21 Common Insurance Terms and What They Mean in Plain Language

Reading health insurance lingo can feel akin to learning a foreign language, whether you’re studying a bill for a recent doctor’s visit or simply trying to understand what your own insurance policy covers.

With words and phrases like formulary, coinsurance and premium—it’s no wonder many of us get confused. According to a 2020 survey by Policygenius, one out of four Americans (26 percent) say they’ve avoided getting care or treatment because they’re not sure what their insurance covers, and people with lower income were more likely to avoid care. Only 37 percent of people polled knew that Affordable Care Act plans cover people with pre-existing conditions. And only 32 percent of those surveyed were able to correctly define terms like copay, premium and deductible.

Health literacy isn’t taught in most schools, so it’s on us to educate ourselves. The payoff is worthwhile: when you understand the words and concepts that apply to your health and your health insurance, you’re better able to advocate for yourself and your loved ones and get the health services you need.

To that end, we’ve created a glossary of common terms and defined them in plain language. Because we know that staying on top of your healthcare is hard enough—understanding it shouldn’t be an additional challenge.

Common health insurance terms

• Allowable charge. The highest amount that a health plan will pay for a particular service.
• Claim. A bill from a health service provider that lists the costs for the services received.
• Condition. An injury, sickness, disease or other health disorder.
• Copay. A fixed amount that you pay for certain medical services within your network (see “network” below). The amount may change depending on the service, and your policy will likely have different copays for a doctor visit, a specialist visit, a prescription medication, an ambulance ride and a trip to the emergency room. It’s good to be familiar with what your different copays are, so you’re not surprised when you need the services.
• Coinsurance. This refers to a percentage of costs that you will pay for eligible services after you’ve met your deductible (see “deductible” below). If your coinsurance is 20 percent, for example, and you receive a bill for $100, you’ll pay $20 and your insurance will pay the rest.
• Deductible. A set amount of money you must pay for eligible health services before the insurance policy begins to pay. Different insurance plans have different deductibles, so find out what yours is. If your deductible is $1,500, for example, you’ll pay for eligible costs for up to $1,500 before your policy begins covering a set portion of services and procedures.
• Diagnostic test. A type of test a doctor orders to better understand what is wrong with you. An X-ray, for example, is a diagnostic test that may reveal a broken bone.
• Drug formulary. A prescription drug list, including generic and brand-name medications, covered by your insurance plan.
• Explanation of benefits. This is a document created by your health insurance company that outlines what costs it will cover for recently billed healthcare services. It may include details about whom you received services from; what those services were; the cost of those services; the amount paid by your plan; the amount not covered by your plan; the amount you are responsible for paying. While it may look like a bill, it is not a bill. It is simply a summary to keep for your records.
• Inpatient services. Health services received in a hospital or clinical setting after you are admitted and spend at least one night under the care of a medical team.
• Network. Your health insurance company has agreements with particular medical facilities and/or health care providers to offer services at an agreed upon cost. Those are referred to as “in-network.” With many plans, staying “in-network” can save you money.
• Non-covered charges. These are services that your health insurance plan doesn’t pay for. This could include things like acupuncture, massage and certain surgeries. These could also be referred to as “excluded services.”
• Out-of-network. If you see a healthcare provider who isn’t included in your plan’s network, that means that he or she doesn’t have a contract with your health insurance company that sets costs at an agreed-upon amount. You may be responsible for a higher portion of the bill, or even the entire bill, depending on your plan.
• Out-of-pocket maximum. An out-of-pocket maximum limits what a person will pay that year for eligible health services. Different plans have different out-of-pocket maximums. When you’ve paid that specified amount, your insurance policy will cover all other eligible services for the year. Payments you make towards the deductible, coinsurance and copays count towards the out-of-pocket maximum, but monthly premiums do not.
• Outpatient services. These are health services that don’t require an overnight stay at a hospital. Instead, you can have the service or procedure done at a doctor’s office, hospital or clinic and then return home.
• Premium. This is the amount that you pay, or your employer pays monthly for your health insurance.
• Preventive care services. These are routine services aimed at preventing health conditions. They could include health screenings, check-ups, vaccinations, counseling and more. Many plans include these types of service, with no required copay, coinsurance or deductible.
• Primary care physician. A primary care physician (PCP) can act as the main point of contact for your health needs. He or she can provide a wide array of medical services, and can also refer you to specialists and help coordinate different types of care you might need. Some plans, such as HMOs, require you to designate a PCP.
• Prior authorization. A process in which a healthcare provider receives approval from a health insurance company before moving forward with the recommended action, whether it’s a diagnostic test, admission into the hospital, surgery or other needs. This is also sometimes called “preauthorization.”
• Provider. A healthcare provider, such as a medical doctor (MD) or doctor of osteopathy (DO).
• Referral. When a doctor, such as a primary care doctor, recommends that you see another healthcare professional, such as a specialist, it’s called a referral. For people with HMO plans, this is a requirement to see most providers aside from your PCP.

This list of terms is just a start. Now that you’ve read about the importance of health literacy, make a commitment to become your own advocate and continue learning. If you’re at a healthcare appointment and you don’t understand what someone is talking about—whether it’s your PCP or a person in the billing department—speak up. Request that they use plain language so that it makes sense to you. That way, you can be active in your own healthcare plan, and help your provider help you.