Anatomy of a Health Insurance Policy

How many people actually read their health insurance policy? Knowing what your policy covers can help you better plan your healthcare expenditures, and help you avoid unpleasant surprises if you file a claim.

Although health insurance policies vary from insurer to insurer, and even within insurance companies, most share a basic structure. In the typical individual health insurance plan, you’ll find:

The Insuring Agreement. Any legal contract involves a promise to perform a service or provide goods in exchange for payment (the “consideration.”) The insuring agreement of your policy, generally the first page, creates the contract between your insurance company and you. In exchange for your payment of premium, the insurer agrees to provide coverage to you (and your dependents, if applicable) according to the terms of the policy.

]State laws provide for “free look” periods for most major contracts. The insuring agreement also contains the free look provision, which allows you to return the policy within a certain number of days, as specified by state law, to receive a full refund.

The remainder of the policy contains the terms, conditions, limitations and exclusions of your policy. All these determine what exactly your policy will cover and when.

Summary of Benefits. If you look at no other section of your policy, please read this section! The Summary of Benefits tells you your lifetime maximum benefit (which applies only for grandfathered policies), calendar year deductibles for preferred providers and non-preferred providers, and the calendar year coinsurance maximum, or your out-of-pocket maximum. These numbers, more than any other, determine the true value of your coverage. Please note that although the Affordable Care Act prohibits insurers from putting lifetime limits on “essential health benefits” in any health plan or insurance policy issued or renewed on or after September 23, 2010, they can put limits on other benefits.

After this information, the Summary of Benefits will list the services your policy will cover, with the deductibles and coverage percentages that apply to both preferred and non-preferred providers. Knowing what services your policy covers can help you avoid unpleasant surprises when you file a claim. You can use the Summary of Benefits to discuss any treatment plan with your healthcare providers, who might be able to modify a plan to ensure you have the needed insurance coverage.

Maximum Allowable Amount Disclosure. This portion of the policy discusses the Maximum Allowable Amount, otherwise known as the “usual, customary and reasonable” (UCR) amount. Most health plans will limit the amount they pay toward any provider’s charges based on the UCR amounts. “Usual” means the provider’s usual charge for this treatment (i.e., she’s not charging you more because you have insurance!), “customary” means customary for all providers in your geographic area, and “reasonable” takes into account the particular circumstances of your claim. If your insurer deems your provider’s charges above the UCR amount, you could be responsible for the difference.

You’re more likely to run up against UCR charges in indemnity plans or when using an out-of-network provider. PPO, POS (point of service) or HMO plans negotiate fixed payment schedules with providers, so when you use an in-network provider who accepts your plan, he or she has likely accepted the insurer’s fixed payment. Otherwise, you could be liable for charges over the maximum allowable amount.

Detailed coverage descriptions. Following the Summary of Benefits and Maximum Allowable Amount Disclosure, the typical policy will provide a detailed discussion of how you obtain services. It also contains further details (including definitions and limitations, such as number of covered visits) on the covered services listed in the Summary of Benefits.

Claim-Filing Information. When you use an in-network provider, he or she will generally bill your insurance company directly. When you use a non-network provider, you might have to file a claim with the insurer. This section tells you how to obtain a claim form and the types of information you will have to provide.

“Other Coverage” section. Nearly every type of insurance policy has a “coordination of benefits” provision, which addresses the order in which your policy will pay claims if you have other coverage that will also apply. Insurers use coordination of benefits provisions to prevent overinsurance, or situations where an insured will profit from filing a claim.

Third-Party Liability (Subrogation) Provision. Sometimes insureds can receive a settlement from a third party for injuries or illnesses that your health insurance policy covers, such as in an auto accident where you are not at fault. When this occurs, the insurer reserves the right to “subrogate,” or claim a credit against any settlement or recovery you receive. Subrogation prevents an individual from collecting for the same injury or illness twice; it also helps lower health insurance costs and ensures the party liable for injuries or illness bears the cost.

Grievances or complaints. State insurance laws require insurers to have procedures for handling policyholders’ grievances or complaints. This section applies when you have a complaint about the benefits you receive or the health care services your policy pays for. It also applies if you have a claims dispute, particularly if you think your policy should cover a claim that the insurer denies. This section describes how you file a complaint, the insurer’s procedures, and how you can appeal a decision if the insurer’s resolution is not to your liking.

Eligibility for Coverage. This section describes how to apply for coverage and who is eligible. If you have dependents, including a spouse, you will want to read this section carefully. Although the Affordable Care Act requires new health plans to cover your adult children to age 26, regardless of where they live or their dependent or marital status, this provision does not apply to grandfathered plans.

Premium and Grace Period. This section describes the payment terms of your policy, including due dates, information on rate changes, and grace periods.

Coverage Termination. This section describes how to cancel a policy. It also describes the circumstances under which your insurer can cancel your coverage.

Definitions. Most policies will include a glossary, or section that defines various terms used throughout the policy. State law affects many of these definitions.

Taking the time to read and understand your health insurance policy allows you to take advantage of covered preventive benefits and could help you avoid unnecessary expenses when you need to access health services.