Health insurance is among the most essential financial security options you have; however, many Americans are confused by the terms used. If you don’t understand the terminology that is used in your insurance policy, it is difficult to pick the best policy, estimate the cost or utilize the benefits you receive correctly.
To build a strong foundation in how plans, costs, and coverage work together, explore our complete health insurance guide for plans, costs, and choosing coverage.
At Keen Coverage, we believe that a confident decision can only be made with clear and accurate information. When you’re deciding on the right plan for you in open enrollment, or trying to figure out the meaning of an Explanation of Benefits (EOB) Understanding the basics of terms in health insurance will allow you to save money and make the most of your insurance.
These are 10 terms of health insurance that every policyholder needs to know.
1. Premium
The Premium will be the sum you have to pay each month in order to maintain your health insurance. Paying a premium will keep your insurance coverage in effect, even if it is not the case that you go to a doctor or submit an insurance claim.
- Imagine it as the cost of a monthly subscription for health insurance.
- Plans with lower premiums typically have higher deductibles and vice versa.
Knowing your premium can help you budget your money properly and also compare health insurance options.
2. Deductible
The deductible is the amount you have to pay out of pocket to cover medical treatments before your insurance begins covering the costs.
Example:
If your limit for deductible is $2,000, then you have to pay your first $2,000 of insurance expenses yourself. Then the insurance company begins to split the cost.
High-Deductible Health Plans (HDHPs) typically pair with Health Savings Accounts (HSAs) which allow you to set aside pre-tax funds to pay for medical expenses.
For a deeper breakdown of how these cost components impact your overall healthcare spending, see our health insurance cost breakdown and comparison guide.
3. Copayment (Copay)
Copay is a predetermined amount that you pay for specific medical services. It is usually due at the time of visit.
Common copays are:
- $20 for a visit to a primary care physician
- $40 for a specialist visit
- $10 for generic medication
Copays will vary based on the kind of service you choose and the plan you select.
4. Coinsurance
The term “coinsurance” is the proportion of the cost you incur after you’ve met your deductible.
As an example:
If your policy includes 20% coinsurance and your covered medical procedure costs $200, you’d pay $40, while your insurance would pay $160.
The coinsurance will continue until you reach your limit of out-of-pocket expenses.
5. Out-of-Pocket Maximum
Your out-of-pocket maximum (OOP max) is the highest amount you’ll have to spend on covered healthcare in the course of a policy for the entire year.
Once you exceed this amount via copays, deductibles, or coinsurance, your insurance will pay 100% of the healthcare expenses covered for the remainder of the year.
This limit shields you from the wrath of medical bills and is among the most crucial numbers to consider when looking at plans.
6. EOB – Explanation of Benefits (EOB)
An EOB isn’t a bill.
It’s a declaration from your insurance company that summarizes:
- You received the services that you requested.
- What were the charges made by your health provider
- What is the coverage of the insurance
- What could you have to pay
Knowing the details of your EOB can help you identify errors, challenge inaccurate charges, and monitor your medical expenses.
7. Network
The network is a group of specialists, doctors, labs, hospitals and other providers that are contracted by your insurance company.
There are two major categories:
- In-network Providers: offer services at reduced rates that are negotiated by your insurance company.
- Out-of-network providers: typically will cost more, and might not be covered completely according to your plan.
Being in-network is among the most efficient ways to cut the cost of healthcare.
8. Prior Authorization
Prior authorization, sometimes called pre-authorization or pre-certification is when your insurer requires approval before you receive a specific service, medication, or treatment.
This helps to ensure:
- Treatment is medically necessary
- The service meets the coverage guidelines
- Alternatives with lower costs have been analyzed
In the event that you do not obtain prior authorization, it can cause your claim to be refused.
To better evaluate plan structures, provider networks, and coverage rules, refer to our guide to understanding health insurance coverage options.
9. Enrolment Periods (Open Enrollment & Special Enrollment)
Open enrollment is the time of year during which individuals are able to enroll or switch their health insurance coverage. For the majority of Americans it happens once a year.
Special Enrollment Periods (SEPs) allow you to switch plans out of the regular window when you have an eligible life event for example:
- Marriage or Divorce
- Adoption or birth
- Job loss
- Moving to a new state
Being aware of enrollment dates will ensure you don’t miss your chance to change or select your insurance coverage.
10. Preventive Care
Preventive care is a set of services that are designed to identify or prevent illnesses in the early stages, for example:
- Annual wellness examinations
- Vaccinations
- Screenings (e.g. blood pressure, cholesterol and cancer)
Under the Affordable Care Act, the majority of preventive health procedures are now covered for free for services provided by in-network providers.
Preventive health benefits are not just what ensures your health but may lower the costs of medical treatment in the long run.
Final Thoughts
Insurance for health doesn’t have to be complex. Once you’ve mastered these 10 essential terms; premium, coinsurance, deductible, copay, out-of-pocket limit, EOB, network, the prior authorization process, enrollment period and preventive health care, you can make more informed choices regarding your insurance coverage, avoid unanticipated costs and maximize the benefits.
At Keen Coverage, we’re committed to helping you navigate your health insurance confidently and clearly. When you’re selecting a private plan or managing employee benefits, making informed decisions starts by knowing the terminology of insurance.
For a complete resource on terminology, plan selection, and cost planning, visit our complete health insurance guide for plans, costs, and choosing coverage.