Health Insurance Glossary: 12 Terms You Have to Know
Deductible, copay, coinsurance - in plain English, with examples.
Health insurance is full of words designed to make smart people feel dumb. Here are the dozen terms you actually need, in plain English, with an example each.
Premium
What you pay every month just to have the plan. You owe this even in months you never go to the doctor. Example: $350/month - that is $4,200 a year before you ever see a provider.
Deductible
The amount you pay out of pocket before insurance starts to pay (mostly). Example: a $2,000 deductible means you pay the first $2,000 of medical bills. Then your insurance kicks in.
Copay
A flat fee you pay for a specific service. Example: $30 to see your primary care doctor, $60 for a specialist. Copays often apply before you hit your deductible for things like office visits and prescriptions.
Coinsurance
After you hit your deductible, insurance does not pay 100%. They pay a percentage. Coinsurance is the percentage you still owe. Example: 20% coinsurance means insurance pays 80% of the bill, you pay 20%.
Out-of-pocket maximum
The most you will pay in a year. Everything counts toward this - deductibles, copays, coinsurance. Once you hit it, insurance pays 100% for the rest of the calendar year. Example: $7,500 max. If you blow through that in March, the rest of the year is free.
Network (in vs out)
Doctors and hospitals your insurer has contracted with. In-network is cheaper. Out-of-network is much more expensive and may not count toward your deductible or out-of-pocket max.
HSA (Health Savings Account)
A tax-advantaged savings account that pairs with a "high-deductible health plan." Money goes in tax-free, grows tax-free, and comes out tax-free for medical expenses. One of the best tax shelters in the U.S. tax code.
FSA (Flexible Spending Account)
A "use it or lose it" savings account for medical expenses. Money goes in pre-tax, but most of it has to be spent within the plan year. Useful if you have predictable medical costs.
Formulary
The list of drugs your plan covers. Usually broken into tiers (cheaper generics to more expensive name brands). Always check the formulary before assuming a drug is covered.
Prior authorization
Your insurer requires approval before paying for certain services or medications. Common with expensive imaging and specialty drugs. Doctors office handles it, but it can delay care.
Explanation of benefits (EOB)
The document insurance sends you after a claim. NOT a bill - just a record of "the doctor charged $X, we paid $Y, here is what is left for you to pay." Always check the EOB against the actual bill.
Metal tier (Bronze/Silver/Gold/Platinum)
The ACA marketplace plans are labeled by "actuarial value" - roughly, what share of average medical costs the plan covers. Bronze pays about 60% (cheap premium, high deductible). Platinum pays 90% (expensive premium, low deductible). Silver is the middle ground and is where subsidies attach if you qualify.
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