Common Health Insurance Terms and Definitions
Do you know the ABCs of health insurance? Claims, premiums, deductibles copayments and coinsurance? It’s OK—we know as well as anyone that the language of health insurance can be hard to understand. Yet every day, it’s becoming more and more important for health care consumers to have at least a basic knowledge of the industry’s terminology.
Here, you’ll find plain-English definitions for 33 of the most common insurance terms. We think you’ll agree that a little knowledge will go a long way toward helping you make sense of it all—so you can make smart decisions that will benefit you and your family, today and for years to come. And now, some basic terms:
Allowable charge—sometimes known as the “allowed amount,” “maximum allowable,” and “usual, customary, and reasonable (UCR)” charge, this is the dollar amount considered by a health insurance company to be a reasonable charge for medical services or supplies based on the rates in your area.
Navigating the intricacies of health insurance in the United States can feel like deciphering a complex code. From premiums to deductibles, copayments to out-of-pocket maximums, the terminology can be overwhelming for consumers seeking coverage. Understanding these terms is crucial for making informed decisions about healthcare options. In this guide, we’ll unravel the jargon surrounding U.S. health insurance to empower consumers to make confident choices regarding their coverage.
Premiums:
The premium is the amount paid to the insurance company for coverage. It’s typically a monthly payment, although some plans may offer different payment frequencies. Premiums can vary widely based on factors such as age, location, and coverage level. Consumers should carefully consider premium costs when selecting a plan, balancing affordability with comprehensive coverage.
Deductibles:
A deductible is the amount consumers must pay out of pocket for covered services before the insurance company begins to contribute. For example, if a plan has a $1,000 deductible, the consumer must pay $1,000 for eligible services before the insurance kicks in. High-deductible plans often have lower premiums but require higher out-of-pocket expenses before coverage begins.
Copayments:
Copayments, or copays, are fixed amounts paid by the consumer for covered services, such as doctor visits or prescriptions. These costs are typically due at the time of service and can vary depending on the type of service and the insurance plan. Copays are separate from deductibles and premiums and are a key factor in determining the overall cost of healthcare for consumers.
Coinsurance:
Coinsurance is the percentage of the cost of covered services that consumers are responsible for paying after meeting their deductible. For example, if a plan has a 20% coinsurance rate for hospital stays and the total cost of a hospital visit is $5,000, the consumer would be responsible for paying $1,000 (20% of $5,000) after meeting their deductible.
Out-of-Pocket Maximum:
The out-of-pocket maximum is the most a consumer will have to pay for covered services in a plan year. Once this limit is reached, the insurance company typically covers 100% of covered services for the remainder of the plan year. Out-of-pocket maximums include deductibles, copayments, and coinsurance but do not include premiums. Understanding the out-of-pocket maximum is essential for budgeting healthcare expenses and mitigating financial risk.
Preventive Care:
Many health insurance plans cover preventive care services at no cost to the consumer. These services may include annual check-ups, vaccinations, screenings, and counseling. Preventive care is designed to catch health issues early, promote overall wellness, and reduce long-term healthcare costs. Consumers should familiarize themselves with their plan’s preventive care benefits to take full advantage of these services.
Network:
Health insurance plans often have networks of healthcare providers, including doctors, hospitals, and specialists, with whom they have negotiated discounted rates. In-network providers typically offer lower out-of-pocket costs for consumers compared to out-of-network providers. It’s important for consumers to verify whether their preferred providers are in-network to avoid unexpected expenses.
Explanation of Benefits (EOB):
An Explanation of Benefits is a statement provided by the insurance company after a healthcare service is received. It outlines the services provided, the amount billed by the provider, the amount covered by the insurance company, and any remaining balance owed by the consumer. Reviewing the EOB helps consumers understand their healthcare expenses and ensures accurate billing.
U.S. health insurance terminology is essential for consumers to make informed decisions about their healthcare coverage. By familiarizing themselves with terms such as premiums, deductibles, copayments, coinsurance, out-of-pocket maximums, preventive care, network, and Explanation of Benefits, consumers can navigate the complexities of health insurance with confidence. Additionally, consulting with insurance providers and healthcare professionals can provide further clarity and assistance in selecting the most suitable coverage for individual needs and circumstances.
