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August 15, 2018

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Deciphering health care

Scratching your head about medical bills from your insurance company? You’re not alone

Study after study confirms that when it comes to health literacy — knowing how to find a doctor, fill a prescription and pay medical bills — many people fail miserably. Case in point: Fifty-one percent of Americans don’t understand basic health insurance terms, such as premium, deductible and co-pay, according to a study conducted by the American Institute of CPAs.

When people try to calculate out-of-pocket costs for medical services, the confusion becomes worse. A Kaiser Family Foundation study found that only 16 percent of respondents could figure out the cost of an out-of-network lab test.

Even people who deal with insurance every day admit it can be baffling.

“There are a lot of different variables, and it really does get overwhelming,” Nevada Division of Insurance spokesman Jake Sunderland said.

Feb. 15 was the deadline to enroll in government-subsidized health insurance plans offered through the Affordable Care Act. Coverage begins March 1, which means an influx of people will have health insurance for the first time, likely adding to the confusion.

Here is a guide to common health care terms, tips for reading a medical bill and things to keep in mind when choosing a doctor.

What it costs, hypothetically

Joe Vegas bought health insurance through the Silver State Health Insurance Exchange last year.

Good thing, because last week, he slipped on a banana peel, bumped his head and broke his foot. He landed in the emergency room and was admitted to the hospital for two days.

Like many others buying insurance through the exchange, Joe opted for the second-lowest silver tier plan, an HMO with a $185.81 monthly premium, which he pays with the help of federal subsidies.

He was treated by all in-network(1) physicians. Here is what his run-in cost:

The total hospital bill was $10,000. Joe’s insurance plan has a $4,000 deductible(2). So off the bat, he paid $4,000 to meet his deductible.

Insurance kicked in for the remaining $6,000. Joe had to pay only the coinsurance(3); in his case, 30 percent. His insurer paid the remaining 70 percent. Joe paid $1,800, bringing his total out-of-pocket costs to $5,800.

Emergency room doctors recommended Joe see three specialists after he was discharged from the hospital. He also needed two follow-up appointments with his primary care doctor.


A preferred provider organization (PPO) contracts with a large network of care providers from which patients can choose. The plan pays for care outside of the provider network as well, but policyholders pay higher costs when they see an out-of-network provider. Patients don’t need referrals to see specialists or other non-primary-care providers in the network.

A health maintenance organization (HMO) pays only for care provided by an in-network provider. HMOs typically require policyholders to get a referral from a primary care doctor to see a specialist, except in emergency situations. HMOs typically charge lower premiums and/or co-payments.


In network

You visit an in-network provider who charges $1,000 per treatment. Because the doctor is in network, he agrees to accept your insurer’s contracted rate of $500.

PPO in network

Provider’s usual charge: $1,000

Your plan’s contracted rate: $500

Your cost sharing: 20% coinsurance

Your plan pays $400 ($500 x 80%)

You pay: $100

(10% of total charge)

HMO in network

Provider’s usual charge: $1,000

Your plan’s contracted rate: $500

Your cost sharing: $10 co-pay

Your plan pays: $490 ($500 - $10)

You pay: $10

(1% of total charge)

Out of network

You visit an out-of-network provider for the same treatment, which also costs $1,000. But because the doctor is out of network, she has no agreement with your insurer to accept a lower rate. Instead, your insurer bases its share of the cost on its allowed amount for that service.

PPO out of network

Provider’s usual charge: $1,000

Your plan’s allowed amount: $800

Your cost sharing:

30% of allowed amount plus difference between allowed amount and provider’s charge

Your plan pays: $560 ($800 x 30% plus $1,000 - $800)

You pay: $440

(44% of total charge)

HMO out of network

Provider’s usual charge: $1,000

Your plan’s allowed amount: $0

Your cost sharing: 100%

Your plan pays: $0

You pay: $1,000

(100% of total charge)


(1) In-network: An in-network provider is a hospital or doctor contracted to be part of your health plan. If you visit an out-of-network provider, you might not be covered by your insurance or you might be charged a higher portion of the cost. When possible, check with doctors and hospitals ahead of time to make sure they accept your insurance and, thus, are in-network.

(2) Deductible: The annual amount you must pay for health care services before your insurance company will begin paying claims.

(3) Coinsurance: The share of a medical charge for which the patient is responsible.

(4) Co-pay: A fixed amount the patient must pay for a covered health care service.

(5) Drug formulary: The list of prescription drugs covered by a health plan.

(6) Out-of-pocket maximum: The most the insured person has to pay during a policy period, typically a year, for covered medical expenses before the insurance plan begins to pay 100 percent of covered expenses. The limit includes deductibles, coinsurance and co-pays.

(7) Explanation of Benefits (EOB): A statement insurance companies send to policyholders outlining services paid for by the insurance company. It is not a bill; rather, it explains what was covered by insurance. EOBs typically include information about the patient, a claim number for services provided, the name of the provider, the type of service provided, the date of service, the amount billed to the insurance company, the amount not covered by insurance and the total cost to the patient.

(8) Current Procedural Terminology (CPT) codes: A set of numbers assigned to a specific medical service or treatment, used by insurance companies to determine reimbursement to providers. The American Medical Association develops, maintains and copyrights CPT codes to ensure uniformity in billing.

(9) Donut hole: A coverage gap in most Medicare prescription drug plans. The plans pay a certain amount for covered drugs, then the Medicare recipient has to pay costs out of pocket up to a yearly limit. Once that limit is reached, the donut hole — or coverage gap — ends, and the drug plans once again pay for covered drugs.

(10) Actual charge: The amount charged by a provider for medical services.

(11) Allowable charge: The amount, typically discounted from the actual charge, that is considered payment-in-full by an insurance company and its network of providers.

(12) Contracted rate: The amount insurance companies pay in-network health care providers for services. Rates are negotiated and established in insurers’ contracts with providers.

(13) Adjustment: The portion of the bill the medical provider has agreed not to charge the patient.

(14) Charges not covered: The amount the insurance company did not cover, which becomes the policyholder’s responsibility to pay.

(15) Patient responsibility: The amount the policyholder must pay to the medical provider after insurance pays its portion of the bill.

(16) Remark code: Explains why the insurance company didn’t cover certain medical charges. Remark codes typically are found on explanation of benefits statements, with a description for each code on the back.

(17) Balance billing: The amount the patient is responsible for when using an out-of-network provider for a service that costs more than the allowable charge.

(18) Usual, customary and reasonable (UCR) rate:The standard charge for a medical service in a geographic area, often used to determine Medicare payment amounts.

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