Your Health Insurance Glossary

With words like 'co-pay,' 'premium,' and 'deductible,' wading through the sea of health insurance terms can be overwhelming.

With words like 'co-pay,' 'premium,' and 'deductible,' wading through the sea of health insurance terms can be overwhelming. Before you tackle choosing a health insurance plan or deciding if a health savings account is right for you, it's helpful to understand the words that you'll encounter in the paperwork.

Below you'll find a list of basic health insurance terms along with their definitions and the most important points to know about each.

  • Provider - Anyone in the healthcare industry who provides a healthcare service to you, including doctors, hospitals, laboratories, x-ray centers, surgery centers, and pharmacies

  • Premium - The amount of money you will pay each month to purchase a health insurance plan. In many cases your employer will pay a portion of the premium and you will pay the remainder. Most plans with family coverage in 2006 have a premium cost of more than $10,000 a year. Premiums vary by the amount of your deductible (see below for definition of 'deductible').

  • In-Network and Out-of-Network Providers - Health insurance companies negotiate with doctors and hospitals to provide services to the people they insure. The doctors and hospitals they contract with are referred to as 'in-network providers' because they have agreed to provide services to you at a discounted rate, while 'out-of-network' doctors and hospitals do not provide services to insured patients at a discounted price. If your doctor is out-of-network, you'll pay more for services than if you visit an in-network doctor. Your health insurance company can provide a list of doctors and hospitals that are in-network, and a doctor or hospital can tell you whether they are in-network for a particular insurance plan.

  • First Dollar or Out of Pocket - The amount of money you pay from your own funds before your insurance company pays for any medical costs. This term generally applies to the sum of your co-pay, deductible and any co-insurance you are directly billed for when you receive a medical service.

  • Co-Pay - The amount of money you will pay out of your pocket each time you seek medical service, and almost every health insurance plan includes a co-pay system. For many insurance plans, each time you see a doctor or purchase a prescription drug, you will pay between $20 and $50 before your health insurance will pay any part of the cost – this is the co-pay. You'll also be charged a co-pay for outpatient x-rays and surgeries and these are often more expensive than a doctor's visit or prescription. Generally, co-pays are not credited to your deductible or co-insurance (see definitions below).

  • Deductible - The amount of money you will pay before any health insurance benefits are paid. This amount is called the deductible. Deductibles vary but generally are in the amount of $250 to $1,500. Some health insurance policies today are offering deductibles as high as $5,000. Usually the higher the deductible the lower the premium (see below for definition of 'premium').

  • Co-Insurance After you've paid the amount of your deductible out of your own pocket, your insurance company begins to pay a portion of all covered healthcare expenses you incur. This is called 'co-insurance.' Co-insurance pays until a limit is met, generally $10,000. After your deductible and co-pay, many health insurance programs pay co-insurance of only 80 percent of expenses up to $10,000.

  • How do co-pays, deductibles, and co-insurance relate? Let's say you have a health insurance policy that has a $50 co-pay, a $500 deductible, and an 80 percent co-insurance. If you have outpatient surgery that costs $5,000, here's what you will pay:

    • $50 co-pay

    • $500 deductible

    • $890 co-insurance (20 percent of the remaining $4550 after co-pay and deductible since your health insurance company only pays 80 percent of expenses up to $10,000).

  • Explanation of Benefits or EOB - The report you receive from your health insurer whenever you receive a medical service from any provider. It explains for each service how much was paid to the provider and what your responsibility will be for the deductible and co-insurance.

Next, we'll use these terms to help you figure out which insurance plan is best for you and your family.