This is general information, not insurance, medical, legal or financial advice. Health insurance words are used in slightly different ways by different insurers, employers and countries, so treat these definitions as a starting point and check your own plan documents for the exact meaning. Any dollar figures below are hypothetical and chosen only to make the idea clear.
Money you pay
Premium. The amount you or your employer pay to keep coverage active, usually monthly. You pay it whether or not you use any care. It is separate from the costs you share when you actually receive services, and it is one part of the bigger picture covered under premiums and costs.
Deductible. The amount you typically pay for covered services in a plan year before the plan starts sharing costs. Some services, such as certain preventive visits, may be covered before the deductible is met, depending on the plan. Others may have a copay instead.
Copayment (copay). A flat fee for a particular service, such as a set amount for a primary care visit or a prescription. The flat amount is the same regardless of the total bill.
Coinsurance. A percentage of the cost of a covered service that you pay after the deductible, with the plan paying the rest. A 20 percent coinsurance means you pay 20 percent of the plan’s recognized price.
Out-of-pocket maximum. A yearly limit on what you pay for covered, in-network care. Once reached, the plan typically pays the covered costs for the rest of the year. Premiums and non-covered services generally do not count toward it.
Allowed amount. The price the plan recognizes for a service. It can be lower than what the provider bills, and it is the figure that coinsurance is calculated from.
Where you get care
Network. The group of doctors, hospitals, labs and other providers that have agreed to contract rates with a plan. Using them usually costs less. The details of how networks are built and changed fall under provider networks.
In-network and out-of-network. In-network providers have a contract with your plan. Out-of-network providers do not, which can mean higher costs, lower coverage or no coverage at all, depending on the plan type.
Primary care provider (PCP). The doctor or clinician you see first for general care. Some plans ask you to choose one and may need a referral from them before you see a specialist.
Referral. A recommendation, sometimes required by the plan, that lets you see a specialist or get certain services.
Plan types. Names such as HMO, PPO, EPO and POS describe how a plan organizes networks and referrals. They are explained in their own articles; the main thing to know here is that the label affects both choice and cost.
Rules the plan applies
Covered service. Care the plan agrees to pay for under its terms. A service can be covered and still leave you with a share of the cost.
Exclusion. Something the plan specifically does not pay for. Exclusions are listed in the policy documents.
Prior authorization. Approval the plan requires before certain services or drugs. Without it, a claim can be denied even if the care itself would normally be covered.
Medical necessity. A plan’s standard for deciding whether a service is appropriate for a condition. A service can be medically useful in your doctor’s view and still be judged differently by the plan.
Formulary. The list of prescription drugs a plan covers, often sorted into tiers with different costs. The broader topic is covered under prescription drugs.
Waiting period. A time you must wait before coverage starts or before a particular benefit can be used.
Paperwork and money flow
Claim. A request for payment sent to the plan after you receive care. Providers usually file claims for you, though you sometimes file one yourself.
Explanation of benefits (EOB). A statement from the plan showing what was billed, what it allowed, what it paid and what you may owe. It is not a bill. How it differs from what the provider sends is covered under explanation of benefits.
Denial. The plan’s decision not to pay all or part of a claim. A written denial normally states a reason and explains how to challenge the decision.
Appeal. A formal request that the plan reconsider a denial.
Balance billing. When an out-of-network provider bills you for the difference between their charge and what the plan paid. Rules about this vary a great deal by location and situation.
Enrollment words
Open enrollment. A set period each year when you can sign up for or change coverage.
Special enrollment. A window outside open enrollment, usually triggered by a qualifying life event such as a loss of other coverage or the birth of a child. Eligibility rules vary.
Dependent. A person, such as a spouse or child, covered under another person’s plan.
Effective date. The day coverage actually begins. It is worth checking, because it may not be the day you sign up.
Putting the terms together
Imagine a hypothetical plan with a $1,000 deductible, 20 percent coinsurance and a $4,000 out-of-pocket maximum. If you receive a covered service the plan prices at $5,000 and have paid nothing yet that year, you would first pay the $1,000 deductible. The remaining $4,000 is split, with you paying 20 percent, which is $800. Your total is $1,800, and the plan pays $3,200. Real plans add details such as copays, separate drug deductibles and different rules for different services, so your own numbers will differ.
A practical way to use this glossary
When you compare plans, line up the same few terms side by side: premium, deductible, out-of-pocket maximum, the cost of the services you use most, and whether your doctors are in the network. A plan with a lower premium often has higher cost-sharing, and the reverse is common too, so neither number tells the whole story. If a term in a document still seems unclear, ask the plan or your benefits administrator to explain it in writing.