Common Health Insurance Terms and Definitions

Do you know the ABCs of health insurance? Claims, premiums, deductibles copayments and coinsurance? It’s OK—we know as well as anyone that the language of health insurance can be hard to understand. Yet every day, it’s becoming more and more important for health care consumers to have at least a basic knowledge of the industry’s terminology.

Here, you’ll find plain-English definitions for 33 of the most common insurance terms. We think you’ll agree that a little knowledge will go a long way toward helping you make sense of it all—so you can make smart decisions that will benefit you and your family, today and for years to come. And now, some basic terms:

Allowable chargesometimes known as the “allowed amount,” “maximum allowable,” and “usual, customary, and reasonable (UCR)” charge, this is the dollar amount considered by a health insurance company to be a reasonable charge for medical services or supplies based on the rates in your area

Benefitthe amount payable by the insurance company to a plan member for medical costs.

Benefit levelthe maximum amount that a health insurance company has agreed to pay for a covered benefit.

Benefit yearthe 12-month period for which health insurance benefits are calculated, not necessarily coinciding with the calendar year. Health insurance companies may update plan benefits and rates at the beginning of the benefit year.

Claima request by a plan member, or a plan member’s health care provider, for the insurance company to pay for medical services.

Coinsurancethe amount you pay to share the cost of covered services after your deductible has been paid. The coinsurance rate is usually a percentage. For example, if the insurance company pays 80% of the claim, you pay 20%.

Coordination of benefitsa system used in group health plans to eliminate duplication of benefits when you are covered under more than one group plan. Benefits under the two plans usually are limited to no more than 100% of the claim.

Copaymentone of the ways you share in your medical costs. You pay a flat fee for certain medical expenses (e.g., $10 for every visit to the doctor), while your insurance company pays the rest.

Deductiblethe amount of money you must pay each year to cover eligible medical expenses before your insurance policy starts paying.

Dependentany individual, either spouse or child, that is covered by the primary insured member’s plan.

Drug formularya list of prescription medications covered by your plan.

Effective datethe date on which a policyholder’s coverage begins.

Exclusion or limitationany specific situation, condition, or treatment that a health insurance plan does not cover.

Explanation of benefitsthe health insurance company’s written explanation of how a medical claim was paid. It contains detailed information about what the company paid and what portion of the costs you are responsible for.

Group health insurancea coverage plan offered by an employer or other organization that covers the individuals in that group and their dependents under a single policy.

Health maintenance organization (HMO)
A health care financing and delivery system that provides comprehensive health care services for enrollees in a particular geographic area. HMOs require the use of specific, in-network plan providers and usually require that each person be assigned a Primary Care Physician (PCP).

Health savings account (HSA)a personal savings account that allows participants to pay for medical expenses with pre-tax dollars. HSAs are designed to complement a special type of health insurance called an HSA-qualified high-deductible health plan (HDHP). HDHPs typically offer lower monthly premiums than traditional health plans. With an HSA-qualified HDHP, members can take the money they save on premiums and invest it in the HSA to pay for future qualified medical expenses.

In-network providera health care professional, hospital, or pharmacy that is part of a health plan’s network of preferred providers. You will generally pay less for services received from in-network providers because they have negotiated a discount for their services in exchange for the insurance company sending more patients their way.

Individual health insurancehealth insurance plans purchased by individuals to cover themselves and their families. Different from group plans, which are offered by employers to cover all of their employees.

Medicaid/Medi-Cal a health insurance program created in 1965 that provides health benefits to low-income individuals who cannot afford Medicare or other commercial plans. Medicaid is funded by the federal and state governments, and managed by the states.

Medicare the federal health insurance program that provides health benefits to Americans age 65 and older. Signed into law on July 30, 1965, the program was first available to beneficiaries on July 1, 1966 and later expanded to include disabled people under 65 and people with certain medical conditions. Medicare has two parts; Part A, which covers hospital services, and Part B, which covers doctor services.

Medicare Part Dplans offered by private insurance companies for prescription drug coverage for Medicare eligible individuals.

Medicare supplement plans plans offered by private insurance companies to help fill the “gaps” in Medicare coverage.

Network the group of doctors, hospitals, and other health care providers that insurance companies contract with to provide services at discounted rates. You will generally pay less for services received from providers in your network.

Out-of-network providera health care professional, hospital, or pharmacy that is not part of a health plan’s network of preferred providers. You will generally pay more for services received from out-of-network providers.

Out-of-pocket maximumthe most money you will pay during a year for coverage. It includes deductibles, copayments, and coinsurance, but is in addition to your regular premiums. Beyond this amount, the insurance company will pay all expenses for the remainder of the year.

Payerthe health insurance company whose plan pays to help cover the cost of your care. Also known as a carrier.

Pre-existing conditiona health problem that has been diagnosed, or for which you have been treated, before buying a health insurance plan.

Preferred provider organization (PPO)a health insurance plan that offers greater freedom of choice than HMO (health maintenance organization) plans. Members of PPOs are free to receive care from both in-network or out-of-network (non-preferred) providers, but will receive the highest level of benefits when they use providers inside the network.

Premiumthe amount you or your employer pays each month in exchange for insurance coverage.

Providerany person (i.e., doctor, nurse, dentist) or institution (i.e., hospital or clinic) that provides medical care.

Ridercoverage options that enable you to expand your basic insurance plan for an additional premium. A common example is coverage for infertility.

Underwritingthe process by which health insurance companies determine whether to extend coverage to an applicant and/or set the policy’s premium.

Waiting periodthe period of time that an employer makes a new employee wait before he or she becomes eligible for coverage under the company’s health plan. Also, the period of time beginning with a policy’s effective date during which a health plan may not pay benefits for certain pre-existing conditions.

There, that wasn’t so bad, was it?
With this knowledge in mind, you’re now more prepared to evaluate your needs, ask good questions, and take a more active role in your health insurance decisions.

Remember, Point One Insurance is here to help. If you have any questions, call us today at 1-530-395-0122 and we’ll be happy to talk!

Sources: Healthinsurance.org, U.S. Dept. of Health & Human Services,