The ABCs of Insurance

Understanding what certain insurance-related terms mean will help you become a better insurance consumer.

Annual Limit: A cap on the benefits your insurance will pay in a year. Under the Affordable Care Act, health plans can no longer place annual maximums on benefits. They can limit certain non-essential covered services or the number of visits they will cover for a particular service. After you reach the limit, you must pay all associated costs for the rest of the year.

Balance Billing: When a healthcare provider bills you for the difference between the provider’s charge and the allowed amount, or the amount your policy will pay. For example, if your doctor bills $200 and the policy allows $125, it may bill you for the remaining $75. Preferred providers cannot balance bill you for covered services.

Benefits: The healthcare items or services your health insurance covers. Your policy’s coverage documents will list the benefits it will pay for.

Coinsurance: Your share of the costs of a covered service, calculated as a percent (for example, 20 percent) of the allowed amount for the service. You pay coinsurance plus any deductibles you owe whenever you access a covered health service. Your policy pays the rest of the allowed amount.

Coordination of Benefits: A way to figure out who pays first when two or more health insurance plans are responsible for paying the same medical claim.

Copayment: A fixed amount you pay for a covered health service, usually when you get the service. It can vary by the type of covered service. For example, you might pay $15 for an office visit to your primary care physician, but a higher copayment for visiting a specialist.

Cost Sharing: The share of costs covered by your insurance that you pay out of your own pocket. This generally includes deductibles, coinsurance and copayments, but it doesn’t include premiums, balance billing amounts for non-network providers, or the cost of non-covered services.

Creditable Coverage: Having creditable coverage will reduce the length of a pre-existing condition exclusion period under new job-based coverage. Creditable coverage includes any of the following: a group health plan; individual health insurance; student health insurance; Medicare; Medicaid; CHAMPUS and TRICARE; the Federal Employees Health Benefits Program; Indian Health Service; the Peace Corps; Public Health Plan (any plan established or maintained by a state, the U.S. government, a foreign country); Children’s Health Insurance Program (CHIP); or a state health insurance high risk pool.

Deductible: The amount you owe for covered services before your health coverage begins to pay. For example, if you have a $1,000 deductible, your policy won’t pay anything until you’ve paid that amount for covered health services. The deductible may not apply to all services, such as preventive care.

Essential Health Benefits: The Affordable Care Act requires health plans offered in the individual and small group markets to cover essential health benefits, a comprehensive package of items and services within the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. No standardized list of EHBs exists; check your plan documents to see what it covers.

Grandfathered Health Plan: The Affordable Care Act exempts “grandfathered” health plans from certain provisions. A grandfathered plan is a group health plan created or an individual health insurance policy purchased on or before March 23, 2010. If your plan is grandfathered, your plan materials will include a statement saying it considers itself to be a grandfathered plan.

High-Deductible Health Plan (HDHP): A plan that features higher deductibles than traditional insurance plans. High-deductible health plans (HDHPs) can be combined with a health savings account or a health reimbursement arrangement to allow you to pay for qualified out-of-pocket medical expenses on a pre-tax basis.

Health Savings Account (HSA): A medical savings account available to taxpayers who are enrolled in a high-deductible health plan. Funds you contribute aren’t subject to income tax at the time of deposit, and you receive any growth in your funds tax-free if you use them to pay for qualified medical expenses. Unlike a Flexible Spending Account (FSA), you can roll unspent funds over year to year.

Medically Necessary: Most plans will cover only “medically necessary” healthcare services or supplies. These are needed to prevent, diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine.

Minimum Essential Coverage (MEC): The type of coverage an individual needs to have to meet the individual responsibility requirement under the Affordable Care Act. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage.

Open Enrollment Period: The period of time during which qualified individuals can enroll in a plan in the Marketplace. For coverage starting in 2016, the open enrollment period is November 1, 2015–January 31, 2016. Individuals may also qualify for special enrollment periods if they experience certain life events.

Out-of-Pocket Costs: Medical care expenses that your insurance does not reimburse. Out-of-pocket costs include deductibles, coinsurance and copayments for covered services plus all costs for uncovered services.

Pre-Existing Condition Exclusion Period: The Affordable Care Act prohibits plans from turning you down or charging you more for a pre-existing medical condition. The prohibition on pre-existing coverage exclusions does not apply to grandfathered health plans. A grandfathered plan could limit coverage for pre-existing conditions or not pay for care related to your pre-existing condition for a certain time period.

Rider: A rider is an amendment to an insurance policy. Some riders will add coverage (for example, if you buy a maternity rider to add coverage for pregnancy to your policy).

UCR (Usual, Customary, and Reasonable): The amount providers in a geographic area usually charge for the same or similar medical services. Insurers sometimes use the UCR amount to determine the allowed amount.

Whether you have group or individual coverage, we can help you read your policy to see what it covers. Many employer plans are covering less than they used to. If your plan has significant coverage gaps, we can suggest supplemental coverages.