All the Health Insurance Words You Need to Know But Were Too Embarrassed to Ask About

Mar 23, 2022 | Health Insurance

Lindsey Ellefson

Whether your health insurance is offered to you by an employer or you get it through the Affordable Care Act marketplace, most plans use the same words to describe exactly what you’re entitled to. Like filing your taxes or fixing a flat tire, health insurance terminology is one of those necessary pieces of knowledge that adults are just expected to have, but if you don’t know what all the lingo means, you’re not alone.

Knowing these words can help you take full advantage of everything your plan entitles you to, which is important, to put it mildly. Let’s look at some terms and why they matter.

The financial health insurance terms you need to know

  • Deductible. Your deductible is the amount you pay for your health services before your health insurance starts paying its share. If your deductible is $1,500, for instance, you have to pay that much on your own before your insurance will kick in and start paying the rest. Some services, like preventive physician visits, might be covered before you pay your deductible, however, so be sure to read all the guidance in your plan.
  • Premium. A premium is what you pay to the insurance company to have your plan. You could pay this monthly—as most people do—or quarterly or annually. If your premium comes straight out of your paycheck, it’s deducted from your pre-tax pay and your employer also likely pays part of the share. If you got your plan through the ACA marketplace, there are tax credits available to help you offset the costs of your premium.
  • Allowed amount. An allowed amount (or eligible expense or payment allowance) is the discounted price your plan has negotiated in advance for the service you’re getting. That means it’s the maximum amount your plan will pay for a covered service.
  • Copay. Your copayment is what you have to pay every time you have a certain service or appointment. These fixed amounts can vary depending on what service you receive. You may owe $50 every time you visit urgent care, for instance, or $20 every time you fill a prescription.
  • Coinsurance. This kicks in after you’ve met your deductible. Coinsurance is the percentage you pay of your medical expenses after you meet it. If your coinsurance rate is 25%, you’ll still pay 25% of your bills after you’ve met your deductible, while your insurance company will pay the other 75%.
  • Out-of-pocket limit. This refers to the maximum you will pay during your policy period, which is typically a year, before your plan starts to pay 100% of your allowed amount. The costs of your deductible, co-pay, and co-insurance are included here, but not your premium.
  • In-network/out-of-network providers. When making appointments with various doctors and service providers, you may notice some are listed as “in-network” while others are “out-of-network.” Any provider or facility that is in-network is one that has contracted with your health insurer to provide services. Depending on your plan, if you visit an out-of-network provider, it may not be covered or might be only partially covered. You can expect a higher deductible and out-of-pocket limit at out-of-network providers. Your coinsurance and copayment may also be higher for out-of-network providers.
  • Preauthorization/prior authorization. A preauthorization is a decision your insurer makes regarding the medical necessity of a service, treatment, drug, or piece of equipment. Also called prior authorization, this is not a guarantee your insurance will cover the cost, but getting one gives you a better shot. Talk to your doctor when you get a prescription and check your insurer’s website to see if it’s covered.

The different kind of insurance plans you need to be familiar with

  • HMO. This stands for “health maintenance organization” and refers to health plans that are typically lower in cost but offer more limited choice. Under an HMO plan, you usually have to choose an in-network provider (unless you want to pay the whole bill). An HMO typically offers limited or no out-of-network coverage.
  • POS. A point of service plan won’t allow you to get specialized care without a referral from your primary physician.
  • PPO. A preferred provider organization plan is one under which your insurer will pay a portion of your bill, even if you go to a provider outside your network. You don’t even need a referral to do it. Still, try to stay in-network just to save money, if you can.
  • EPO. In an exclusive provider organization plan, you can only use providers, specialists, and facilities that are in the plan’s network (except in cases of emergency).
  • Prescription drug coverage. This refers to health insurance or a plan that helps you pay for your prescription medications. All plans in the ACA cover prescription drugs, but if you get your insurance through your employer, check to be sure yours does.
  • Catastrophic. A catastrophic plan is one that only pays after you’ve reached a very high deductible, but it does so with no copay and no coinsurance. In general, the less expensive your premium is, the higher your deductible is, and catastrophic plans are the best example of that rule. If you pay for one, you won’t be out much money unless something, well, catastrophic happens. Notably, catastrophic plans have to cover your first three primary care visits and certain preventive care visits for free, even if you haven’t met the deductible, which was $7,900 in 2019 and $8,150 in 2020. Generally, to qualify for a catastrophic plan you must be under 30 or be granted a hardship exemption—say, due to the unaffordability of other insurance options.

Why does any of this matter?

Simply put, there are a lot of barriers in the American healthcare system. There aren’t many things you can do about the systemic ones, but what you can do is arm yourself with information about what you’re entitled to.

Dr. Gerald Kominski, senior fellow at the UCLA Center for Health Policy Research, is all about healthcare literacy, and he told Lifehacker why consumers need to know this stuff. Kominski not only studies the barriers to healthcare access in the country, but has experienced them firsthand. He explained that, like many people, he found one of his existing prescriptions wasn’t covered without a prior authorization when he switched to a new insurance provider. His new insurer required him to try other medications and demonstrate that they weren’t working before they would consider covering the one he’d been on for years, but he was “unwilling to experiment.” Instead, he got a GoodRx card, which provides users with coupons for drugs. The coupons can’t be used in conjunction with insurance, but they’re a great option and the service is free.

“The question we often ask is, ‘How many PhDs does it take to figure out your health insurance benefits?’” he said. “Health insurance is so complicated and there are so many things that can vary across policies that there’s a lot of confusion among the general public, much less among people who work in the field. I can’t tell you how many health professionals I’ve dealt with over the years who don’t fully understand the insurance they have—and they work as clinicians.”

Simply put, you’re not alone if you’re confused about what your policy does and does not cover, but it’s imperative you try to figure it all out before an emergency happens.

“It’s really important for consumers to know the specifics of their policies,” Kominski said. “Otherwise, you can find yourself in a situation where suddenly you get a large bill that you weren’t expecting. It may or may not be something that you ultimately have to pay, but this is your best protection to avoid getting a large, unexpected bill, which are also known as ‘surprise bills.’”

If you do get a surprise bill, file a request for review with your insurance company and document the circumstances. Document everything, in fact. Kominski also recommended keeping track of your out-of-pocket expenses and, when you meet your deductible, proactively letting your insurance company know. Some insurers are good about tracking that and notifying plan holders, he said, but others aren’t. Don’t let your insurer’s lack of organization cost you money.

The financial health insurance terms you need to know

In-network providers. You’ve probably been frustrated with your health insurance company’s refusal to provide you with a list of in-network providers. While your plan allows you to use any doctor, hospital, or lab, you may find that the doctor’s office isn’t in your network. If this is the case, you can call the insurance company to verify. If your insurance provider is denying you access to care, you can use a power of attorney to stop the process. The federal No Surprises Act protects consumers from surprise medical bills for services rendered by an out-of-network provider at an in-network hospital or ambulatory surgical center.

ASO. Administrative Services Only in Financial. Health insurance is a type of employee benefit plan. It provides administrative services, such as reviewing claims and submitting them for reimbursement. It can also be self-funded, allowing employers to self-fund the benefits, thereby reducing their overall financial risk. Both small and large companies have utilized administrative service-only plans for their health benefits. However, the pros and cons of each type of plan must be weighed carefully by organizations to determine which is the best fit for their needs.

FSA. Flexible Spending Accounts, or Arrangements, are a type of financial health insurance account. It makes routine medical costs more affordable for employees. Expenses that can be covered by an FSA include medical bills, prescriptions, eyeglasses, orthodontia, physical therapy, and many other medical items. Those interested in enrolling in an FSA should first make an estimate of the medical expenses they expect to incur over a calendar year. It’s relatively easy to predict the cost of a dentist visit using past years’ data. An FSA allows employees to set aside a portion of their salary for medical expenses. They can use this money for qualified medical expenses, such as dental and vision care. Generally, employees can use the FSA funds to cover their own medical expenses or to pay for the care of a family member or spouse. The main advantage is that employees don’t have to worry about paying taxes on the money they’ve saved in the account. They can use it for any eligible medical expenses, and the funds can be carried over into the following year without losing their tax advantage.

IRS 125 Flexible benefits or Cafeteria plan. Many states have passed legislation allowing employers to offer a cafeteria plan to their workers. These types of plans are tax-free and allow employees to make pre-tax contributions to the plan. The benefits offered under these plans include long-term disability insurance, dental coverage, vision care, paid time off, and vacation days. The only tax issue is the number of money employees must contribute to the plan. The cafeteria plan provides for pre-tax health insurance premium deductions. The flexible spending account version allows employees to use their own money to pay for qualified medical expenses. A cafeteria plan also provides employees with the opportunity to contribute to dependent care, such as child care or medical insurance. Both types of cafeteria plans are tax-efficient and may be used to offer a variety of employee benefits. If you are a competitive employer, you may want to consider offering a cafeteria plan to attract new recruits and retain current employees. Section 125 plans are a common benefit package for competitive employers and are often referred to as “cafeteria plans” because employees can choose between two different types of benefits. Benefits available under this plan include life insurance, dental insurance, and dependent child care.

Fully Insured Plan. A fully insured financial health insurance plan works under the same general principle as a self-funded health insurance plan. The insured population pays a premium based on the number of employees enrolled each month. This premium is paid to an insurance company on a monthly basis, and the amount paid per person is fixed until a new deal is struck. Because the premium is paid on a monthly basis, the employer knows exactly how much it will cost to cover each employee’s healthcare needs every year. A fully insured health plan accepts a fixed payment and assumes the financial risk of a patient’s medical expenses. In addition to paying the medical bills, the applicable insurance carrier keeps any excess premiums. A self-funded health plan, on the other hand, does not pass the responsibility to a third party and instead pays claims from the assets of the plan sponsor. This sponsor is the employer, and employees contribute to the plan. A fully insured plan may be the best option for your company. Employers often choose fully insured plans because they do not have to worry about the cost of administrative procedures and the insurance provider does not bear the risk of catastrophic claims.

Gatekeeper. In the healthcare industry, the terms “gatekeeper” and “gatekeeper financial health insurance” often refer to different roles. Here, we’ll define the term and discuss its role in health insurance and long-term care. As the name suggests, a gatekeeper is someone who controls the treatment process for an insured patient. For example, under a health insurance plan, the insured party is instructed to select a primary care physician from a list of approved physicians. That physician is then the gatekeeper. A gatekeeper may have several roles. In an emergency room, they may triage a patient and direct them to a specialist based on the severity of their illness. Another role of a gatekeeper is in coordinating ongoing care for a patient, such as an IT specialist who coordinates services from multiple vendors. A primary care physician may feel cut off from secondary care and become little more than an administrator of a health insurance policy. In addition to ensuring patients receive care at their primary care provider, gatekeeping may increase the rate of first-contact care and alter the behavior of patients. Gatekeeping is also related to the compulsory policy requiring patients to see CHCs first, reducing reimbursements for services provided without referrals from designated CHCs. As a result, the system can reduce reimbursements to tertiary care providers. If your insurer requires referrals from CHCs, it may be better for patients to use a different insurance provider, such as a hospital or clinic.

Group purchasing arrangement. A group purchasing arrangement (GPA) is a type of group insurance that allows multiple employers to pool their health insurance resources to obtain lower premiums. They may be public or private, formed by state legislation or by associations of employers. Each state has its unique requirements for participating in a GPA. These requirements vary from state to state, but they generally include a few main characteristics. The requirements for each state vary, including whether participation by insurers is voluntary or mandatory, the structure of the alliance, and whether the plans must be offered on a guaranteed issue basis. Further, some states may not require a group purchasing arrangement if the insurance carrier deems them uncompetitive. Agencies are unlikely to challenge a joint purchasing arrangement between two or more health care providers as long as the joint purchasing arrangement has certain conditions met. To be approved by an agency, the JPA must have lower total revenue than the competing participants’ combined sales in the relevant market. A joint purchasing arrangement with direct competitors is unlikely to reduce competition or facilitate collusion. However, a financial health insurance company must be able to justify its decision to participate in such an arrangement.

Association Health Plans. An association health plan is a type of medical insurance that works like conventional medical insurance. It is provided with a membership card and most are partnered with a larger health insurer to get access to a network of doctors. The low rates are achieved by paying providers in bulk and can be tailored to specific groups. Some have skimpy prescription drug coverage while others focus on yearly exams and tests. There are two types of association health plans: fully insured and self-insured. The differences between these plans come from how they determine the financial risk associated with medical claims. The former plan is more familiar to consumers because it transfers financial risk to an outside insurance agency. Self-insured plans, on the other hand, do not transfer any risk to an outside agency, instead paying for medical claims from financial resources such as premiums collected from employees. In addition to being a form of employer-sponsored health insurance, association health plans may be subject to state-specific rules regarding minimum essential coverage. Large-group rules, which are laxer than small-group rules, may apply to these plans. State regulations are less stringent with association health plans, but this does not mean that there are no filing requirements. For example, if an association health plan is sponsored by a non-profit organization, it is likely to be subject to fewer regulations than a small-group plan.

The different kinds of insurance plans you need to be familiar with

Indemnity Plan. An Indemnity Plan for health care plans or systems is a form of insurance that pays for services rendered by doctors and other healthcare providers. Indemnity plans can vary in their amount of coverage. For example, some pay up to x percent of what is considered reasonable and customary. Those fees can vary widely, so it’s important to carefully monitor costs with an Indemnity Plan. Because you choose your doctor and healthcare provider, you won’t be limited to a network of preferred providers. Instead, you’ll be responsible for paying part of the bill. However, you may have to pay up to 20% of the cost for your services if the medical bill exceeds your deductible amount.

Conventional Indemnity Plan. In the early days of managed care, the Traditional Indemnity Plan was the dominant health insurance option. Rather than focusing on the cost of medical care, its managers looked at the other extreme to reduce the cost of health insurance. Fortunately, the current health care system has seen great improvements in the quality of health insurance coverage, including lower premiums and deductibles. But before we can celebrate this major milestone, let’s first examine the history of the Conventional Indemnity Plan.

Physician-hospital organization (PHO). There are several benefits to creating a Physician-hospital Organization, or PHO, within a health care system. For one, it offers an integrated delivery system for patients. Coordinated care minimizes duplication of services and prevents medical errors. PHOs also share their savings with insurance companies. There are five criteria for establishing a PHO. Inclusion criteria include clinical leadership, geographic reach, physician qualifications, and patient needs. A PHO is a legal and informal group of physicians and hospitals. In some health care systems, PHOs are a way for the hospital and medical staff to cooperate and share the risk of patient-centered care. A PHO is open to all hospital staff, except for doctors in overrepresented specialties. PHOs were first established in the 1990s as a way for hospitals to build strong partnerships with physicians and offer full-service managed care to their subscribers.

Group Model HMO. The Group Model HMO is a type of managed care plan that uses a network of providers to provide health care services. This type of plan requires its members to pay a fixed monthly premium in advance of receiving medical care.

Staff Model HMO. This type of HMO health care plan and system is similar to the Group Model HMO, with the exception that physicians are employees of the HMO. In this system, physicians are paid a salary by the HMO for the services they provide. They are primarily responsible for all aspects of ambulatory health. The staff model has some benefits but is not as effective as the Network Model. Physicians are more likely to receive better care from their HMO provider. However, they have to sign a Non-Compete Clause to become members. The Staff Model HMO is not as beneficial for physicians as it is for patients. Physicians must also respect the senior members of the HMO.

Network Model HMO. This type of HMO health care plan and system vary widely in their characteristics. They differ in physician payment methods, such as fee-for-service and capitation. They also differ in the way they evaluate physicians’ performance, including their willingness to use clinical practice guidelines and patient satisfaction measures. A Network Model HMO is a health care plan in which a single insurance company contracts with several medical groups to provide physician services on a capitated or fee-for-service basis. In this type of plan, each subscriber chooses a primary care physician who acts as the gatekeeper for specialty care. Before visiting a specialist, the patient must receive a referral from the primary care physician. Also, patients must seek preauthorization for admissions to emergency care facilities. Services provided outside the network are generally not covered by HMOs, except in an emergency.

Individual Practice Association (IPA) HMO. The IPA monitors the quality of care, pays the participating physicians, and submits periodic audits. The HMO contract also governs the IPA’s ability to negotiate with insurance companies. Since the IPA represents competing health care providers, it must work efficiently to improve patient health outcomes. The organization must also effectively manage relationships with primary care physicians and maintain physician-patient relationships. In HMOs, a primary care physician is the “gatekeeper,” providing all preventative and primary care services. If the patient had a need for health care services that were outside the scope of their PCP, they would be referred to a physician from another practice. The HMO would not cover services provided by a physician who was not affiliated with the group. IDSs, on the other hand, is a group of physicians with varying roles.

Some Health Insurance Terms You May Encounter

Managed Care Plans. Health insurance plans and managed care are the results of many factors influencing the cost of healthcare in the United States. Incentives are a key aspect of these programs, and they can encourage health providers to adopt cost-sharing measures that reduce their costs. For example, managed care organizations provide financial incentives to physicians and hospitals to follow a defined set of program goals. Similarly, cost-sharing measures can influence the treatment plans of health insurance patients.

Managed Care Provisions. A managed care plan, or MCO, is a type of health insurance that contracts with medical facilities and health care providers to provide coverage at reduced rates. The plan’s rules and regulations determine which providers and hospitals are included in its network. Generally, the plan must pre-certify providers before the patient receives care, although some plans may not pay benefits if the provider is not in their network. Managed-care plans can also restrict the types of providers covered under the plan.

Maximum Plan Dollar Limit. A maximum plan dollar limit (OOPM) is a monetary limit on how much a health insurance company will pay out each year for certain medical expenses. These limits are typically a certain number of dollars per person, per year. Some plans have an annual maximum while others have an unlimited limit for an entire year. Read the plan benefits summary to find out which services are excluded. Also, look at the plan’s deductible and coinsurance limits.

Maximum out-of-pocket Expenses. In order to have affordable health insurance, you must be aware of the maximum out-of-pocket expense (POE) limit of your health insurance plan. This maximum amount represents how much you must pay for covered health care services before the insurance company pays 100% of the bill. This amount is determined by adding up the deductible, copayments, and coinsurance, and resets every year. If you are a healthy adult, this maximum out-of-pocket limit is an important feature to look for. As a general rule, deductibles count towards the out-of-pocket maximum. A $1,000 deductible, for example, would count toward the maximum out-of-pocket expense. Another $1,000 in coinsurance would count towards the maximum out-of-pocket amount. And a $3,000 copayment would count toward the remaining out-of-pocket maximum for the year. Lastly, premiums are not included in the maximum out-of-pocket amount.

Medical Savings Accounts (MSA). Medicare offers medical savings accounts (MSAs) that can be used for deductibles and other qualified expenses. MSAs are premium-free, but supplemental benefits can come with monthly fees. This means that MSA holders must track spending and keep receipts. In addition, MSA funds usually roll over from year to year. The health FSA also may have a grace period that allows unused funds to roll over to the next year.

Minimum Premium Plan (MPP). A Minimum Premium Plan, or MPP, in health insurance, is a type of plan for employees. Employers provide coverage up to an agreed-upon aggregate limit, and the insurer takes on the excess. These plans are also called “multi-employer plans.” They cover the employees of two or more employers and are generally maintained under a collective bargaining agreement. This type of plan is sometimes called a Taft-Hartley plan.

Multiple Employer Welfare Arrangement (MEWA). A Multiple Employer Welfare Arrangement, or MEWA, is a form of group health and other insurance coverage that several companies can offer their employees. These arrangements can be more affordable than single-employer plans because the multiple employers pool their contributions and enjoy economies of scale. MEWAs are also beneficial for insurance providers. Multiple employers can create a single health plan that includes both the employees and their parents. Moreover, MEWAs allow employers to customize their benefits and offer additional benefits to their employees.

Multiemployer Health Plan. A multiemployer health plan is a group health insurance program sponsored by two or more employers. The plan offers a variety of health benefits to its participants and beneficiaries. Multi-employer plans offer competitive coverage for employees and can extend coverage to employees outside of the bargaining unit.

One of the main benefits of a multiemployer health plan is its ability to reduce the cost of health insurance for employers that do not have a large employee population. By spreading the risk among many employers, large group health plans offer competitive premiums. However, many multi-employer welfare arrangements have failed because they have been undercapitalized, have not produced cost savings, and fail to comply with federal regulations.

Primary Care Physician (PCP). Your primary care physician (PCP) is your primary healthcare provider. They provide basic medical care and diagnose and treat the majority of common illnesses. Sometimes, they will collaborate with a specialist to manage your disease. For example, if you have rheumatoid arthritis, a specialist might first diagnose your condition and then transition routine care to your PCP. Your PCP may also coordinate care with a nephrologist for a kidney transplant patient. For health insurance purposes, your PCP should be a board-certified internal medicine doctor. This doctor specializes in the internal organs and has extensive training. They are a good choice for a PCP since they are familiar with your medical history and are more likely to diagnose and treat problems that affect adults. A PCP also knows your complete medical history and can provide advice over the phone or by fitting you in on the same day. This is important if you want to avoid the long wait times in the emergency room.

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