Key Health Insurance Terms to Know

Understanding some of the terms surrounding health insurance can help you select the best plan.

Health insurance provides vital protection should you face significant medical expenses. But shopping for a plan will likely force you to confront a litany of acronyms and industry jargon that can make the process bewildering. 

Here’s an explanation for some of the terms you may come across when you compare your options. The more you understand about how these plans work, the easier it’ll be to pick the coverage that best meets your needs. 

Deductible

The annual amount an individual or family must pay out of pocket before the insurer provides reimbursement for health services. 

Coinsurance

The percentage of healthcare costs you must pay after reaching your deductible. A plan with 20% coinsurance for in-network services, for example, would require you to pay 20% of the bill after meeting your deductible. The insurer would pay the remaining 80%. 

Copayment (Copay) 

A fixed fee you must pay for health services or prescription drugs after reaching your deductible. The amount of the copay may vary based on the type of care you receive, and some services may not require you to pay coinsurance instead of a copay. 

Premium

The monthly or annual amount that you pay to keep your health coverage active. The amount of your premium can vary based on a range of factors, including your age, sex, health history, deductible amount and where you live. 

Underwriting 

The process of determining your financial risk to the insurance provider. Medical underwriting is used by short-term health plans and other individual plans that, unlike those sold on the Marketplace, are not compliant with the Affordable Care Act. 

When you apply for health insurance, the insurer’s underwriting department looks at a variety of factors – including your age, sex, health history—to determine whether they will offer you coverage and at what price. 

Open enrollment

The annual period, usually in November and December, when participants can enroll in coverage for the following year through the Marketplace or an employer health plan. In order to obtain new coverage outside the open enrollment period, you must experience a qualifying life event such as a marriage, divorce or the birth of a child. 

Marketplace

A service created by the Affordable Care Act that allows consumers to compare and enroll in ACA-compliant health plans. The federal government operates the Marketplace (formally known as the Health Insurance Marketplace®) for most states; these plans are available on the HealthCare.gov website. However, some states manage their own Marketplaces, which have separate websites. 

Group insurance 

A health plan offered by employers or membership organizations. Rather than underwriting an individual policy, an insurer for a group plan assesses the risk of the entire pool of participants when determining pricing. Employers will often subsidize health premiums for their workers, which often results in group plans being less expensive for the consumer than a plan purchased separately. Coverage is typically lost when you leave the employer for any reason, or lose membership status in an organization that provides an insurance benefit. 

Preferred provider organization (PPO)

A health plan that provides discounted rates and higher reimbursement levels for providers that are part of its network. If a patient sees an out-of-network provider for services, they have to pay more out of pocket. 

Compared to an HMO, a typical PPO provides a larger network of providers, but has more expensive premiums. With a PPO, you do not need to choose a primary care physician (PCP), and does not need a referral from one to see a specialist. 

Health management organization (HMO) 

A type of health insurance plan that covers a relatively small local network of providers and facilities. HMOs generally have lower premiums than a PPO or an EPO, but less choice in terms of where you can receive services. A primary care physician typically coordinates care for each patient, and may have to provide a referral before a patient can see a specialist for non-emergency treatment. 

Exclusive provider organization (EPO) 

A health insurance plan that provides coverage for a local network of doctors, labs and medical facilities. Compared to PPOs, EPOs are more stringent about where you receive care, typically not providing reimbursement for services received out of network—except in an emergency. These plans tend to offer lower premiums than PPOs. 

In-network

Care you receive from a provider who has agreed to participate in your health plan. The insurer has negotiated with these doctors and facilities to provide lower rates. Typically, health plans also cover a larger percentage of your expenses when you see an in-network provider. 

Out-of-network 

Care that you receive from a physician or medical facility that does not participate in your health plan. Insurers generally cover a smaller percentage of your eligible expenses when you see an out–of-network provider. And if you have coverage through an exclusive provider organization (EPO) you may not receive reimbursement for any care received outside its network.