Registration period for ObamaCare has begun: terms you need to know when choosing health insurance in the USA

The open enrollment season for health insurance plans has begun, a time when each year millions of American workers and retirees must choose their health insurance, new or existing, reports CNBC.

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But choosing health insurance can be a complex undertaking. Health insurance plans are made up of many parts that may not be visible at first glance. And each has financial implications for buyers.

“It's confusing and people have no idea how much they're potentially going to pay,” says Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. She is also a doctor.

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A mistake can be costly; consumers are usually tied to their health insurance for a year, with a few exceptions.

Here's a guide to the main components of health insurance costs and how they can affect your bills.

1. Contribution

Premium (premium) is the amount you pay your insurer each month to join a health plan.

This is perhaps the most transparent and easy to understand component of the cost of a health insurance plan - the equivalent of a fixed price.

According to the nonprofit Kaiser Family Foundation Employer Coverage Report, the average premium per person is $7 per year, or $911 per month in 659. That's $2022 a year - $22 a month - for family insurance.

However, employers often pay a portion of this for their workers, which greatly reduces costs. On average, a worker pays a total of $1327 per year — or $111 per month — for individual insurance and $6 — $106 per month for family insurance in 509, adjusted for employer share.

According to KFF, your monthly payment may be higher or lower depending on the plan you choose, your employer, your geographic location, and other factors.

“When you buy health insurance, you look at the price,” said Karen Pollitz, co-director of KFF's Patient and Consumer Protection Program.

“If you buy tennis shoes or rice, you know what you're getting at a certain price,” she said. “But people shouldn't shop for insurance based simply on price, because health insurance is not a product. Plans may differ greatly from each other.”

2. Surcharge

Many workers also have to pay a co-pay — a flat dollar fee — when they see a doctor. A "co-payment" is a form of cost-sharing with health insurers.

According to KFF, the average patient pays $27 for each GP visit and $44 for a specialist visit.

3. coinsurance

Patients may incur additional costs such as co-insurance, a percentage of health care costs that the consumer shares with the insurer. This usually happens after you have paid the annual deductible.

According to KFF, the average co-insurance rate is 19% for primary health care and 20% for specialized care services. The insurer will pay the remaining 81% and 80% respectively.

As an example, if a specialized service costs $1000, the patient will pay 20% - or $200 - and the insurer will pay the rest.

According to the KFF, co-payments and co-insurance may vary by service, with separate classifications for office visits, hospitalizations, or prescription drugs. Rates and coverage may also differ between in-network and out-of-network providers.

4. Franchise

Franchises are another common form of cost sharing.

This is the annual amount that the consumer must pay out of pocket before the insurance company starts paying for the services.

According to KFF, in 2022, 88% of workers covered by a health insurance plan will have a franchise. The average person with one insurance coverage has a deductible of $1763.

A franchise is combined with other forms of cost sharing.

Here is an example based on a $1000 hospital fee. A patient with a $500 deductible pays the first $500 out of pocket. This patient also has 20% coinsurance for $100 (or 20% of the remaining %500). This person will pay a total of $600 out of pocket for this hospital visit.

Health insurance plans can have more than one deductible — perhaps one for general health care and another for pharmacy benefits, Pollitz said.

Family plans can also assess deductibles in two ways: by pooling the combined annual out-of-pocket expenses of all family members and/or by giving each family member a separate annual deductible before the plan covers that member's expenses.

The average deductible can vary greatly by plan type: $1322 Preferred Provider Organization (PPO), $1451 Health Care Organization (HMO), $1907 Point of Service (POS), and $2539 High Deductible Health Plan , according to KFF data on unified insurance coverage.

5. Maximum own funds

Most people also have a "maximum net worth."

This is the limit on the total amount consumers pay in a year, including co-payments, co-insurance and deductibles.

“The insurance company cannot charge you for co-payments at the doctor or pharmacy or require additional deductibles,” Pollitz said.

According to KFF, more than 99% of lump-sum workers have a plan with the maximum payout of their funds.

And the range can be wide: 8% of unified workers have a maximum net worth of less than $2000, and 26% have $6000 or more, according to KFF.

The cash limit for health plans purchased from the Affordable Care Act marketplace is $9 for individuals or $100 for a family in 18.

6. Network

Health insurers treat services and costs differently depending on their network.

Certain "networks" refers to doctors and other health care providers who are part of an insurer's preferred network. Insurers sign contracts and negotiate prices with these intranet providers. This does not apply to "out-of-network" providers.

That's why it's important: Deductibles and cash limits are much higher when consumers seek help outside of their insurer's network — typically around double the in-network amount, McClanahan said.

Sometimes there are no caps at all on the annual out-of-network service costs.

“Health insurance is really connected to the network,” Pollitz said.

“Your financial liability for going offline can be very serious,” she added. “This can expose you to serious medical bills.”

Some plan categories do not allow coverage for out-of-network services, with some exceptions.

For example, according to Aetna, HMO plans are among the cheapest types of insurance. Among the trade-offs: The plans require consumers to choose doctors online and require a referral from their PCP before seeing a specialist.

Similarly, EPO plans also require network services for coverage, but usually offer more choices than HMOs.

POS plans require a referral to see a specialist, but allow some offline coverage. PPO plans typically have higher premiums but are more flexible, allowing out-of-network and referral visits.

“Cheaper plans have more limited networks,” McClanahan said. “If you don’t like doctors, you may not have a good choice and will have to go out of network.”

There is an overlap between high deductible health plans and other types of plans; the former typically have deductibles of more than $1000 and $2000 respectively for individual and family insurance and are combined with a health savings account, a beneficial way for consumers to save on future medical expenses.

How to put it all together

Budget is one of the most important considerations, said Vinnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, Calif., and a member of the CNBC Board of Advisors.

For example, would you find it difficult to pay a $1000 medical bill if you needed medical care? If so, a health plan with a higher monthly premium and a lower deductible might be a better choice, Sun said.

Similarly, older Americans or those who need major medical care each year—or who expect a costly procedure next year—may be wise to choose a plan with a higher monthly premium but lower cost-sharing requirements.

Healthy people, who typically don't exceed their health care costs each year, may find it cheaper overall to have a high deductible plan with a health savings account, McClanahan said.

Consumers who enroll in a high-deductible plan should use their monthly premium savings to fund HSA, advisers say.

“Be mindful of first dollars and potential last dollars when choosing insurance,” McClanahan said, referring to upfront fees and cost sharing.

Each health plan has a "benefits and coverage summary" that provides key cost-sharing information and plan details that are consistent across all health insurance plans, Pollitz said.

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If you're currently using a doctor or network of providers you like, make sure those providers are covered by your new insurance plan if you're considering changing it, McClanahan said.

You can check the insurance company's online directory or call your doctor or health care provider to see if they accept your new coverage.

The same is true for prescription drugs, as Sun said: will the cost of your current prescriptions change under the new health plan?

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