health insurance terms

Understanding Health Insurance: A Glossary of Terms

There are a lot of things in life that are confusing, but understanding your health insurance shouldn’t be one of them. Sometimes it feels like it takes a medical degree to understand what your health benefits mean.

To help with this, we’ve compiled a list of common health insurance terms and easy-to-understand definitions.


Actual Charge: The actual dollar amount charged by a physician or provider for medical services performed, different than the allowable charge.

Allowable Charge: This can also be referred to as the Usual, Customary or Reasonable charge. It’s the dollar amount typically considered payment-in-full by an insurance company and is usually a discounted rate from the actual charge.

Annual limit: Many health insurance plans place dollar limits on the claims the insurer will pay over the course of a plan year—this is your annual limit.


Benefit:A broad term that refers to any service (office visit, laboratory test, surgical procedure, etc.) or supply (prescription drugs, durable medical equipment, etc.) covered by a health insurance plan.

Broker: Sometimes referred to as an agent; a broker typically works to match people with a health insurance company or plan that best matches their needs.


Claim: A bill for medical services performed, usually sent to your insurance by a healthcare provider.

Coinsurance: The amount that you are required to pay for covered medical services after you’ve satisfied any co-payment or deductible required by your health insurance plan. Coinsurance is typically expressed as a percentage of the charge.

Cost-sharing: Health care charges that the patient is responsible for. Common forms of cost-sharing include deductibles, coinsurance, and co-payments.

Co-payment: A specific charge that your health insurance plan may require you to pay for a specific medical service, also referred to as a “co-pay.” For example, your health insurance plan may require a $15 co-payment for an office visit or brand-name prescription drug, after which the insurance company often pays the remainder of the charges.


Deductible: A specific dollar amount that your health insurance company may require that you pay out-of-pocket each year before your health insurance plan begins to make payments on any claims.


Effective Date: The date that your health insurance coverage is officially active. As of the effective date of coverage, you can receive services and your insurance carrier will pay out your benefit.

Eligibility Date: The date when your health insurance plan accepts your application to begin receiving benefits.

EPO (Exclusive Provider Organization): As a member of an EPO, you can use the doctors and hospitals within the EPO network, but cannot go outside of the network for care.

Explanation of Benefits (EOB): A statement sent from the health insurance company listing services that were billed, how those charges were processed, and the total amount owed.


Fee-For-Service Plan (FFS):  Typically allows you to direct your own health care and visit whatever doctors or hospitals you like. The insurance company then pays a set portion of your total charges. You may be required to pay for some services up front and then apply to the insurance company for reimbursement.

FSA (Flexible Spending Account): FSA is savings account which allows a fixed amount of pre-tax wages be set aside for qualified expenses. Money in this account must be used by the end of the year because it does not carry over.


HIPAA (Health Insurance Portability and Accountability Act of 1996): Legislation mandating specific privacy rules and practices for medical care providers and health insurance companies, designed to protect the privacy and identity of healthcare consumers.

HMO (Healthcare Maintenance Organization): HMO plans offer a wide range of health care services through a network of providers that contract exclusively with the HMO, or who agree to provide services to members at a pre-determined rate. As a member of an HMO, you will need to choose a primary care physician (“PCP”) who will provide most of your health care and refer you to HMO specialists as needed.

HSA (Health Savings Account): HSA is a savings account that can be used with certain high-deductible health insurance plans. Contributions may be made to the account on a tax-free basis, and unlike a Flexible Spending Account, funds remain in the account from year to year.


Lifetime Maximum: Lifetime maximum or lifetime limits refers to the maximum dollar amount that a health insurance company agrees to pay on behalf of a member for covered services during his or her life.


Maximum Out-Of-Pocket Costs: This is an annual limit on all costs for which patients are responsible. It does not apply to premiums, charges from out of network health care providers, or services that are not covered by your plan.


Network Provider: A healthcare provider who has a contractual relationship with a health insurance company. Among other things, this contractual relationship may establish standards of care, clinical protocols, and allowable charges for specific services.


Out-of-network Care: Healthcare that is performed outside of the health insurance company’s network of preferred providers. In many cases, the health insurance company will not pay for these services.


POS (Point of Service): As a member of a POS plan, you may be required to choose a primary care physician who will then make referrals to specialists in the health insurance company’s network of preferred providers. Care rendered by non-network providers will typically cost you more out of pocket and may not be covered at all.

PPO (Preferred Provider Organization):  With a PPO plan you’ll need to get your medical care from doctors or hospitals on the insurance company’s list of preferred providers if you want your claims paid at the highest level. You will probably not be required to coordinate your care through a single primary care physician as you would with an HMO, but it’s up to you to make sure the health care providers you visit participate in the PPO.

Premium: A set payment that must be paid each month to keep your insurance coverage.

Preventive Care: This type of care is usually routine examinations and immunizations. Most insurance plans cover a set of preventative services at no cost (e.g. vaccines, mammograms, blood pressure and cholesterol tests, etc.).

Primary Care: Basic healthcare services, generally performed by those who practice family medicine, pediatrics or internal medicine.

Primary Care Physician (PCP): A primary care physician usually serves as a patient’s main healthcare provider. The PCP serves as a first point of contact for healthcare and may refer a patient to specialists for additional services.

Provider: “Provider” is a term commonly used by health insurance companies to refer to any healthcare provider, from a doctor or nurse to hospital or clinic.


Referral: The process through which you are authorized by a primary care physician to a see a specialist for the diagnosis or treatment of a specific condition.


Usual, Customary and Reasonable (UCR) Charge: This refers to the standard or most common charge for a particular medical service when rendered in a particular geographic area. It is often employed in determining Medicare payment amounts.


Waiver of Premium: In some cases, a Waiver of Premium may be granted, allowing a member to maintain health insurance coverage in full force without payment. A Waiver of Premium is typically only granted in cases of permanent and total disability.

 So there you go – health insurance from A to Z (err…W). Feel free to go out and “wow” your colleagues and friends with your newly-expanced healthcare knowledge, and never feel intimidated by these terms again.