimbursement arrangement (HRA) – An account in which employers deposit pre-tax dollars for each of their covered employees. Employees can then use this account as reimbursement for qualified health care expenses. If there are funds left over in the account at the end of the plan year, they can be carried over into the next year; however, this type of account is not transferable from employer to employer.

Health savings account (HSA) – This is a medical savings account that can consist of both employer and employee contributions, and is used to pay for eligible medical expenses. Contributions are taken directly from your paycheck, before taxes, and placed in an account. After age 65, you can use your funds for non-health-related expenses without facing a penalty; however, any HSA withdrawals for non-medical expenses are subject to income taxes. Unlike an HRA, leftover funds can be rolled over from year to year, and the account stays with you regardless of whether you change employers. An HSA must be used with a qualified high-deductible health plan (HDHP) that covers catastrophic health care expenses after the deductible.

High-deductible health plan (HDHP) – An HDHP is a qualified health plan that gives you more control over your health care spending by offering lower monthly premiums in exchange for higher deductibles and out-of-pocket limits. These plans also allow you to open a tax-advantaged health savings account (HSA).

Medical expense reimbursement plans (MERPS) – These plans (also known as MRPS, Section 105 Plans or Direct Reimbursement Plans) are arrangements through which employers reimburse employees for uninsured medical expenses that are not paid for by the employer’s major medical plan. For instance, an HRA describes a certain type of MERP.

Out-of-pocket maximum (OPM) – This is the most you will generally pay for covered services during a benefit period. Both the deductible and the coinsurance apply towards meeting the OPM, but copayments may not apply. Under some plans, the deductible and OPM may have the same dollar limit.

Premium – The amount you pay monthly for a health plan in exchange for coverage. Keep in mind health plans with lower premiums typically have higher deductibles.

Preventive care – Health care services that are for prevention, not for the treatment of active diseases or illnesses. This type of care focuses on wellness, health promotion and other initiatives that reduce the risk of future illnesses or injuries such as routine physical exams, mammograms or colon cancer screenings.

Qualified medical expense – These generally include expenditures for medical care that you may be able to deduct on your income taxes. The IRS imposes strict guidelines on claims for medical care, so check their guidelines for allowable expenses not reimbursed by insurance or another source.

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