Common Health Insurance Terminology Explained

Are you confused about all the jargon and acronyms that come with health insurance? Don’t worry, we’ve got you covered! In this article, we will walk you through the common health insurance terminology that often leaves people scratching their heads. From deductibles to copayments, we will break down these terms into simple and easy-to-understand explanations. So, sit back, relax, and let’s unravel the mysteries of health insurance together!

Common Health Insurance Terminology Explained



A premium is the amount of money that you pay to your health insurance company on a regular basis, typically every month. It is a fixed cost that you are required to pay regardless of whether or not you use any healthcare services. Think of it as a membership fee that gives you access to the benefits and coverage provided by your health insurance plan.

How it works

When you pay your premium, you are essentially purchasing and maintaining your health insurance coverage. This payment allows you to have financial protection and access to a wide range of medical services and treatments. The amount of your premium may vary depending on factors such as your age, health status, location, and the type of plan you have chosen.

Factors that affect premiums

Several factors can influence the amount of your health insurance premium. These include:

  1. Age: Older individuals may face higher premiums since they tend to have more healthcare needs.

  2. Health status: If you have pre-existing medical conditions, you may be charged higher premiums compared to someone who is in good health.

  3. Location: The cost of healthcare can vary greatly depending on where you live, so premiums may be adjusted accordingly.

  4. Plan type: Different types of health insurance plans, such as HMOs or PPOs, may have different premium rates.

Understanding these factors can help you make informed decisions when selecting a health insurance plan that fits your needs and budget.



A deductible is the amount of money that you must pay out of your own pocket before your health insurance coverage kicks in. It is a fixed amount that you need to meet each year before your insurance company starts covering a portion or all of your eligible healthcare expenses.

How it works

Let’s say you have a health insurance plan with a $1,000 deductible. If you visit a doctor and the cost of the visit is $200, you will be responsible for paying the full $200 until your deductible is met. Once you have paid a total of $1,000 in deductibles within a calendar year, your insurance company will begin to cover a portion or all of your healthcare costs, depending on your plan.

Different types of deductibles

There are different types of deductibles that you may come across when choosing a health insurance plan:

  1. Individual deductible: This is the amount that an individual has to meet before their insurance coverage applies.

  2. Family deductible: If you have a family health insurance plan, the family deductible is the total amount that all covered family members must meet before coverage begins.

  3. Embedded deductible: Some family plans have an embedded deductible, which means that once an individual meets their individual deductible, they can begin receiving coverage for their own healthcare expenses, even if the family deductible has not been met.

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Understanding the types of deductibles can help you plan and budget for your healthcare expenses more effectively.

Out-of-Pocket Maximum


The out-of-pocket maximum is the highest amount of money you will have to pay for covered medical expenses in a calendar year. Once you reach this maximum, your health insurance plan will typically cover 100% of your eligible healthcare costs for the rest of the year.

How it works

Let’s say you have a health insurance plan with an out-of-pocket maximum of $5,000. Throughout the year, you pay for various healthcare services and treatments, including deductibles, co-payments, and co-insurance. Once your out-of-pocket expenses reach $5,000, your insurance company will cover all the eligible expenses in full.

Limits and benefits

The out-of-pocket maximum serves as a safety net, protecting you from exorbitant healthcare costs. It ensures that even if you need extensive medical care, you won’t have to bear the financial burden indefinitely. By knowing your plan’s out-of-pocket maximum, you can budget accordingly and have peace of mind knowing that your expenses will be covered once you reach that limit.

It is important to note that certain expenses, such as premiums and out-of-network services, may not count towards your out-of-pocket maximum. Understanding the specific limits and benefits of your plan will help you make the most of your healthcare coverage.



A co-payment, commonly known as a “co-pay,” is a fixed amount of money that you pay at the time of receiving a healthcare service. It is a cost-sharing arrangement between you and your health insurance company to help cover the expenses of the visit or treatment.

How it works

When you visit a healthcare provider, whether it’s a doctor’s office, urgent care center, or hospital, you will be required to make a co-payment. The amount of the co-payment can vary depending on the service or treatment provided and the specific terms of your health insurance plan.

Co-pay vs. co-insurance

It’s important to understand the difference between a co-payment and co-insurance. While a co-payment is a fixed amount, co-insurance is a percentage of the total cost of a healthcare service or treatment that you are responsible for paying.

For example, if you have a $30 co-payment for a doctor’s office visit, you will pay $30 each time you visit a doctor, regardless of the total cost of the visit. On the other hand, if you have a 20% co-insurance for a medical procedure that costs $1,000, you would be responsible for paying $200 (20% of $1,000).

Common Health Insurance Terminology Explained



Co-insurance is the percentage of the cost of a covered healthcare service or treatment that you are responsible for paying after you have met your deductible. It is a form of cost-sharing between you and your health insurance company.

How it works

Once you have met your deductible, your health insurance plan will start offering coverage for eligible expenses. However, you are still required to pay a portion of the costs in the form of co-insurance. For example, if your health insurance plan has a co-insurance rate of 20% and you receive a covered medical service that costs $500, you would be responsible for paying $100 (20% of $500), while your insurance company would cover the remaining $400.

Calculating co-insurance

To calculate the amount of co-insurance you need to pay, you first need to determine the total cost of the covered service or treatment. Once you have that figure, you can multiply it by the co-insurance percentage specified in your health insurance plan. The resulting amount is the portion you will need to pay out of pocket.

Understanding how co-insurance works can help you estimate your healthcare costs and plan your budget accordingly.

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A network refers to a group of doctors, healthcare providers, hospitals, and other healthcare facilities that have agreed to provide medical services to individuals who are enrolled in a specific health insurance plan. Being part of a network allows insurance companies to negotiate discounted rates with healthcare providers, making healthcare more affordable for plan members.

Types of networks

There are different types of networks that you may come across when selecting a health insurance plan:

  1. Health Maintenance Organization (HMO): HMOs typically have a more tightly managed network of healthcare providers. They require you to choose a primary care physician (PCP) who will serve as your main point of contact for all your healthcare needs. Referrals from your PCP are usually required for seeing specialists.

  2. Preferred Provider Organization (PPO): PPOs offer more flexibility in choosing healthcare providers. You can visit any doctor or specialist without a referral, even if they are not in the network. However, using in-network providers will generally result in lower out-of-pocket costs.

  3. Exclusive Provider Organization (EPO): EPOs offer a balance between HMOs and PPOs. You do not need a referral to see a specialist, and the plan provides coverage for out-of-network care only in emergencies.

Choosing a plan with the right network for your needs can help ensure that you have access to the healthcare providers and facilities you prefer while keeping your costs manageable.

In-network vs. out-of-network

When you receive medical care within your health insurance plan’s network, the cost is typically lower since providers within the network have negotiated discounted rates with the insurance company. Out-of-network healthcare services, on the other hand, may not be covered or may require you to pay a higher percentage of the costs.

It is important to review your health insurance plan’s network and understand the implications of using in-network and out-of-network providers to make informed decisions about your healthcare choices.



Pre-authorization, also known as prior authorization or pre-certification, is a process by which your health insurance company approves certain medical services, treatments, or medications before they are provided or prescribed. It is a way for insurance companies to ensure that the proposed care is medically necessary and meets their coverage criteria.

When it is required

Pre-authorization is typically required for certain types of medical services, treatments, or medications that are considered to be more costly or have potential risks associated with them. Some examples may include elective surgeries, certain prescription medications, or specialized diagnostic tests. Your insurance plan will provide a list of services that require pre-authorization.

How to get pre-authorization

To obtain pre-authorization for a specific medical service or treatment, you will need to contact your health insurance company. They will guide you through the process, which may involve providing relevant medical documentation or receiving a referral from your primary care physician. Failure to obtain pre-authorization for services that require it may result in your insurance company denying coverage or reducing the amount they will pay.

Being aware of the pre-authorization requirements and following the necessary steps can help ensure that you receive the coverage you are entitled to and minimize any financial surprises.

Preventive Care


Preventive care refers to healthcare services and screenings that are designed to detect and prevent potential health problems before they become more serious or difficult to treat. It focuses on maintaining good health and preventing illnesses through early detection and intervention.

Covered services

Many health insurance plans include coverage for preventive care services, often at no additional cost to you. These services may include:

  1. Routine check-ups and screenings: This can include regular visits to your primary care physician for general health assessments, vaccinations, and screenings for various health conditions such as blood pressure or cholesterol checks.

  2. Immunizations: Vaccinations to protect against certain diseases, such as flu shots or childhood vaccines, are considered part of preventive care and are often covered.

  3. Wellness services: Health education and counseling programs that promote healthy lifestyles, such as smoking cessation, nutrition counseling, or weight management programs, may also be covered.

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It is important to review your health insurance plan’s preventive care benefits to take full advantage of the services available to you.

Importance of preventive care

By focusing on prevention, you can potentially reduce the risk of developing serious health conditions, improve your overall well-being, and avoid costly medical treatments down the line. Regular screenings and check-ups can help detect health issues early on, leading to more effective and less invasive treatments. Prioritizing preventive care not only benefits your health but can also lead to long-term cost savings by avoiding more expensive treatments or hospitalizations.

Explanation of Benefits (EOB)


An Explanation of Benefits (EOB) is a document that you receive from your health insurance company after healthcare services have been provided. It provides an itemized explanation of the costs incurred, the portion covered by insurance, and any remaining out-of-pocket expenses that you may be responsible for.

How to read an EOB

Reading an EOB can be overwhelming at first, but understanding the information it contains is crucial in managing your healthcare expenses. Here are some key components commonly found in an EOB:

  1. Provider information: It includes details about the healthcare provider who rendered the services, including their name, contact information, and the date of service.

  2. Service details: Each service performed or medication prescribed will be listed separately, along with the associated costs.

  3. Insurance coverage: The EOB will indicate how much your insurance company has covered for each service or medication, including any deductibles, co-payments, or co-insurance amounts that apply.

  4. Deductibles and out-of-pocket expenses: The EOB will show the progress towards meeting your deductible, if applicable, and the remaining out-of-pocket expenses you are responsible for paying.

Understanding how to interpret the information in an EOB will help you track your healthcare expenses and ensure that you are not being overcharged.



A formulary is a list of prescription medications that are approved and covered by your health insurance plan. It serves as a guide for you and your healthcare provider to choose medications that are both effective and cost-efficient.

Types of medications on a formulary

Formularies typically categorize medications into different tiers, each with its own cost-sharing requirements. The tiers may include:

  1. Generic drugs: These medications are non-brand name drugs that have the same active ingredients as their brand-name counterparts. They are usually the most affordable option.

  2. Preferred brand-name drugs: This category includes brand-name medications that have been selected by your insurance company for preferred coverage due to their cost-effectiveness or therapeutic benefits.

  3. Non-preferred brand-name drugs: These are brand-name drugs that are not included in the list of preferred medications. They typically have higher cost-sharing requirements.

Your health insurance plan’s formulary should provide you with detailed information about the medications covered, including any requirements for step therapy or prior authorization.

Costs and coverage

The cost of medications can vary depending on various factors, such as the tier they are categorized in and your health insurance plan’s specific terms. Medications on lower tiers, such as generics, generally have lower or no out-of-pocket costs, while medications on higher tiers may require you to pay a higher percentage of the cost.

Understanding your health insurance plan’s formulary and the associated costs can help you and your healthcare provider choose the most appropriate and cost-effective medications for your needs.

By familiarizing yourself with these common health insurance terms, you can navigate the complexities of health insurance with ease. This knowledge will empower you to make informed decisions about your healthcare and ensure that you are maximizing the benefits of your health insurance coverage. Remember to review your health insurance policy and reach out to your insurance company for any specific questions or clarifications about your coverage. With a good understanding of these terms, you can experience peace of mind knowing that you are well-equipped to manage your healthcare expenses and secure the healthcare services you need.