Deductible, coinsurance, premium… whaaaa…? Common health insurance terms you need to know, but nobody ever explained.
Before you can decide on the best health insurance plan for yourself, your family or your business, you need to familiarize yourself with some common health insurance terminology.
Below is a glossary of commonly used healthcare terminology in the insurance industry. You will need a basic understanding of the definitions and meanings of these health insurance terms in order to make an informed decision when selecting a health insurance plan. Let’s start by answering some of the more common health insurance terminology questions:
What is a premium?
A premium is the amount of money you pay an insurance provider for health care coverage under a particular health insurance policy. In most cases, premiums do not count towards meeting your deductible.
If the annual premium is $2,700 for the plan you select, you will pay $225 per month to the insurance provider for the healthcare coverage offered under the policy.
What is a deductible?
A deductible is the amount you must pay annually before your insurance provider will make any benefit payments.
If you have a $3,500 deductible, you will be responsible for paying the first $3,500 of medical expenses out-of-pocket annually, before your insurance provider begins to cover a percentage of the bill.
What is a copay?
A copay is a flat amount you must pay out-of-pocket for a covered service. In most cases, copays do not count towards meeting your deductible.
If your plan has a $25 copay for in-network physician visits, you will need to pay $25 each time you see an in-network physician.
What is coinsurance?
Coinsurance is the percentage of medical payments you are responsible for paying out-of-pocket after your deductible is met. Your insurance company will pay the remaining percentage.
If you have a 20% coinsurance, your insurance provider will pay 80% of covered medical expenses after your deductible is met, and you will pay the remaining 20% out-of-pocket.
What is an out-of-pocket maximum?
A set dollar amount that limits how much you have to pay out-of-pocket annually for healthcare services covered by your insurance plan. Note: Check your health insurance policy to see exactly which out-of-pocket payments are counted towards your out-of-pocket maximum.
If your annual out-of-pocket maximum is $3,000, you will no longer be required to pay coinsurance for the remainder of the year after you make a total of $3,000 in qualifying, annual out-of-pocket payments.
Below are other health insurance terms you might come across:
Allowed Amount / Allowed Charge: A dollar amount contractually negotiated between the insurance company and the provider for services rendered. The allowed amount is typically lower than the provider’s standard rate and is the maximum an in-network provider is allowed to charge for a covered service.
Benefits: The health related services or items covered by a health insurance policy (see: covered services). Obama care plans must all cover 10 minimum essential health benefits.
Catastrophic Plans: Low premium health insurance plans for those under 30 years of age with limited co pays and higher deductibles.
Claim: A request sent to the insurance company detailing the health services rendered and requesting payment from the company for those services. Claims may be submitted directly by the healthcare provider to the insurance company (this is usually the case) or by the patient.
Covered services: Health care services, prescription drugs and medical equipment that are covered by your healthcare plan.
Exclusions: Medical procedures, health services or items not covered by a health insurance plan, such as cosmetic surgery.
Essential Health Benefits: A set of 10 healthcare benefits established by the Affordable Care Act that all insurance carriers must offer on all insurance plans.
Federal Poverty Level: An income level set each year by the Federal government that is used as a threshold when determining eligibility for certain government services.
Formulary: A list of prescription medications an insurance policy will cover, including both name-brand and generic drugs.
Health Savings Account: Tax-exempt savings accounts used to pay for healthcare costs associated with qualifying high deductible insurance plans. HSAs are tax-deductible and tax-deferred when earnings are used to pay for qualified medical expenses.
Household Income: The total annual income of all members of a household reported on Federal Tax Form 1040, 1040-A or 1040 EZ.
In-network providers: Hospitals and physicians that are in your health insurance provider’s network. You will pay lower rates when using an in-network provider than an out-of-network provider.
Lifetime Maximum: The maximum amount an insurance company will pay for benefits during your lifetime. Changes to health care under Obama no longer allow insurers to set lifetime maximums for “essential” health services.
Annual Open enrollment: The time period you have for signing up for health insurance.
Primary Care Provider (PCP): The physician or nurse is your first point of contact for diagnosing illnesses, getting prescriptions and other health care needs. Some health insurance plans require a referral from a PCP in order for visits to specialty providers to be covered (see: specialty provider).
Special Enrollment Period: A limited window, typically 60-days, during which those who experience certain qualifying life events can enroll in health insurance outside of the Annual Open Enrollment Period.
Specialty Provider: Specialty providers focus on (or specialize in) a specific branch of medicine. For example, a “cardiologist” is a doctor who specializes in treating heart disorders. Healthcare plans often have higher copays for visits to specialty providers and require referrals from primary care physicians before specialty services are covered (see: primary care provider).
Urgent Care: When an illness or injury requires immediate care but is not life threatening. Visits to urgent care facilities typically occur outside of normal physician business hours, or in cases where a timely appointment is not available. Urgent care visits tend to be more costly than typical physician visits, with higher copays, but are less costly than visiting an emergency room.
Disclaimer: This is only a brief list of health insurance terminology, and is not all-inclusive. The exact definitions for the health insurance terms above may differ from the terms and definitions provided in your health insurance policy. This glossary is meant to be educational in nature and does not supersede policy-specific health insurance terms or definitions.