Adulting

Basic Terminology

Premium

A premium is how much you pay for medical insurance. Even if you never go to the doctor, you will still pay premiums. In general, high-deductible health plans (HDHPs) have lower premiums than traditional health plans.

Deductible

A deductible is how much you pay before your insurance plan pays for covered services. High-deductible health plans are so named because they usually have higher deductibles than traditional health plans, meaning that you'll pay more before insurance kicks in. Do note that certain services (e.g., preventative services) may be covered even if you haven't met your deductible (that is, paid for services that add up to the deductible).

Per-Person/Family Deductibles

Under a family plan, deductibles get slightly trickier. An individual deductible indicates that each member of the family will have to meet a deductible before getting covered by insurance. Once an individual has met their deductible, insurance kicks in for that individual, even if no other family member has met his/her deductible. Fortunately, in family plans there's also a family deductible. Basically, once the amount that the family as a whole has paid in deductibles reaches the family deductible, insurance kicks in for all family members, even those who haven't reached their individual deductibles. Note that HDHPs may omit the individual deductible, meaning that one individual may meet the family deductible on his/her own.

Coinsurance

After an individual (or family) meets the deductible, insurance will pay for a portion of services. Coinsurance indicates the percentage of services you will pay for.

Out of Pocket Maximum

The out of pocket maximum is the most you will pay for services. After you have met the OOPM, insurance will cover all remaining services.

Per-Person/Family Out of Pocket Maximum

A per-person OOPM indicates the most you'll pay for services for a single member of the family. A family OOPM indicates the most the family will pay for services asa whole

Copay

A copay is how much you have to pay upfront to receive a service. In general, copays count toward the OOPM, but not the deductible.

Advanced Terminology

FSA

A Flexible Spending Account (FSA) is a pre-tax account used to cover medical expenses. It is usually funded through payroll deductions, and it has a yearly contribution limit imposed by the IRS. Since it's pre-tax, you save money on taxes by contributing. Note, however, that FSAs are usually use-it-or-lose-it. In other words, if you contribute more to the FSA than you need for medical expenses, the rest is lost (although some plans allow for a small roll-over from year to year). Finally, note also that you can't have an FSA if you're enrolled in a HDHP.

HSA

A Health Savings Account (HSA) is similar to an FSA, in that it is a pre-tax account usually funded by payroll deductions that is used to cover medical expenses. The IRS also imposes limits on HSA contributions. However, HSAs are not use-it-or-lose-it, and money in the HSA can be invested (which makes it almost like a tax-free retirement account if you don't touch the money for a while). You can only contribute to an HSA if you're on a HDHP (but you can withdraw money to cover expenses at a later date, even if you're no longer on a HDHP).

Current Tax Rate

The current tax rate is used to calculate how much you save by paying pre-tax premiums and by contributing to pre-tax accounts (FSA/HSA). To get a more accurate picture of tax savings, input your marginal tax rate (since in general these contributions and payments save money from the highest bracket you're in). In particular, make sure this number includes federal, state, and FICA taxes, since it's tax-free for all three.

Frequency of FSA contributions and Rate of Return on HSA contributions

Since you can invest your HSA contributions, this calculator takes into account any money you may have gained from such investments. If you don't invest the money (i.e., treat it like a savings account or cash fund), set this to zero. The calculator also assumes that you see the same rate of return all year long, and that any withdrawls occur at the end of the year (which gives your money more time to grow, but still lets you reimburse yourself for medical expenses). Finally, the frequency of contribution determines how much interest will accrue.