Health insurance comes with its own set of technical terms and jargon. Understanding some key insurance words and definitions helps you better navigate policies, paperwork, and processes when seeking care. This glossary covers common health insurance terminology to know.
Premium
A premium is the amount you pay for health insurance coverage, typically quoted as a monthly price. Premiums are paid to insurance companies for health plans they underwrite in exchange for coverage of services. Higher premiums are usually associated with more generous coverage levels.
Factors like plan type, your age, location, tobacco use, and number of people covered impact your premium costs. Most individual health plans require you to pay the full premium amount yourself each month to maintain coverage. Employer-sponsored group plans often subsidize a large portion of the premium.
Deductible
The annual deductible is the amount you must pay out-of-pocket for covered health services before your insurance starts helping with costs. For example, if your deductible is $1,500, you’ll pay 100% of eligible medical expenses until those costs exceed $1,500. After reaching the deductible, you share costs with the plan via copays or coinsurance.
Deductibles reset each year at your plan’s renewal date. Higher deductible plans often have lower monthly premiums. Certain services, like preventive care, are covered before the deductible on most plans.
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Copay
A copay is a fixed dollar amount you pay when receiving a specific medical service or prescription drug. Common copays are $20-50 for a primary doctor visit or $10-$20 for a generic prescription.
Copays are due at the time of service and apply after you’ve met the annual deductible. Some services may have copays but no coinsurance. Copays help give you cost predictability for certain common expenses on health plans.
Coinsurance
Coinsurance is the percentage of costs you share with your insurer after meeting the deductible. For example, if your plan has 30% coinsurance on hospital stays, you would pay 30% of the total charges while insurance covers the remaining 70%.
Coinsurance rates depend on the type of care. Your share might be higher for services considered “non-essential” by the plan. Coinsurance exposes you to some risks of variable healthcare pricing compared to copays with fixed dollar amounts.
Out-of-Pocket Maximum
The annual out-of-pocket maximum caps the total amount you’ll spend for covered healthcare services in a plan year. This limit includes deductible payments, copays, and coinsurance.
For example, if your out-of-pocket max is $5,000, you wouldn’t pay more than $5,000 total in healthcare expenses annually. Limits typically range from $2,000 for individual policies to $10,000 or more for family coverage. Reaching the out-of-pocket max means insurance covers 100% of additional costs.
Explanation of Benefits (EOB)
An explanation of benefits document outlines how an insurance claim was processed. It shows billed charges, any discounts applied, how much insurance paid, and your remaining responsibility.
Review EOBs to understand how your benefits were applied and check for billing errors. Having an EOB helps you follow up on unpaid claims or appeal any disputes with your insurer.
Grace Period
The grace period is the time after your premium due date where you can still pay without coverage lapsing. Grace periods average 30 days but can vary by state and insurer. Some plans have different policies for new members versus renewing members.
Making a payment before the grace period expires retroactively maintains continuous coverage. Failure to pay premiums after the grace period causes policies to cancel, often with a gap before new coverage takes effect.
Allowed Amount vs. Billed Amount
The allowed amount is the maximum dollar amount an insurer assigns for a covered treatment or service based on negotiated provider rates. Billed amounts are what a doctor or hospital actually charges for that care.
If a billed amount exceeds the allowed amount, the insurer pays up to the allowed amount. As the patient, you’re responsible for any difference between allowed and billed charges, which is known as balance billing. Understanding how allowable costs work protects against unexpected medical bills.
Usual, Customary and Reasonable (UCR)
Usual, customary and reasonable is the methodology insurers use to determine allowed amounts and reimbursement levels for out-of-network services.
UCR calculates allowable charges based on average rates other nearby providers bill for that procedure. Instead of relying on set contracted rates like with in-network providers, the UCR system aims to judge if out-of-network charges fall within accepted norms. You may be responsible for excess charges above the UCR-determined allowable cost.
Coordination of Benefits
Coordination of benefits determines coverage when you have health insurance through more than one plan. Rules outline which plan pays first when submitting claims.
For example, a health plan covering you as the employee usually has primary responsibility. The plan that covers you as a dependent pays secondary. Coordination helps maximize total coverage across all policies and reduce out-of-pocket costs.
Pre-Authorization and Pre-Certification
Pre-authorization and pre-certification involve getting approval from the insurer before certain services are performed. Exact requirements vary by plan but often include things like inpatient care, outpatient surgery, durable medical equipment, and advanced imaging.
Following pre-authorization rules ensures services get covered. Failure to obtain pre-authorization when required can result in claims denials or reduced payment levels. Pre-certification confirms medical necessity while pre-authorization provides the actual approval.
Eligible Expenses
Eligible or covered expenses refer to medical costs or services that are approved for reimbursement by a health insurance plan. Treatment for pre-existing conditions, routine care like checkups, drugs listed on the formulary, and care from in-network providers are examples of eligible expenses.
Ineligible or non-covered expenses are not reimbursed by insurance. This includes services explicitly excluded by the plan, experimental treatments, care deemed not medically necessary, and out-of-network providers if the plan does not cover out-of-network costs.
Waiting Period
The waiting period sets the time that must pass before coverage becomes effective after you first enroll in a health plan. Common waiting periods are 0 days for group plans, 30 days for individual policies, and up to 90 days for group coverage if you enroll late outside of the standard open enrollment window.
Some plans may impose waiting periods for certain benefits such as orthodontic work or maternity care if those services were not covered by your prior insurance.
Open Enrollment Period
The open enrollment period marks yearly windows when you can newly enroll in a health plan or make changes to existing coverage. The nationwide open enrollment period for individual health plans runs from November 1 to December 15 each year for coverage effective January 1.
Employer plan open enrollment usually occurs in the fall with changes taking effect the following plan year. Open enrollment lets you re-evaluate options without a qualifying life event. Take advantage to compare plans and costs.
Special Enrollment Period
Outside of open enrollment, you need a special enrollment period (SEP) to change individual health plans. SEPs provide 60 days after certain qualifying life events to make plan modifications.
Having a baby, losing job-based coverage, moving, getting married, or income changes grant an SEP. The birth of a child also triggers an SEP for dependents to newly gain own coverage even if they currently are on a parent’s plan.
Grandfathered Plan
Grandfathered plans are health policies purchased on or before March 23, 2010 that are exempt from certain Affordable Care Act reforms. As long as these plans do not significantly cut benefits or increase costs, they can continue to renew year-after-year while maintaining their grandfathered status.
Key exemptions for grandfathered plans include not being subject to essential health benefit requirements or limits on annual out-of-pocket costs. But other consumer protections like dependent coverage up to age 26 still apply.
Qualifying Life Event
Also called a qualifying event, this refers to a major life change that impacts eligibility for special enrollment periods for individual health plans and allows you to modify coverage.
Marriage, divorce, having a baby, losing other health insurance, changes in household income, and relocating are some examples of qualifying events. Employer plans have similar special enrollment rules tied to certain life events.
Provider Network
An insurer’s provider network is the medical professionals, facilities, labs, and pharmacies approved to provide care to members. PPO plans typically have large networks while HMOs utilize smaller networks with an emphasis on coordinating primary care.
Seeing in-network or preferred providers is key to avoiding higher costs. Review networks when choosing plans to ensure your current doctors and hospitals participate. Narrow networks can mean lower premiums but less provider choice.
Policy Term
The policy term is the 12-month duration when your health plan is in effect. All annual deductibles, out-of-pocket limits, and benefit rules are confined to one policy term.
Open enrollment before each new policy term marks your opportunity to re-evaluate different health plan options as your healthcare needs and finances might have changed during the year.
Benefit Summary
The benefit summary outlines your health plan’s covered services, provider network, prescription drug formulary, cost-sharing amounts, annual limitations, exclusions, and important policy details. Also called the Summary of Benefits and Coverage (SBC).
Carefully reviewing the benefit summary helps you understand how your specific health insurance works. Compare benefit summaries when shopping plans at open enrollment to make the best choice for your healthcare needs.
Marketplace Plan
A health insurance marketplace plan refers to policies purchased through state or federal insurance exchanges like Healthcare.gov. Marketplaces were established by the Affordable Care Act as a way for individuals and small businesses to shop for medical coverage.
Rules standardize marketplace plans into categories based on precious metals: bronze, silver, gold, and platinum. Tax credits and subsidies are available for marketplace plans based on income and household size.
Bronze, Silver, Gold, Platinum Plans
On the health insurance marketplaces, plans follow metal tiers of coverage – bronze, silver, gold, and platinum. These categories give consumers an easy way to compare plans with similar cost and coverage levels.
Bronze plans have the lowest premiums but highest out-of-pocket costs. Platinum plans have very generous coverage but premiums are higher. Silver and gold plans fall in between. Metal tiers help organize options when shopping on the exchanges.
Health Savings Account (HSA)
A health savings account is a special tax-advantaged account that can be used to pay medical expenses if you have a qualified high deductible health plan. HSA funds can be invested and grow over time while maintaining tax-free status.
HSAs provide flexibility to help offset the higher deductibles typical on HDHPs. The money deposited belongs to you and remains in the account year after year. Both individual contributions and employer contributions can go into an HSA.
Flexible Spending Account (FSA)
A flexible spending account lets you set aside pre-tax dollars from your paycheck to pay out-of-pocket healthcare costs. You elect a certain FSA contribution amount each year. This lowers your taxable income. Funds must be used annually.
FSAs have “use it or lose it” rules, so estimate your expenses carefully when electing your annual contribution. The full elected amount is available upfront for reimbursement during the year. FSAs help reduce the impact of health expenses on your budget.
COBRA
COBRA gives those who lose or leave their job the option to temporarily keep employer health benefits by paying the full premium amount. Coverage can continue for 18 months via COBRA after termination of employment.
Electing COBRA maintains the same plan benefits but without employer premium contributions. You must pay premiums on time each month to avoid cancellation. COBRA provides short-term coverage until you find a new group health plan.
Out-of-Pocket Costs
Out-of-pocket costs refer to any medical expenses paid by you at the time of service, including copays, deductibles, and coinsurance. Also.Out-of-pocket costs are in addition to health insurance premiums for your coverage.
Plans cap yearly out-of-pocket spending limits to help protect you from extremely high medical costs. Understanding the details of your potential out-of-pocket costs helps choose the right insurance policy for your budget.
Combined Deductible
A combined deductible sets one shared deductible across different types of medical coverage like medical services, prescriptions, and dental care. You only need to meet the total combined deductible once before all plans start coverage.
Combined deductibles simplify tracking deductibles across separate health benefits. It also usually lowers your overall deductible costs compared to plans with separate deductibles for each service category.
Common Medical Acronyms
Here are some common medical and insurance acronyms to know:
- ACA – Affordable Care Act
- CDHP – Consumer-driven health plan
- COBRA – Consolidated Omnibus Budget Reconciliation Act
- EOB – Explanation of benefits
- FSA – Flexible spending account
- HDHC – High deductible health plan
- HMO – Health maintenance organization
- HRA – Health reimbursement arrangement
- HSA – Health savings account
- PCP – Primary care physician
- PPO – Preferred provider organization
- UCR – Usual, customary and reasonable
Frequently Asked Questions (FAQs)
What’s the difference between coinsurance and copays?
Copays are set dollar amounts paid for certain services, like $20 for a doctor visit. Coinsurance is a percentage you pay based on allowable charges for a service, such as 20% of a hospital bill.
What does out-of-pocket maximum mean?
The out-of-pocket maximum caps your total spending for covered healthcare services each year. Once you hit that limit, the plan pays 100% of additional covered costs for the rest of the policy term.
How do deductibles work?
You pay the full deductible amount before your insurer starts helping pay costs each year. Preventive care is often exempt from the deductible. Plans with higher deductibles usually have lower premiums.
What are common copays and coinsurance rates?
Copays often range from $15-$50 for primary care visits and prescriptions. Typical coinsurance rates are 20% to 40% for services after you meet the deductible. Plans may have different coinsurance rates for different service types.
What’s included in out-of-pocket maximums?
Deductible payments, copays, and coinsurance amounts all accumulate toward your annual out-of-pocket limit. Premiums you pay for coverage do not count.
What does eligible or covered expenses mean?
Covered expenses are medical costs defined in the plan as reimbursable services. This includes in-network care for needs covered by the policy. Non-covered expenses won’t be paid by insurance.
How does coordination of benefits work?
With coverage under two plans, coordination of benefits rules determine which plan pays first. The insurer that covers you as the employee usually has primary responsibility.
What is a qualifying life event for special enrollment?
Common qualifying events are marriage, divorce, childbirth, job loss, or income changes. These events open a 60 day window to enroll in a new plan or make coverage changes.
What do bronze, silver, gold and platinum mean?
These metal tiers categorize marketplace plans based on cost-sharing levels. Bronze plans have the lowest premiums but highest out-of-pocket costs when you get care. Platinum plans have the most generous coverage and cost the most per month.
Understanding key insurance words and concepts goes a long way in navigating health coverage. Don’t hesitate to ask your insurer or agent to explain any confusing terminology.