You probably don’t give your health insurance much thought until you need it. And then, depending on your plan and the care you need, you see the word copay. Or coinsurance. Or deductible. What do these terms mean?
Common health insurance terms can be confusing. But learning the definitions can help you to better understand your plan and use it to your benefit.
Allowed amount, eligible expense, payment allowance or negotiated rate
The maximum amount your plan pays for a covered service
All health plans have a maximum amount they will pay for each procedure, visit type or other covered health care service. This amount is called the allowed amount, eligible expense, payment allowance or negotiated rate. If your health care provider charges more for a service than your plan’s allowed amount, you may have to pay the difference.
The allowed amount is generally consistent across different insurance companies. It often reflects the rates set by the Centers for Medicare and Medicaid Services (CMS) for federally funded health plans based on the fair market value of each health care service.
Annual limit
The maximum amount of money your health insurance will pay for in a year
Many medical plans have a cap on what they will pay for some specific services in a calendar year, such as dental care or physical therapy visits. This cap is called an annual limit. Essential care costs, however, do not apply to the annual limit and must be covered regardless.
Broad network
A health plan that includes a larger geographical area and more providers
A health plan with a broad network gives you more options in a larger range of care. Selecting a broad network can be the best way to keep your current providers if they are not covered in a different network.
Claim
The formal request for a service to be paid for by your insurance
A medical claim is an invoice (or bill) that is submitted by your doctor’s office to your health insurance company after you receive care. Each claim has a list of unique codes that describe the care you received and help your health plan process and pay the claim faster. Most claims are generated by your provider, and you will not have to take any action on your own. Claims typically include details of your visit, including date, provider information, services administered and lab work.
Coinsurance
Your share of the cost for care after your deductible
For some services, you pay a percentage of the total cost of care through coinsurance. Your insurer pays the remainder. (On many plans, the insured pays a deductible before paying the coinsurance percentage.)
Finding a plan with the right coinsurance percentage for you depends on how much coverage you need each year. If you visit the doctor frequently, a plan with a high monthly premium and a lower coinsurance may be right for you. If you rarely visit the doctor, a plan with a low monthly premium and a higher coinsurance may work for you.
Many people have plans with an 80/20 coinsurance policy, meaning your health insurance provider pays 80% of the medical expense, and you cover the other 20%. Say the cost of X-raying, diagnosing and treating an injured wrist costs $1,200. If your plan calls for you to cover 20%, you can expect a bill for $240, and your plan takes care of the rest.
Copay
The flat fee you pay when you use specific services
You’ll usually pay the copay, or set amount, at the clinic when you get care. Your copay for different types of care may appear on your insurance card. Compare these costs when you’re deciding whether to get virtual care, go to your doctor’s office, swing by an urgent care or convenience clinic or head to the emergency room. Often, getting care at your doctor’s office, urgent care or Virtuwell will have lower copays than the emergency room.
Cost sharing
How your covered care is paid for between you and your insurance company
Cost sharing describes the way your care costs are split. It includes what you pay for deductibles, any coinsurance obligations and the copayments you make when you get care.
Covered benefit
A service or product that is paid for partially or entirely by your health plan
A doctor’s office visit, lab work and a walking cast for a broken foot are all examples of care that fits under a covered benefit. Your insurance may not pay for the full cost, but they are covered at a certain percentage. Preventive services are fully covered at no cost to you.
Deductible
What you pay before your plan pays
A deductible is the amount you have to pay each year before your plan contributes. For example, if your annual deductible is $500, your plan won’t pay for most of your care until you’ve paid $500 out of your own pocket for things like doctor visits and X-rays (premiums don’t count toward your deductible). Most plans have coinsurance or copays after you pay your deductible, so you’ll pay only a portion of the costs after that.
Embedded deductible
What you pay for a family member’s care before your plan pays
If you’re on a family plan, you may have two deductibles you have to meet before your plan starts to help – one for individual family members and one for your whole family’s care combined. The amount for an individual family member is called an embedded deductible, and it can save you money if one family member has higher medical costs. This is because once you’ve paid the deductible amount for that family member’s care, your plan will help pay for their care for the rest of the year, even if the deductible for your family hasn’t yet been met.
Explanation of benefits
A statement outlining care you received and what your insurance company paid for it
Explanations of benefits are usually mailed or delivered electronically from your health plan after a doctor or hospital visit, lab or medication refill. It will have line items of the care and services you received as well as their costs. Your explanation of benefits will also list what dollar amount was covered by your plan and why, and what you can expect to pay. You will then receive a bill from your provider for the amount you need to pay.
Formulary
The list of medications that your insurance plan will help pay for
Every health plan has a formulary, also known as an approved drug list, that includes medications that are covered by your plan and information on any particular rules or limits on that coverage. Doctors and pharmacists develop the list of safe, effective and cost-saving medication options. Your health plan’s formulary often includes generic alternatives that work exactly the same as pricier name brands.
HMO
A health plan that covers care only at specific doctors and hospitals
A health maintenance organization (HMO) is a network of specific care providers or locations that are covered by your health plan. They typically include a limited number of providers or locations, and often they’re part of just one or a handful of care systems. HMO plan members generally need to select a primary care provider and must get referrals from that provider for specialty or other types of care before the care will be covered by the HMO plan. Care outside the HMO is generally not covered except in emergencies.
Health insurance premium
How much you pay for your plan each month
The amount you pay for your health plan each month is called a premium. Whether your injured wrist needs a cast or an ice pack, your monthly premium stays the same. Depending on your type of plan, your premium might automatically come out of your paycheck through your employer, or you might pay it directly to your insurance company.
Health savings account
Pre-tax money you can use to pay for health care expenses
If you have a high deductible health plan, you can open a health savings account (HSA) to help you pay for care. HSA money can be used to cover your costs for care, medicines and other medical expenses.
High deductible plan
A health plan with a lower premium and higher deductible
High deductible plans have lower premiums, so you don’t pay as much per month for your plan. The deductible you must meet before your care is paid for, however, is higher than other health plans. For 2024, plans are considered high deductible if they have annual deductibles of at least $1,600 for single coverage and $3,200 for family coverage. The annual out-of-pocket maximum is no more than $8,050 for single coverage and $16,100 for family.
For healthy people who use their health plan primarily for preventive care, a high deductible plan can be a great option. In-network preventive care is fully covered under these plans, so if you do not anticipate chronic care management or frequent doctor visits, take advantage of the lower premiums associated with this type of plan. Members on high deductible plans can open an HSA to set aside pre-tax money to cover their deductible and other costs.
In network
Providers and locations that are covered by your insurance plan
All health plans carefully evaluate the quality of providers and make special price arrangements with them. Those who are selected in your area join a unique provider list that gets paired with each health plan. This list is commonly called the plan’s network, and the providers on it are in-network options under your plan. It’s best to get in-network care for several reasons – you’ll get the best price, you’ll get great care, and your insurance plan benefits will apply, which means you’ll probably pay less of the total cost.
Narrow network
A health plan with a more limited list of providers
With a narrow network, the provider list is smaller, but providers will still have been selected based on excellent performance and better affordability. Narrow network plans can have significantly less expensive premiums and cost sharing than other options as well.
Negotiated discounts
The arrangement between your insurance company and providers to save you money
Health insurance companies negotiate discounted rates with providers to help their members save money. Buying things in bulk reduces cost. This is one of the most important benefits of having health insurance. Usually, your plan’s network will include these contracted providers making it easier to find affordable care. You’ll see the discount that your insurance company negotiated for its members on your explanation of benefits after you get care.
Out of network
Doctors and services that are not included in your health plan’s network
If your health plan doesn’t have a negotiated rate with a provider, that provider is generally considered out of network. If you receive care out of network, you will pay extra and possibly full price. Some plans don’t cover any care outside the network.
Plans from the same insurance carrier often have different networks between employers or insurance products, so it’s always a good idea to confirm that your providers are in network before getting care.
Out-of-pocket maximum
The most you’ll pay for your care
The absolute most you’ll pay for your care in a year is called your out-of-pocket maximum. Once you’ve paid enough to hit your individual or family plan’s out-of-pocket maximum, your plan will pay 100% of any other covered care you have for the rest of the year. So if you faced some big health challenges earlier in the year and injure yourself, you won’t pay a penny if you’ve already hit this limit. Reminder: monthly premiums don’t count toward your out-of-pocket maximum.
PPO
A health insurance plan that includes a large network of providers
A Preferred Provider Organization (PPO) includes more provider options in the network. However, unlike with an HMO, you can go to out-of-network providers and still have coverage, though generally you’ll pay more.
Plan paid
The money your plan paid for your care or services
The “amount plan paid” on your explanation of benefits is the amount paid by your health plan after the negotiated discount with the provider. This will vary by the type of service, whether it was at an in-network provider, and how much you have spent on your deductible or out-of-pocket maximum.
Pre-authorization
Approval from your health plan for care your insurance may not cover otherwise
When your doctor recommends a treatment plan or medication that isn’t covered by your insurance, they may need to get pre-authorization (also known as prior authorization or precertification) from your insurance provider. The pre-authorization process allows your health plan to make sure you’re getting evidence-based, medically necessary care before they agree to cover it.
Pre-existing condition
A medical condition that started before your health plan started
Pre-existing conditions are illnesses or injuries that a person experienced before they enrolled in their health plan, such as diabetes, asthma or cancer. Before 2014, insurers could charge people with a pre-existing condition more for a health plan, but it is now illegal to charge more based on health history.
Preferred provider
A health professional who is part of a PPO plan
If you have a PPO plan, getting care from preferred providers will ensure you get the best price, similar to getting in-network care under other plans. Your health plan has pre-negotiated with these providers and care systems to make them as affordable as possible for you.
Prescription drug coverage
When your plan includes coverage for medications
Many health plans include prescription drug coverage as part of the benefits. The prescriptions that are covered by your plan can be found in your plan’s formulary. Knowing what’s covered and what isn’t covered can save you money.
Primary insurance
The insurance that pays first
Primary insurance is the plan that is billed first when you receive medical or dental care. For most services, this would be your health plan through your employer or Medicare.
However, occasionally another type of insurance should pay first. For example, if you’re injured in a car accident, your auto insurance would pay primary and your health insurance would pay secondary to help with any costs not covered by your auto insurance.
Prior authorization
Confirmation from your health plan that a procedure or service will be covered
Doctors submit prior authorization requests on your behalf to determine if your plan will cover a suggested course of care that isn’t normally covered by your benefits. Your health insurance company will make sure this is the best step for you to take and confirm that there isn’t a better treatment plan for you. The prior authorization step is focused on health plan members getting the right care, at the right place, at the right time.
Referral
When your doctor sends you to a different doctor, often a specialist, for a specific condition or service
If your primary doctor determines that you need a higher or more specialized level of care or treatment than they can provide, like an eye exam or surgical consult, they may give you a referral to another provider. In some cases, the referral is needed to ensure your care is covered by your plan. A prior authorization request may also be needed. Call your insurance company to see what is needed when you get a referral.
Secondary insurance
The insurance that pays second
Secondary insurance is the plan that is billed second when you receive medical or dental care. Secondary insurance could be another health plan (like coverage from a spouse), or voluntary or supplemental coverage that you buy to extend your coverage.
If you have secondary insurance, it is important to respond to any coordination of benefits (COB) requests from your health insurance company. COB processes let your health insurer know if you have another type of insurance that should pay first, such as in the car accident example above. It also makes the claim process go more smoothly for your health insurance to help with any additional costs.
Your primary insurance pays the claim up to your coverage limits, and your secondary insurance may pick up some or all the remaining costs. But you may still be responsible for some of the cost of your care, even with two forms of insurance coverage. For example, you might be responsible for paying deductibles, copays and/or coinsurance fees on both insurance policies depending on your benefits.
Self-insured
When your company handles your insurance, including collecting premiums and handling claims
Larger employers can choose self-insured plans when deciding what kind of health insurance to offer their employees. This means they collect premiums from their staff and pay claims from their own funds. Being self-insured enables employers to customize plans that fit their employees’ needs. Additionally, they often contract with an insurance company, such as HealthPartners, to help with plan administration and for access to additional perks and programs.