Understanding Your Health Insurance Options: Terms and Definitions

Choosing a health insurance plan can be confusing and complicated, with lots of unfamiliar terms and different cost factors to consider. How do you know which plan choice provides the care you (and perhaps your family) need at the best price for you?

To help make sense of copays, deductibles, coinsurance and more, this post focuses on terms and definitions that you may encounter while choosing your health insurance plan.

Glossary of Health Insurance Terms

Premium: The base amount that you pay for your health insurance, usually deducted from your paycheck if receive your health insurance through your employer. If you purchase insurance on your own or through the Massachusetts HealthConnector, you will be billed directly by the insurance company on a monthly basis.

Copayment (“copay” for short): a fixed dollar amount you pay each time you receive certain services. They are usually required for all office visits and most pharmacy prescriptions. Depending on your particular insurance plan, copays can also be required for imaging (CT, MRI, PET scan), outpatient procedures done in a hospital or a freestanding surgical center, and inpatient hospital admissions. You are usually responsible for making these payments at the time of service.

Tiered Copayment: some plans have different copay amounts for a similar set of services. For example, some health plans have lower copay amounts for primary care office visits than they do for a specialty care office visits. Other health plans have different copay amounts for generic vs. branded medications. And still other health plans may charge different copays for community vs. tertiary (or teaching) hospital care.

Coinsurance: sometimes, instead of copays for certain services, your insurance plan will specify a coinsurance level, which is the percent of the total approved cost for a covered service for which you would be responsible to pay. Coinsurance can apply to services including but not limited to: office visits, labs, radiology and imaging, inpatient admissions and homecare services.

Deductible: the amount you have to pay out-of-pocket for covered care before your health plan begins to pay. This is the same as a deductible for auto insurance. If you have an accident and need to have your car repaired, you will first have to pay the repair shop the amount up to the deductible, and then your car insurance company will pay any remaining balance. Once you have paid the full deductible amount for the prescribed time period (usually a year but make sure to check), you will have full coverage subject only to copays or coinsurance as defined by your plan. Although paying the deductible is your responsibility, your doctor’s office or a hospital may work out a payment plan with you to help you pay for the costs of care that fall within your deductible obligation.

Out-of-Pocket Maximum: Dollar amount that represents the most you may have to spend out-of-pocket for covered care. Generally, there are separate out-of-pocket maximums for medical and pharmacy expenses, so make sure you are aware of both amounts. Your health insurance plan should also specifically outline whether copays, deductibles and coinsurance are included or excluded from these out-of-pocket maximums. Once your out-of-pocket maximum is reached, your insurance plan will pay 100% of additional covered medical expenses.

Benefit Limit: A specified limit on the number of visits, usually within a certain timeframe, allowed under your insurance plan. For example, there is often a benefit limit for physical and occupational therapy, specifying how many visits your insurance plan will cover within a certain period of time.

Referral: A written “okay” from your primary care physician (PCP) to see another clinician, such as a specialist. It’s important to know your insurance plan and its policies well – for some plans, if you see a specialist without a referral, it’s possible the plan may not pay for any of the cost of the service.

Authorization: A clinical approval made by your health insurance plan that certain services meet their guidelines. Services subject to authorization often include high cost or over-prescribed services and prescription drugs (e.g., knee arthroscopy, imaging tests for lower back pain, and infusion drugs).

Participating Provider (also known as in-network or contracted provider): A clinician who has signed a contract with your health plan to provide services to you, typically at a discount off their usual charges.

Non-participating Provider (also known as out-of-network or non-contracted provider): A clinician who does not have a signed contract with your health insurance plan, and you may therefore have to pay more to see this clinician.

So when you’re deciding which health plan to choose, it’s important to take all anticipated costs into account for yourself or your family. Since lower premiums are almost always associated with higher out-of-pocket costs for care, be careful to consider what medical needs you may have. If you or a family member needs ongoing care for a chronic illness or other medical concern, make sure to factor in all out-of-pocket expenses into your cost/benefit analysis before deciding which insurance plan is best for your circumstances. If you have questions about your options, you should contact your employer or the health insurance plan for clarification.