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Your Ultimate Guide to Health Insurance Terms

Your Ultimate Guide to Health Insurance Terms

Posted Aug 01, 2013 by Author

When shopping for a health insurance plan—or attempting to select one through an employer—you can easily become confused by the many terms you encounter. Understanding what they mean can be important when it comes to selecting the right coverage for your health and financial needs.

We've compiled this glossary of common health insurance term definitions to help make buying health insurance a little easier. When in doubt, contact one of our helpful sales consultants or your local insurance agent.


Actuary: A professional who analyzes the financial costs of risk and uncertainty usingmathematics, statistics and financial risk. Insurance actuaries evaluate potential outcomes and plan use based on applications and considercosts to determine premium amounts.

Agent: A person licensed to sell insurance products. He or she may be a captive agent authorized to sell a single carrier’s products or an independent agent authorized to sell multiple carriers’ products. See also broker and producer.

Ancillary benefits: Coverage beyond major medical insurance. These secondary insurance products include vision, dental, critical illness, hospital indemnity and bundled benefits plans, in addition to others. Also known as ancillary insurance products and supplemental insurance products.

Annual maximum: The dollar amount at which the insurance company caps benefits paid for coveredexpenses in one year. Plan members must pay any additional costs, should medical charges exceed this amount. Plans subject to the Affordable Care Act, which include those effective on or after September 23, 2010, must have an annual maximum of at least $2 million. Also referred to as the annual limit, annual benefit maximum.

Association health plan: A group health insurance plan offered to members of an association.

Benefit: The medical services, treatments and supplies covered by the health insurance plan. The dollar amount or percentage, if any, paid the carrier pays for benefitsvaries by plan.

Beneficiary: The person who receives an insurance policy’s benefits.

Brand name drug: Prescription drugs bearing a trade name. These can only be produced and sold by the patent-holding company.

Broker: A person licensed and authorized to sell insurance products for multiple carriers; see also agent and producer.

Catastrophic coverage: Plans that provide a financial safety net for unexpected, serious medical expenses such as those that occur due to accidents, hospitalization or major illness.

Carrier: The insurance company that sells an insurance plan/policy, issues it and contractually assumes the associated risk. Also called the insurer.

Certificate of creditable coverage: A certificate issued by the insurer that serves asevidence of prior health insurance coverage; also referred to as a certificate of prior coverage.

Certificate of insurance: An insurance company–issued document that serves as proof of coverage and the contract between the insured person and the carrier. It includes specific benefit information and amounts covered by the policy.

Claim: The bill for medical products and services that is submitted by a health care provider to a patient’s health insurance company.

COBRA: The Consolidated Omnibus Reconciliation Act, which allows individuals and their families to temporarily continue group health insurance coverage, as well as dental, vision and other coverage) when benefits have been lost under certain circumstances.

Coinsurance: An insurance-related term that describes a splitting or spreading of risk among multiple parties. It is considered cost-sharing portion of the coverage after the deductible is satisfied, if there is one. The insurance company contributes toward covered services at the percentage indicated in the policy up to the out of pocket maximum.

Copay: A flat fee the insured person pays for medical services up front. This amount varies by plan design and benefit; for example, there may be separate copays for ER visits, generic drugs, brand name drugs, physician office visits, surgical services, hospital confinement, etc. Short for copayment.

Critical illness plan: Supplemental coverage that pays a lump-sum cash benefit upon diagnosis of covered illnesses such as heart attack, stroke, coma and cancer.

Deductible: The fixed dollar amount an insured individual and/or family must pay each year before the health plan’s benefits take effect.

Dependent: The spouse and/or children that rely on an insured person for coverage; children may remain on a parent’s health insurance plan through age 26 under the Affordable Care Act.

Drug formulary: A list of prescription medications preferred and covered by the health insurance plan; typically organized by therapeutic class.

Effective date: The date on which health insurance coverage begins.

Employer-sponsored health insurance: Guaranteed issue coverage offered by employers to employees.

Exclusions: Services, treatments, products, conditions and other events, charges and expenses notcovered by an insurance plan as indicated in the policy.

Explanation of benefits: A statement provided by the health insurance company that shows services billed by the health care provider, how they were processed by thecarrier and the balance to be charged to the policyholder. This is not a bill.  EOBs are sent out to the provider and to the insured clearly showing how services are covered under the policy.  If there is a remaining balance the provider will send a bill to the insured.

First-dollar coverage: Benefits paid by the insurance company from the first dollar billed; for instance preventive care services, which are not charged to the insured person and are paid by the insurance company before the deductible is met

Generic drugs: Prescription drugs whose patents have expired, allowing them to be manufactured and sold by companies other than those who first created them. They typically cost lessthan brand name drugs.

Group health insurance: Benefits offered to a group of individuals who are employees or members of an association or organization; risk is pooled to provide individuals with access to health insurance coverage at affordable rates; see also association health plan and employer-sponsored benefits.

Health savings account: A health savings account—or HSA—is an account where pre-tax funds may be set aside and used for covered medical expenses. To contribute to anHSA, the account holder must pair it with a high-deductible health plan—see the IRS website for this year’s minimum deductible amounts. HSA funds roll over from year to year if left unspent; they may even be used to save for retirement.

High-deductible health plan: A health insurance plan with a high deductible, which translates into a lower monthly premium and higher out-of-pocket costs; typically used by those in good health who have minimal medical expenses. Also referred to as an HDHP and often paired with a health savings account.

HMO: Stands for health maintenance organization. To keep costs low, HMO plans cover only medical care members receive from contracted providers.

Hospital and surgical insurance plan: Supplemental coverage that pays benefits related to inpatient hospitalization, surgery and certain outpatient services.

Indemnity plan: The insurance company pays a predetermined amount for covered services. When paired with a major medical plan, this coverage can provide some added financial protection for unexpected expenses; it is also a guaranteed issue option for those struggling to afford or qualify for health insurance. Also known as afee-for-service plan or fixed indemnity plan.

Individual major medical insurance: Coverage purchased outside a group, by an individual or family. Applicants are subject to underwriting and may be denied coverage based on pre-existing health conditions and medical history; however, the Affordable Care Act prohibits insurance companies from denying coverage based on these criteria staring in 2014.

Inforce: Refers to the status of an insurance policy.  An inforce policy is active while a policy that is in underwriting or processing will be displayed as pending.

In-network: On PPO plans in-network providers have agreed to offer their services at lowercost amounts in exchange to join the PPO Network.  If you have a PPO Plan you will receive the lowest cost of services and highest plan benefits if you visit an in-network provider.

Inpatient: Someone who is admitted to a hospital and whose treatment requires a 24-hour minimum stay.

Lifetime maximum: The dollar amount at which the insurance company caps benefits paid for coveredexpenses in a person’s lifetime. Plan members must pay any additional costs, should medical charges exceed this amount. Plans subject to the Affordable Care Act, which include those effective on or after September 23, 2010, can no longer include a lifetime maximum.

Long-term care plan: Supplemental insurance that provides benefits for care such as home care and hospice care and that received in a nursing home or assisted-living facility; coverage for situations in which chronically ill or disabled individuals can no longer take care of themselves.

Managed care plans: Coverage that tries to manage member medical care by requiring they use (or providing incentives for using) network providers and coordinate care through a selected primary care physician; examples include HMOs and PPOs.                          

Medicaid: An insurance program for low-income individuals and families, the elderly and the disabled. Medicaid is funded by federal and state governments.

Medicare: A federal insurance program for those older than age 65 and some disabled individualsyounger than age 65; Medicare has been administered by the U.S. government since 1965.

Network: A groupof clinics, hospitals and health care providers; participants agree to provide medical services at discounted rates.

Out-of-network: Medical care received from providers and at clinics and hospitals that do not participate in the HMO or PPO network associated with your policy.

Out-of-pocket maximum: The maximum dollar amount that an insured is liable to pay towards covered services; this may exclude the deductible.  Once it has been reached, the carrier pays 100 percent of any additional covered charges, subject to policy provisions and limitations. 

Outpatient: Someone receives care and is not required to stay overnight at a hospital.

Point of service plans: An HMO-PPO hybrid of sorts, this coverage requires the insured person to select a primary care provider from within the plan network. Thatprovider refers him or her to others, as needed.

Policy:  The health insurance coverage purchased by an individual and provided by the carrier; also referred to as the plan.

Preferred provider organizations: Health insurance plans that contract with a network of clinics, hospitals and medical care providers and negotiate discounted rates for plan participants. With a PPO-style insurance plan, you are allowed to visit any licensed provider, but charges will most likely be higher than if you visited an in-network provider.

Pre-certification: Also known as pre-authorization, this term refers to the requirement that insured individuals seek approval from the insurance company before receiving certain drugs or services; may be required prior to hospital admission.

Pre-existing condition: A medical condition that exists prior to an individual receiving health insurance coverage through a new plan.

Premium: The dollar amount paid to an insurance company for the benefits and coverage of an insurance policy. Many policies allow a monthly, quarterly, or annual payment option.

Preventive care: Medical care aimed at preventing health problems and detecting them early. This includes immunizations and checkups, as well as Pap smears, mammograms and other health screenings. Under the Affordable Care Act, certain preventive services are covered at no additional cost to insured patients.

 Primary care provider: A patient’s main health care provider; also known as a primary care physician. Individuals may be required to select one under their insurance plan, if your plan is a HMO or POS plan; he or she serves as a health care home base, makes referrals and is able to become familiar with and track a patient’s health history.                                           

Producer: An individual licensed by a State's Insurance Division or Department of Insurance to sell insurance in that state.

Rider: An amendment to an insurance policy; may include additional coverage or limitations on coverage.

Self-Insured plan: Health insurance plans offered by employers who directly assume most of the cost—sometimes all of it—for their employees by paying claims out of pocket as they occur. Also known as self-funded insurance. Visit the Self-Insured Institute of America to learn more. 

Short-term medical insurance: Temporary health insurance coverage that provides benefits for 30 days up to 364 days, depending on applicant needs and state laws.

Specialty drug: High-cost prescription medications that are often injected or infused; typically used to treat complex conditions and diseases such as cancer and multiple sclerosis.

State risk pool: State-sponsored insurance coverage offered to individuals who have been considered high risk and denied coverage due to pre-existing health conditions, as well as those who only qualify coverage at an extremely high premium.

Third-party administrator: An individual or company contracted by the insurance carrier to hire some aspect of its operation, such as claims processing. Commonly called a TPA.

Underwriting: Part of the application process in which the insurance company evaluates an applicant to determine eligibility, risk and premium.

Usual, customary and reasonable charges: The standard amount charged for covered medical services and supplies in a specific geographic area. Commonly referred to as UCR.

Waiting period: The time period during which a health insurance company will not cover claims related to pre-existing medical conditions. Waiting periods typically start on the plan’s effective date.