Health Insurance Definitions: What the Terms Mean

Policies have been dejargonized over the years, but not enough. Here's what the terms mean.

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Key Health Insurance Terms
Allowed charge A discounted fee that insurers negotiate with doctors, hospitals and other healthcare providers in their network. Negotiating charges reduces costs for you and for the insurance company. It is a key reason why insurers create incentives to use in-network providers and why you pay more when you don’t. Unlike providers outside the network, those who are in-network have agreed to accept the discounted fees as full payment for services rendered. Each insurer has its own list of allowed charges.
Allowed maximum benefit Maximum amount that an insurer will pay per year. If your care is so costly that it tops this amount, you’re required to pay the difference. However, most individual plans do not set an annual maximum benefit.
Benefits Services or supplies your health plan agrees to cover. Covered benefits and excluded services differ from plan to plan.
Catastrophic coverage An insurance safety net for especially costly health services, such as hospitalization. Catastrophic plans are appealing because their premiums may be lower than with traditional insurance. But they also have high deductibles, which means that the plan begins providing coverage only after you have paid a specified amount of money. Some plans require that you pay a deductible of $10,000 or more before coverage kicks in.
Claim A request for payment that you, your doctor, a hospital or another health provider submit to an insurer for covered items or services. Examples include a visit to the doctor or a wheelchair.
Co-insurance A percentage of the charge for medical care that you must pay. If your plan's co-insurance for a given service is 20%, the plan will pay 80% and you’ll pay the rest.
Copay A flat dollar amount you pay for a covered service, each time that you use the service. For example, many insurers require a $20 co-payment to see a physician.
Cost sharing The arrangement that defines how you and an insurer pay for insured services or items. Co-insurance, copayment and deductibles are all forms of cost sharing. Premiums, payments for uncovered health care supplies or services or fees paid to out-of-network providers are not shared costs.
Deductible The amount you pay out in a calendar year before your health plan begins to pay. For instance, if your deductible is $2,000, you must pay that much out of pocket for covered health services before your insurer begins paying your health care costs.
Denial Refers to an insurer’s decision to turn an applicant down for coverage. That decision process is called medical underwriting, which requires you to provide a medical history, go through a physical examination, and submit to blood tests. You may be turned down if the health plan discovered a pre-existing condition or an unsuspected health risk. Denial is also used to describe a health plan’s refusal to pay for medical services that are deemed to be beyond the scope of a health plan.
Essential health benefits Categories of health services that the Affordable Care Act requires certain health insurance plans to cover beginning in 2014. They include outpatient surgery, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse services (including behavioral treatment and prescription drugs), rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services, chronic disease management, and pediatric services that include oral and vision care. Each state, however, will have significant latitude in establishing these benefits. Under ACA, all plans must phase out annual dollar spending limits for these services by 2014.
Excluded from out-of-pocket expense cap Some plans exclude deductibles, copays and coinsurance from the out-of-pocket maximum. That means, even in-network, you may pay much more out-of-pocket than the plan’s literature indicates.
Exclusions Items or services that are not covered under a given health plan and for which the plan won’t pay. Exclusions are specified in your contract for insurance. For instance, many policies will not pay for maternity care or for services related to a preexisting condition. By 2014, the Affordable Care Act mandates that insurers will no longer be able to deny coverage due to preexisting conditions.
Formulary The list of medications, prescription or generic, that your insurance plan will pay for. A formulary may also say how much you pay for each drug.
Health savings account Allows you to set aside money (typically $1,000 to $5,000 or more depending on your policy) tax-free to cover health expenses if you are enrolled in a high deductible health plan. High deductible health plans require policy holders to pay more out of pocket before they begin paying for covered health services. Unlike Flexible Spending Accounts, the funds roll over from year to year if you don’t spend them.
High-deductible health plan A plan that requires significantly higher up-front, out-of-pocket spending than traditional insurance plans, with an annual deductible of $2,000 or higher. You’ll pay 100% of the cost of prescriptions, visits to the doctor’s office and emergency room. You’ll also pay the cost of surgeries or outpatient procedures until you reach the deductible. Because of the high deductible, these plans often have correspondingly lower premiums and may appeal to relatively healthy individuals with more financial resources who are willing to risk higher out-of-pocket costs for a lower monthly premium. But the plans may turn out to be extremely costly for those who unexpectedly incur medical expenses. For those who can afford to put money aside for health care, they may be combined with Health Savings Accounts, tax-free savings accounts available to taxpayers enrolled in HSA-eligible high-deductible health plans. Unlike Flexible Spending Accounts, the funds roll over from year to year if you don’t spend them.
Individual health insurance Plans purchased by people who can’t obtain coverage through their employer or through the government. These plans are often more costly than group plans. They are also more selective and may turn you down, charge higher premiums or carry higher deductibles depending on your medical condition or history. When the Affordable Care Act goes into effect in 2014, no insurance plan will be able to reject an applicant because of a preexisting condition.
Lifetime maximum The total that an insurance company will pay out during your lifetime. For example, an insurer might place a $1 million lifetime cap on all of your covered benefits. Or it might place limits on specific benefits, such as a $200,000 cap on payouts for an organ transplant. After you reach your lifetime max, the plan will no longer pay for any covered services.
Medically necessary Services or supplies that meet accepted standards of medical practice and are essential for the diagnosis and treatment of your health condition.
Meets proposed out-of-pocket cap These plans limit in-network, out-of-pocket spending to $6,050 for an individual and $12,100 for a family this year, in keeping with the intent of the Affordable Care Act, and its goal to make health care more affordable.
Out-of-pocket costs These costs aren’t covered by your health plan. Deductibles, co-insurance, copayments and some supplies or services are examples.
Out-of-pocket limit Presumably the maximum amount you pay for covered services in a year. But many plans omit the deductible, coinsurance, and copayments from the total, driving up the actual amount you pay. Formulas differ from plan to plan. Some plans may not include prescription drug costs, for example.
Plan selectivity Health insurers do not have to cover everyone who applies. Some plans turn down the majority of applicants, based on medical history and results from physical exams.
Premium (monthly) The amount you pay a health insurer each month for health coverage.
Preventive care Services that prevent illness or detect illness at an early stage, such as flu shots and screening mammograms. The plan brochure should list covered preventive services. The vast majority of plans provide free preventive care.
Primary care visits Primary care doctors perform routine medical exams and other uncomplicated medical services. They include internists, OB/GYNs and pediatricians.
Specialist visits Some conditions require the care of a doctor with narrower but deeper skills than a primary care physician can offer. A cardiologist, for example, knows more about the heart; a nephrologist knows more about kidney problems.
U.S. News Dollar Score U.S. News analyzed plan premiums and sorted the plans into five tiers, based on expense. The most expensive plans get five dollar signs; the least expensive get one. These ratings do not represent an assessment of plan value, because coverage was evaluated independently of cost.
U.S. News Rating By analyzing features that health insurance plans should offer, U.S. News & World Report assigned each plan a rating from 1 to 5 stars. See more in the Methodology page.
Urgent care Care for an illness, injury, or condition serious enough for immediate care but not so severe as to require emergency room care. Visiting an urgent care center may be cheaper than the ER. However, most plans offer only partial payment, requiring either a copay or coinsurance.
Plan features
Acupuncture The vast majority of individual health plans do not cover acupuncture.
Ambulance services Emergency transportation for a serious illness. Most plans will pay a percentage of the fee; you pay the rest in coinsurance or copays.
Applicants charged more than quoted premium Reflects the percentage of applicants who are charged more than the stated premium for coverage.
Child eye exams Although the government considers child eye exams one of the 10 essential benefits that should be offered in any health plan, most plans do not cover them.
Child’s dental checkups Although the government considers child dental checkups one of the 10 essential benefits that should be offered by any health plan, most plans do not cover them.
Child’s glasses Although the government considers child’s glasses one of the 10 essential benefits that should be offered in any health plan, most plans do not cover them.
Chiropractors About one of 10 individual plans in this database fully cover chiropractors. More than half cover chiropractors, but with limitations. Many other plans offer no coverage at all. Read the plan brochure for details.
Cosmetic surgery Very few individual health plans cover cosmetic surgery.
Dental checkups for adults Fewer than one in ten individual health plans cover routine dental checkups for adults. You may want to purchase a separate dental plan.
Domestic-partner coverage Slightly more than half of plans offer domestic partner coverage, though availability may vary from state to state.
Emergency room charges The cost of a visit to a hospital emergency department. Physician’s fees are typically included, unless specialists are called in to assist. The majority of individual health plans do not cover the full cost of care. Over half of plans require members to pay a percentage of the cost as co-insurance even after the deductible is met. Others require copays.
Eye exams for adults Fewer than one in ten individual health plans cover adult eye exams.
Habilitation services Services that help a person develop skills and functioning for daily living. Useful to people who have sustained injuries or suffered illnesses that make it difficult for them to function independently. Most individual health plans do not cover habilitation. Those that do charge coinsurance even after you meet the deductible, which can be expensive.
Hearing aids Most plans do not cover hearing aids. All but a few of those that do offer limited coverage.
Hearing tests Most plans do not cover routine hearing tests. Check the plan brochure.
Home health care Most plans offer home health care, but the benefits and costs vary considerably. Nearly two-thirds charge coinsurance after the deductible, requiring members to pay some percentage of the cost of home health care after the deductible has been met. This drives up out of pocket costs. Slightly more than one in ten plans don't charge extra for home health care.
Hospice care Most plans cover hospice care, and most require members to pay some of the costs, largely through coinsurance after the deductible is met.
Hospitalization (hospital charges) These charges go toward building maintenance, equipment, supplies, salaries and hospital revenues. Most plans pay a percentage of these costs and shift some of the expense to you, through coinsurance.
Infertility treatment Individual plans rarely cover infertility treatment.
Long-term care in a nursing home Read the fine print carefully. Few health insurance plans, including individual plans, cover long-term care in a nursing home. Even Medicare provides limited only coverage after hospitalization. To obtain coverage through Medicaid, you must "spend down" your savings until you have virtually nothing left. You can obtain coverage by getting a separate long-term care insurance plan.
Maternity care (labor and delivery) Hospital services provided to assist mothers-to-be in giving birth and caring for their newborns. Most individual health plans do not cover maternity, which may be an important consideration if you’re considering having a child.
Maternity care (prenatal/postnatal care) Routine care provided to pregnant women, new mothers and newborns. Most plans do not cover these services at all, and those that do pay only a percentage of the cost. You will be required to the pay the rest, typically through coinsurance.
Medical devices Equipment and supplies ordered by a health care provider for everyday or extended use, including wheelchairs and nebulizers. Most plans pay only part of the cost, with the majority requiring members to pay coinsurance even after they've met their deductible which can significantly increase out-of-pocket costs. Coinsurance is a percentage of the amount billed, so if the device is costly, coinsurance will be too. Some companies provide no coverage at all.
Mental health services (inpatient) In-patient mental health care includes services and programs to help diagnose and treat mental and behavioral conditions. This coverage is widely available, but most plans impose significant cost-sharing through coinsurance or copays.
Mental health services (outpatient) Outpatient mental health services are widely available, but many, if not most, health plans impose significant cost-sharing through coinsurance or copays.
Non-emergency care while traveling abroad More than a third of plans do not cover this service, but the rest offer limited or full coverage.
Outpatient surgery (hospital charges) For overhead costs, including building maintenance, equipment, supplies and salaries. Plans typically pay some of these costs and shift the rest to you, most often through coinsurance after the deductible has been met.
Outpatient surgery (physician charges) Physician charges are generally billed separately from the outpatient center charges. Most plans pay a percentage of these costs and shift the rest to you, mainly through coinsurance after the deductible has been met.
Percent of applicants denied A revealing measure of selectivity. If a plan rejects 70% of applicants, it may not be worth submitting an application, especially if a medical exam is likely to determine you are at higher risk of needing medical services. Selectivity varies; other plans may provide similar services at comparable costs but have lower denial rates.
Prescription drug coverage (generics) Generic drugs cost less than those that are still patent-protected (brand-name drugs), but coverage still varies widely. Some health plans offer no coverage. Others pay the full cost after you pay the deductible. Still others require copays or coinsurance before or after you pay the deductible.
Prescription drug coverage (nonpreferred brand-name drugs) Nonpreferred drugs cost more than other brand-name versions. Most plans provide some coverage, although a significant number do not. About a third of plans require a copay; another third require that you pay coinsurance before or after the deductible. Drug costs are likely to be higher for the latter plans, because coinsurance is a percentage of the drug's cost. Coinsurance for an expensive drug is likely to be costly. When it's imposed after you pay off the deductible, you end up with another significant out-of-pocket payment.
Prescription drug coverage (preferred branded) Preferred branded drugs cost less than other brand-name versions. Coverage varies widely. Some health plans offer no coverage at all, others pay some of the cost and pass along the rest to you through copays or coinsurance.
Prescription drug coverage (specialty drugs) Specialty drugs require special administration, monitoring or handling. They're more expensive than typical medications. Most plans only pay part of the cost; you pay a share, most often through coinsurance after the deductible.
Private nursing People who have medical needs and who can't easily function independently may hire a private nurse or nurses aid to work within the home. Most individual health plans do not cover this service.
Rehabilitation (inpatient services) Services that help restore capabilities lost due to injury or illness. Rehabilitation is prescribed for people with many different ailments, including brain trauma, arthritis, cancer and heart disease. Most plans offer some coverage, but virtually all require members to cover some of the cost. Most plans do this through coinsurance after the deductible, which can increase out-of-pocket expense.
Rehabilitation (outpatient services) Services that help restore capabilities lost due to injury or illness, delivered in an outpatient setting. Most plans offer some coverage, and virtually all require coinsurance or copays.
Routine foot care Foot care can be an important benefit for people with diabetes. Most individual plans do not cover foot care, though some do with limitations.
Same-sex coverage Coverage for families consisting of two individuals of the same gender. More than half of plans offer coverage, but there may be big variations by state, depending on state laws. Read the plan brochure.
Short-term rehabilitation in a skilled-nursing facility Short term rehabilitation in a skilled nursing facility, also known as a nursing home, helps people recovering from an illness or operation to regain function. Only a handful of individual health plans offer some level of coverage, often with limitations or a higher premium.
Substance abuse treatment (inpatient) Inpatient substance abuse treatment is costly. Once you enter treatment, you must stay until you receive a medical discharge. About half of plans offer some coverage, which varies depending on the plan and the state. Many plans that do cover substance abuse pay only part of the cost. Most charge coinsurance after the deductible is met.
Substance abuse treatment (outpatient) Coverage for psychotherapy, counseling, family issues and vocational concerns. About half of plans don't offer coverage. Most of the rest plans require cost-sharing, mostly through coinsurance after the deductible.
Tests - CT and MRI scans, other advanced imaging These computer-enhanced images are often essential for diagnosing strokes, cancer and other ailments.
Tests - diagnostic, X-rays, and lab tests X-ray images and lab tests that measure cholesterol levels and other components of blood often provide critical clues for a diagnosis. Most health plans cover them, but the majority of individual health plans only pay part of the cost. You pay the rest, through copays and co-insurance.
Weight-loss programs Few plans cover weight loss programs, and most of those that do charge additional premiums or limit coverage.
Weight-loss surgery Weight loss, or bariatric, surgery reduces the size of a person's digestive tract, helping to limit food intake. Two-thirds of plans offer no coverage; most of the plans that do offer coverage impose limitations.

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