10 Health Insurance Terms to Know

Have you ever looked at a health insurance plan and felt overwhelmed by all the complicated terms? You are not alone. Health insurance can seem complex, but understanding a few key terms can help you make informed decisions about your healthcare. Below is a list of the most important health insurance terms and what they mean.

Premium

The amount you pay to your insurance company every month or year to keep your health insurance plan active. This amount is paid regardless of whether you use any medical services.

Deductible

The amount you must pay out of pocket for covered healthcare services before your insurance begins sharing more of the cost.

Example: If a procedure costs $1,000 and your deductible is $500, and you have not met your deductible yet, you will first pay $500 of the procedure cost. After the $500 deductible is met, the insurance company will pay its portion of the remaining cost according to your plan. If you have already met your deductible earlier in the year, you only pay the copay or coinsurance for the procedure.

Copayment (Copay)

A copayment is a fixed out-of-pocket amount paid for specific healthcare services.

Example: You pay $25 for a primary care visit, regardless of the total cost of the visit.

Coinsurance

Coinsurance is the percentage of healthcare costs that you pay after your deductible has been met.

Example: If a procedure costs $1,000 and your plan has 20% coinsurance, your insurance company pays 80% ($800), and you pay 20% ($200).

Out-of-Pocket Maximum

The maximum amount you will have to pay out of pocket for covered healthcare services during a plan year. After this limit is reached, your insurance company pays 100% of covered healthcare costs for the remainder of the year.

Allowed Amount

The maximum amount your insurance company considers payable for a covered healthcare service. If a provider charges more than the allowed amount, you may be responsible for paying the remaining amount.

Drug Formulary

This is a list of prescription medications that are covered by your health plan, and it includes how much you would have to pay out of pocket for them.

In-Network Provider

An in-network provider is a doctor, hospital, clinic, pharmacy, or any other healthcare provider that has a contract with your insurance company. Because of this contract, services are provided at lower rates, reducing your out-of-pocket costs.

Prior Authorization

Prior authorization is the process by which your insurance company must approve certain tests, medications, treatments, or procedures before they will be covered. This process helps determine whether the requested treatment is medically necessary according to the insurance company.

If prior authorization is required and not obtained, the insurance company may deny coverage, and you may be responsible for the full cost.

Explanation of Benefits (EOB)

An Explanation of Benefits is a statement sent by your health insurance company explaining how a medical claim was processed. It shows the amount billed by the provider, the amount covered by insurance, and the amount you may owe.

An EOB is not a bill. It is a summary showing how healthcare costs were divided between you and your insurance company.