Health Insurance Terminology You Need to Know

The first step to understanding health insurance: understanding the terminology

Understanding health insurance terminology makes it easier to compare health plans
To understand your health insurance plan - and the plan options available to you - it's essential to understand health insurance terminology. Jamie Grill/Creative RF/Getty Images

It's no secret that health insurance can be a confusing subject. Many aspects of health insurance have undergone significant reforms over the last several years, and plan options tend to be relatively dynamic, with different options available from one year to the next.

While health insurance isn't likely to become any less complicated anytime soon, a big part of being able to understand how the plans work is understanding the terminology used to describe them.

Once you know the basic definitions, you'll be able to understand how a particular health plan will work in your specific situation, and you'll also be able to compare apples to apples when you're considering different plan options, either from your employer or in the individual health insurance market.

7 Important Terms to Know

Premium: The cost to buy the insurance. This has nothing to do with whether or not you use the plan. The premium is the amount you (or your employer) pay each month in order to have the coverage in force. If you don't pay your premium, your coverage will terminate. And you'll pay the same premium regardless of whether you have zero claims during the year, or a million dollars worth of claims. The premium will change each year (it usually increases, but decreases occasionally happen), but the changes aren't related to your own individual use of healthcare services.

If you get coverage through your job, your employer likely pays a portion of the premium, and the rest is payroll deducted. If you buy your own health insurance through the exchange, you might be eligible for premium subsidies that pay a portion of the premiums. And if you're on Medicare, your Part B premiums are likely deducted from your Social Security checks.


Deductible: The amount you pay for healthcare before many of the plan's benefits kick in. There are still a few plans available with zero deductibles, but the average deductible on a Silver plan in the individual market is more than $3,000 in 2016, and the average deductible for a single person on a employer-sponsored plan was more than $1,300 in 2015. Some health plans have deductibles equal to the out-of-pocket maximum, which means you pay for all your care in full (except preventive care on non-grandfathered plans) until you meet the plan's out-of-pocket maximum.

It's important to note that some services – particularly preventive care on all non-grandfathered plans - will be covered without you having to pay your deductible. And some services - like doctor visits or prescription drugs - might be available with a copay (see the next term) even before you've paid your deductible. But if your plan details say something like "x% coinsurance after deductible," it means you have to pay your deductible and then the health insurance company will start paying a percentage of the cost.

Copay: A fixed dollar amount that you pay for certain services. Copays are most commonly used for things like office visits, urgent care visits, and prescription drugs, although some plans will use copays - albeit very high ones - even for services like surgeries and inpatient care. If your plan has copays for particular services, the flat dollar amounts will be listed on your plan description, and will vary based on the service provided. For example, most plans that cover office visits with a copay will charge a higher copay for a specialist visit as opposed to a primary care visit.

It's common for health plans to cover prescriptions with copays, with different copays depending on whether the medication is generic or brand-name, and often with much higher out-of-pocket costs - typically coinsurance rather than a copay - for expensive specialty drugs. But many plans also impose a deductible for prescriptions that must be met before the copays kick in. If your plan has a drug deductible, you pay the full cost (with the plan's negotiated discount) for all drugs until you meet the deductible, then you switch to copays until your total costs reach the plan's out-of-pocket maximum for the year.

Coinsurance: The percentage of healthcare costs that you pay after you've paid your deductible, but before you've reached your plan's annual out-of-pocket maximum. When you look at your plan description, you'll see some services that just show a percentage of the cost, rather than a copay amount. That's coinsurance, often abbreviated as coins or co-ins.

Coinsurance applies to services that aren't covered by a copay, and it applies after you've met your deductible. Until you pay your deductible, you pay 100% of the cost of services (albeit with the health plan's network-negotiated rates, assuming you're seeing in-network providers) that are covered with coinsurance.

After you've paid the deductible, you pay the percentage of the costs required by your health plan (typically 20 percent to 50 percent), until your total costs - including the deductible, coinsurance, and any copays - for the year have reached the out-of-pocket maximum for the plan.

Some plans - particularly at the bronze level - don't have any coinsurance at all, and simply have a deductible that's equal to the out-of-pocket maximum. In that case, once you've met the deductible, the health plan will pay 100% of the cost of all covered services for the remainder of the year.

Essential Health Benefits (EHB): This is a list of ten services that the Affordable Care Act required all new individual and small group health plans to cover, starting in 2014. Large group health plans do not have to cover all ten of the essential health benefits, and even individual and small group plans have some leeway in terms of pediatric dental, which is one of the EHBs.

Most medically necessary services fall under the EHB umbrella, but things like acupuncture, infertility treatment, chiropractic care, orthotics, and hearing aids do not have to be covered by health insurance plans (many plans cover them anyway – double check the fine print on the plans you're considering).

Out-of-pocket maximum: The maximum amount you'll have to pay for essential health benefits during a given year, as long as you use doctors and hospitals who are in-network with your insurance plan. Your costs can be from a combination of deductible, copays, and coinsurance.

For 2016 - with the exception of grandfathered and grandmothered plans – the out-of-pocket maximum is $6,850 for an individual, and $13,700 for a family (with an embedded individual out-of-pocket maximum that can't exceed $6,850). But for 2017, they'll be higher. And health plans are free to set lower out-of-pocket maximums. Once you've met the out-of-pocket maximum for the year, all of your essential health benefits will be covered in full by your health plan, again assuming that you seek care from in-network doctors and hospitals.

In-network: A hospital, doctor, or other healthcare provider who has a contract with your health insurance carrier and has agreed to accept the health plan's negotiated rates as payment in full. Your health plan's normal deductible, coinsurance, copays, and out-of-pocket maximum only apply if you use in-network doctors and healthcare facilities. If you choose to go out-of-network (or if you're treated by an out-of-network provider at an in-network hospital), you'll pay more for your care, and your total expenses for the year can exceed the normal out-of-pocket maximums.

Note that some health plans have tiered networks, which means you can get lower copays and deductibles if you use top-tier hospitals and doctors. How you access the healthcare providers in your plan's network – including whether or not you'll need a referral from a primary care physician – depends on whether you have a PPO, HMO, EPO, or POS plan design

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