Understanding Health Insurance Terms
Finding your way through health insurance benefits can be a challenge. It is very important to know the meaning of terms that insurance companies use. And it is especially helpful when understanding your benefits and choosing a plan to best meet your needs.
This glossary briefly explains some of the most common health insurance terms.
Allowable charge. Also referred to as the allowed amount, approved charge, or maximum allowable. This is the dollar amount typically considered payment-in-full. The allowable charge is typically a discounted rate rather than the actual charge.
Example: You visited your physical therapist for tennis elbow. The total charge for the visit is $100. If the physical therapist is a member of your insurance company's provider network, they may have to accept $80 (the allowable charged) as payment in full for the visit. Your health insurance company will pay all or a portion of the $80, minus any copayment or deductible that you may owe. The physical therapist will not be paid the remaining $20 nor can the patient be billed for the remaining $20. If the physical therapist is not an in-network provider, you may be responsible for the amount your health insurance company will not pay, up to the full charge of $100.
Balance billing. The amount the patient could be responsible for if you use an out-of-network provider and the fee is more than the allowable charge for the provided service. This is in addition to any copayments, deductibles, or coinsurance.
Benefit. Any service or supply covered by a health insurance plan. Benefits include services or supplies such as:
- Office visits.
- Lab tests.
- Surgical procedures.
- Prescription drugs.
- Durable medical equipment. Medical equipment ordered by your health care provider for everyday or long-term use (see DME definition below).
Benefit level. The maximum amount a health insurance company agrees to pay for a specific covered benefit.
Benefit package. A description of the covered services and supplies for members of a specific plan.
Claim. A bill for medical services rendered (given). Health care providers typically will submit (send) claims to the insurance company.
Coordination of benefits or COB. The process that health insurance companies use to define the primary or secondary payer if a person has more than one plan.
Coinsurance. In fee-for-service plans, this is the portion to be paid by the patient. The dollar amount can vary, as it is based on a percentage of the cost of your charges.
Copayment. This is the dollar amount that the patient must pay for each visit.
Consumer-driven health care. Health plans in which employees set aside a predetermined amount of money to pay for their medical costs directly. Types of personal health accounts include:
- Health savings accounts, or HSAs (see definition below).
- Medical savings accounts, or MSAs (see definition below).
- Flexible spending arrangements, or FSAs (see definition below).
Date of service. The date that the health care service was provided.
Durable medical equipment. Medical equipment used in treatment or home care. DME coverage levels often differ from coverage levels for office visits and other medical services. DME can include devices such as:
- Hospital beds.
- Prostheses (artificial limbs).
Deductible. The dollar amount a patient must pay before insurance benefits “kick in” to cover any health care services.
Denial. Refusal by the insurer to pay for services provided to the patient. Payment can be denied for various reasons.
Dependent coverage. Health insurance coverage extended to the spouse and unmarried children of the primary insured member. Age restrictions on the coverage of children may apply.
Eligibility. Conditions that must be met for a person to be considered eligible (qualified) for insurance coverage. Eligibility is based on factors such as:
- Enrollment date.
- Employment status.
- Financial status.
Enrollee. An eligible person or eligible employee who is enrolled in a health insurance plan. Dependents are not referred to as enrollees.
Enrollment. The process through which an approved applicant is signed up with the health insurance company. Coverage is effective once a person is enrolled.
Enrollment period. The period during which an eligible employee or person may sign up for a health insurance plan.
Evidence of coverage. A document that describes the benefits, limitations, and exclusions of coverage provided by an insurance company.
Exclusions. Services that a health insurance company will not pay for.
Explanation of benefits. A statement sent from the health insurance company to a member listing:
- Services that were billed by a health care provider.
- How charges were processed.
- The total amount for which the patient is responsible to pay.
Fee-for-service plan. A type of health insurance plan that typically allows patients to direct their own health care and visit health care providers they like. The insurance company pays a set portion of the total charges. The patient may have to pay up front for some services and then request a refund from their insurance company. FFS plans usually require members to fulfill an annual deductible. These plans can be more expensive due to the freedom they offer members.
Flexible spending arrangements. An account that allows you to use pretax dollars to pay for qualified medical costs. An FSA account covers a specific year. FSAs usually are funded through voluntary salary reduction agreements with an employer.
Gatekeeper. A term used to describe the role of the primary care doctor in a health maintenance organization plan, also called an HMO. The primary care doctor serves as the patient's main point of contact for health care services, whose responsibility includes referring the patient to other care providers and specialists.
Health maintenance organization. An HMO is a form of managed care in which you receive your care only from participating providers.
Health savings account. A savings product that serves as a substitute for traditional health insurance. HSAs enable you to pay for current health costs. They also allow you to save for future medical and retiree health costs tax-free.
Managed care. A term used to describe health care plans that attempt to guide a member's use of benefits. Typically, members must coordinate their health care through a primary care doctor for services to be covered. Managed care plans also encourage the use of a specific network of health care providers. The management of health care is intended to keep costs — and monthly premiums — as low as possible. HMOs and preferred provider organizations, or PPOs, are examples of managed care plans.
Medicaid. A state-funded health care program for people with low income or who are disabled.
Medical necessity. Criteria used by health insurance companies to determine if health care services should be covered. Generally, a medical service meets the criteria of medical necessity when it is:
- Consistent with general standards of medical care.
- Consistent with a patient's diagnosis.
- The least expensive option available to provide a desired health outcome.
Medical savings account. A type of Medicare Advantage plan that combines a high-deductible health plan with a medical savings account.
Member. Anyone covered under a health insurance plan. Members include the enrollee (primary member) and eligible dependents.
Medicare. A federal health insurance program for most people who are 65 years and older. Medicare also covers certain other eligible individuals. It is run by the Centers for Medicare & Medicaid Services. The program, covers most, but not all, of the costs for:
- Medical care.
- Some related health services.
Medicare beneficiary. Anyone entitled to Medicare benefits based on the rules for eligibility. Rules are outlined by the Social Security Administration.
Medicare supplement insurance. Sometimes called Medigap, this is health insurance sold by private companies to an individual or group. It is intended to help fill in the gaps in coverage provided by Medicare. Medigap can help pay for some of the remaining out-of-pocket health care costs. These may include copayments, coinsurance, and deductibles (when allowed).
Network. A network plan is another form of a preferred provider organization, or PPO, plan. With network plans, patients need to get medical care from doctors or hospitals in the plan’s network if they want claims to be paid at the highest level. You likely will not be made to coordinate care through a primary care provider, as you would with an HMO. But it's up to patients to make sure that the providers you visit participate in the network. Services by out-of-network providers may not be covered or may be paid at a lower level, leaving you with paying more out-of-pocket costs. A network plan may be right for you if:
- Your favorite doctor already participates in the network.
- You want some freedom to direct your own health care but don't mind working within a network of preferred providers.
Network provider. A health care provider who has contracted with a health insurance company to provide care to eligible members (enrollees).
Nonparticipating provider. Any health care provider who does not have an agreement with an insurance company to provide care for an agreed-upon fee. Patients can receive services from nonparticipating providers if their plan offers out-of-network benefits. They also can see nonparticipating providers if they are willing to pay out-of-pocket People who receive services from nonparticipating providers miss out on in-network discounts (see out-of-network care).
Nursing home. A licensed facility that provides nursing care and rehab services to people who are chronically ill or who require constant supervision and assistance with the needs of daily living. Nursing homes also are called skilled nursing facilities or SNFs.
Open enrollment. A set period during the year (often called an open-enrollment window). This is when you can enroll in health insurance. You also can change from one plan to another during open enrollment. Only a qualifying event, such as a child’s birth or adoption, marriage, or divorce, enable plan changes outside of the open enrollment period.
Out-of-network care. Health care provided to a patient outside of the health insurance company's network of preferred providers. Health insurance companies often will not pay for services provided by out-of-network providers.
Out-of-pocket. Money the patient is responsible to pay toward the cost of health care services.
Participating provider. A health care provider or organization that has contracted with an insurance company. They provide care to eligible patients under defined conditions. Participating providers often provide care at discounted and/or contracted fees (see in network provider).
Payer. The party who makes payment for services under the insurance coverage policy. In most cases, the payer is the same as the insurer or insurance company. In very large, self-insured employers, the payer is an entity under contract to manage the insurance policy.
Place of service. The type of facility in which health care services were provided. A place of service can be your home, a hospital, a provider’s clinic or office, or other facilities.
Policyholder. The purchaser of an insurance policy. In group health insurance, this is usually the employer who buys policy coverage for its employees.
Preferred provider organization, or PPO. This is a form of managed care in which the member has more freedom to choose their health care providers. The member can seek care from both participating and nonparticipating providers. There is a greater out-of-pocket expense if the member sees a nonparticipating provider.
Preauthorization/precertification. These terms often mean the same thing. They may also refer to one of the following specific processes in a health insurance or health care context:
- Most commonly, preauthorization and precertification refer to the process by which a patient is preapproved for coverage of a medical procedure or prescription drug. Health insurance companies may require patients to meet certain criteria before covering certain surgeries, procedures, or drugs. For preapproval of a drug or service, the insurance company requires the patient's doctor to send notes and/or lab results that detail the patient's condition and treatment history.
- Precertification also can describe the process by which a hospital notifies a health insurance company of a patient's inpatient admission. This also may be referred to as preadmission authorization.
Premium. The cost of an insurance plan. Usually, the premium is shared by employer and employee.
Primary care physician. The primary care physician usually serves as a patient's main health care provider. They are the first point of contact for health care and refer patients to specialists for additional services. In a managed health care plan, members may have to choose a PCP. Examples of doctors who function as PCP’s include.
- Family doctors.
- Internal medicine doctors.
- Pediatricians (doctors who see patients from birth to 18 years).
Probationary period. A waiting period determined by the health insurance company. During this period coverage for certain preexisting conditions may be excluded.
Provider write-off. The difference between the actual charge and the allowable charge. This is the amount that a network provider cannot charge to the enrollee of a health insurance plan that uses a provider network. See Allowable Charge for more information.
Preferred provider. A provider who has a contract with the health insurer or plan to provide discounted services. Check your policy to see if you can see all preferred providers or if your plan has a “tiered” network and you must pay extra to see some providers. Your plan may have preferred providers who also are “participating” providers. Participating providers also contract with your health insurer or plan, but the discount may not be as great as when you see a preferred provider, and you may have to pay more. See participating provider for more details.
Provider. One who delivers health care services within the scope of a professional license. Examples include doctors, surgeons, and physical therapists.
Referral. The process through which a patient under a managed care health insurance plan is allowed by their primary care physician to a see a specialist for the diagnosis or treatment of a specific condition.
Renewal. This occurs when a member continues coverage under a health insurance plan beyond the original contract period. At the end of each benefit year, a plan member is generally invited to renew coverage.
Reimbursement. Payment by a patient or insurer to a health care provider for services (rendered) provided.
Service area. The geographic area in which a health insurance plan's benefits are made available. Some health insurance plans will not provide coverage outside of a plan's service area.
Specialist. A doctor or health care provider who does not serve as a primary care physician. The specialist provides secondary care based on education and/or experience in a specific medical field.
Utilization management/review. This also may be called a medical review. It is the work done (usually by a group of doctors and nurses) to determine if a patient's use of health care services was:
- Medically necessary.
- Within the guidelines of standard medical practice.
Waiver of premium. In some cases, a waiver of premium may be granted. This allows a member to keep health insurance coverage in full force without payment. Waivers are typically only granted in cases of permanent and total disability.