10 Health Insurance Terms and What They Mean

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  • Like medical terminology, health insurance has its own language. Understanding the language can help you get the right coverage, use it correctly, and save money and time. There are hundreds of health insurance terms to know, but here is a list of 10 common ones. Keep in mind, specific plans may define these terms slightly differently. Always check a plan’s glossary or definition of terms.

  • 1
    Allowed Amount
    Female African American patient paying at checkout desk at doctor's office

    Insurance companies negotiate with doctors, hospitals, and other providers for the price for services. This ‘allowed amount’ or ‘negotiated rate’ is part of the company’s contract with the provider. It is the amount a preferred provider can charge for the service. Your bill and explanation of benefits may show the ‘customary amount’ the provider charges, along with the allowed amount. For example, a doctor charges $100 for a service, but the allowed amount is $75. A preferred provider cannot bill you for the difference because they have a contract to accept the allowed amount. A provider outside your plan’s contract will likely bill you for the additional $25.

  • 2
    Close-up of woman's hand using calculator

    Coinsurance applies to plans with deductibles. After you have met your deductible, coinsurance is the amount you will owe for medical services. This cost-sharing amount is usually a percentage, such as 20%. For example, you need a $4,000 medical service and have $1,000 deductible and 20% coinsurance. You will pay your $1,000 deductible and then 20% of the remaining fee—or $600. For any medical expenses after this, you will pay 20%. Typically, plans with lower premiums have higher coinsurance and vice versa. Providers may or may not require payment at the time of service.

  • 3
    Older Caucasian male patient at medical checkout desk paying with health insurance

    A copayment—or copay—is a set amount you pay each time for medical services. This cost-sharing amount can vary with the type of service. For example, the copay for a primary care provider may be $20, but for a specialist it may be $30. Similarly, the copay for a generic prescription drug may be $10, but for a brand-name drug it may be $20. In general, plans with lower premiums tend to have higher copays and vice versa. Knowing how much you will use medical services can help you decide whether higher or lower copays are right for you. Typically, providers require payment at the time of service.

  • 4
    Exclusive Provider Organization (EPO)
    doctor talking to patient

    An EPO is a type of insurance plan that restricts the providers you can see. You can choose a doctor or specialist from the plan’s list. You don’t need a referral, but you must see one of these providers in the plan’s network for services to be covered. If you see a provider outside the plan’s network, the plan may not pay for the services. Check with both the provider and the plan to verify they are in the plan’s network. The only exception is emergency medical care. Also, an EPO may save you money, as the premiums are often less than more flexible plans with more providers.

  • 5
    Health Maintenance Organization (HMO)
    female doctor with female patient in hospital room

    An HMO is the most restrictive type of insurance plan. You must choose providers who work for or contract with the plan. These plans usually focus on integrated care. It is standard to require you to visit your primary care provider for a referral before seeing a specialist. The plan may not cover services if you see a provider outside the plan or fail to get a referral. Like EPOs, emergency medical care is an exception. Also, like EPOs, HMO premiums are often lower than other plans.

  • 6
    Diverse group of doctors talking at business meeting

    A network is the group of doctors, facilities, suppliers, and other providers an insurance company contracts with to deliver services. These in-network providers have agreed with negotiated rates for services. These rates are typically less than you would pay without insurance. In addition, your cost-sharing responsibility is typically less with in-network providers. So, you will save money using in-network providers and facilities. Some plans will pay for out-of-network services and others will not. In most cases, you will pay more through higher cost-sharing to see an out-of-network provider.

  • 7
    Point of Service (POS)
    man having blood taken by nurse

    A POS is a hybrid insurance plan. Like an HMO, you must choose a primary care provider from the plan’s network. However, you may or may not need a referral to see a specialist. Unlike an HMO, you can choose to go out-of-network if you want. The plan will cover out-of-network care, but you will pay more for it than in-network care. So, POS plans offer more flexibility over HMOs and, sometimes, EPOs. And they can still save you money over a plan with even more flexibility.

  • 8
    Preferred Provider Organization (PPO)
    Doctor and patient using digital tablet in clinic

    A PPO offers the most flexibility. The plan still has a network of preferred providers, but it is typically much larger than other plans. You can choose your primary care provider from the network or find one out-of-network. As with other plans that cover out-of-network care, you will pay more for these services. The main difference is that you do not need referrals to see specialists. However, there is a price to pay for the flexibility of a PPO. In general, premiums are higher compared to other types of plans.

  • 9
    Preferred Provider
    doctor examining patient's foot with nurse

    A preferred provider is one that has a contract with your insurance plan. These providers have agreed to accept the plan’s allowed amount or negotiated rate for services, so seeing these in-network providers will save you money. However, some plans have a tiered network of preferred providers. This means you will pay more to see some in-network providers. Also, check the plan for ‘participating’ providers. These providers also have contracts with the plan, but their negotiated rate might not be as low. You may pay more to see a participating provider.

  • 10
    Senior African American couple reviewing paperwork at home

    A premium is the amount you pay for health insurance, whether you use it or not. Typically, you pay premiums on a monthly basis. Some plans have high premiums and others have low premiums. When deciding which one is right for you, consider your out-of-pocket expenses—deductibles, coinsurance and copays. In general, high-premium plans have lower out-of-pocket expenses and vice versa. So, if you use a lot of services, a high-premium plan may save you money in the long run. If you are healthy and don’t use healthcare, a lower premium may be the way to go.

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  1. Common Health Insurance Terminology 101. Juvenile Diabetes Research Foundation. https://www.jdrf.org/t1d-resources/living-with-t1d/insurance/common-health-insurance-terms/#c 
  2. Glossary. Centers for Medicare and Medicaid Services. https://www.healthcare.gov/glossary/ 
  3. HMO, PPO, EPO: How’s A Consumer To Know What Health Plan Is Best? Kaiser Family Foundation. https://khn.org/news/hows-a-consumer-to-know-what-health-plan-is-best/ 
  4. Your Total Costs for Health Care: Premium, Deductible & Out-of-Pocket Costs. Centers for Medicare and Medicaid Services. https://www.healthcare.gov/choose-a-plan/your-total-costs/
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