Health Insurance Terms and Definitions

Health insurance can be confusing. Browse our health insurance glossary to better understand your coverage, benefits and costs.

Read more about: 

• Common health insurance terms
• Types of health insurance plans

Common Health Insurance Terms

Allowed Amount

The allowed amount is the maximum amount your insurance will pay for a covered health care service. If your provider charges more, you may have to pay the difference.

Benefit

A benefit is a service your health plan covers (fully or partially pays for), such as doctor visits, hospital stays, preventive services or prescription medications.

Claim

A claim is an invoice (bill) sent to your insurance company by your health care provider requesting payment for a service you received.

Coinsurance

Coinsurance is your share of the cost for a covered health care service, usually shown as a percentage. For example, you may pay 20% and your insurance pays the remaining 80%. Coinsurance is the amount you pay after you meet your deductible; it does not count toward your deductible.

Copay/Copayment

A copay is a fixed amount you pay for a service, such as a doctor visit or prescription, usually due at the time of service.

Covered Services

Covered services are visits, procedures, treatments and other services your insurance plan agrees to pay for (fully or partially).

Deductible

A deductible is the set dollar amount you are required to pay for covered health care services each year before your health insurance begins to pay for services.

Dependent

A dependent is a person who is covered under your health insurance plan, usually a spouse, domestic partner or children. In some cases, you can claim other family members as dependents.

Explanation of Benefits (EOB)

An EOB is a summary you receive from your health insurance company after receiving a service. An EOB shows what insurance covered, how much they paid and what you may owe.

Drug List (Formulary)

A formulary is a list of prescription drugs (both brand-name and generic) your insurance covers, often grouped by cost level or “tier.”

Health Savings Account (HSA)

An HSA is a type of savings account with tax advantages that you can use to pay for qualified health care expenses. An HSA must be paired with a high-deductible health plan (HDHP).

In-Network

Doctors, hospitals and other providers who have a contract with your insurance plan are considered in-network. They provide members with discounted rates, so you pay less when you use them.

Out-of-Network

Doctors, hospitals and other providers who do not have a contract with your insurance plan are considered out-of-network. You may have to pay more when you use them, or your plan may not cover their services at all.

Out-of-Pocket Maximum

Also called out-of-pocket limit, this is the highest amount you need to pay in a year for covered health care services for you and your dependents. The amount includes your deductible, copays and coinsurance. After you reach this amount, your insurance pays 100% of covered costs (up to the allowed limit).

Out-of-Pocket Medical Expenses

Out-of-pocket medical expenses are the costs you pay yourself, which may include copays, deductibles, coinsurance, non-covered services or out-of-network care.

Premium

Your premium is the amount you (or your employer) pay to your insurance company (monthly, quarterly or yearly) to keep your health coverage active.

Prior Authorization (Preauthorization)

Prior authorization is approval from your health insurance company before you receive a service. Without preauthorization, insurance may not cover the service. You may need preauthorization for certain imaging exams, planned surgeries, hospital stays or other high-cost services. Preauthorization isn’t required for emergency care.

Referral

A referral is a written order from your primary care provider to see a specialist. Your insurance company may require a referral before they will pay for the cost of the service.

Specialist

A specialist has advanced training in a specific area of medicine, such as cardiology, dermatology or neurosurgery.

Subscriber

The subscriber, or policyholder, is the primary account holder of a health insurance plan.

Types of Health Insurance Plans

There are several types of health insurance. Understanding the different plans can help you select the best coverage for your needs.

Health Maintenance Organization (HMO)

An HMO requires you to use a set network of doctors and hospitals (except in emergencies). You choose a primary care provider (PCP) who coordinates your care and makes referrals to specialists as needed. An HMO:

• Offers lower premiums than other types of health insurance plans
• Has less flexibility since you must stay within the network
• Is good for people who want the lowest insurance costs and are willing to stay within a network

Preferred Provider Organization (PPO)

A PPO allows you to choose among in-network and out-of-network providers and hospitals. Unlike an HMO, a PPO typically doesn’t require you to get a referral to see a specialist. A PPO:

• Offers more flexibility than an HMO
• Comes with higher premiums and out-of-pocket costs
• Is good for people who want to choose their doctors without going through their PCP

Exclusive Provider Organization (EPO)

An EPO requires you to use a network of doctors and hospitals (except in emergencies). However, an EPO typically doesn’t require you to get a referral to see a specialist. An EPO:

• Offers lower premiums than a PPO
• Has less flexibility than a PPO since you must stay in-network
• Is good for people who want lower costs than a PPO, but more flexibility than an HMO

High-Deductible Health Plan (HDHP)

An HDHP has a lower premium but a higher deductible than most other health plans. An HDHP can be paired with a health savings account (HSA). This helps you pay for certain medical expenses with money you set aside in your tax-free HSA. An HDHP:

• Offers lower monthly costs
• Enables you to save for future medical expenses because they are HSA-eligible
• Is good for healthy people who don’t expect a lot of medical visits

Point of Service (POS) Plan

A POS plan allows you to choose among in-network and out-of-network providers but typically offers lower costs for in-network care. Like an HMO, you choose a primary care provider (PCP) who coordinates your care and may require referrals to see specialists. A POS plan:

• Offers lower premiums than PPO and EPO plans
• Has flexibility to go out-of-network, though potentially at higher out-of-pocket costs
• Is good for people who want lower costs than a PPO and don’t mind a PCP coordinating their care

Catastrophic Plan

A catastrophic plan has a low premium but a very high deductible. The plan covers essential services only after you meet the deductible. A catastrophic plan: 

• Is for people under 30 or those who qualify for a hardship exemption (financial difficulty or circumstances that prevent you from getting health insurance)
• Is good for young, healthy people who want protection against high medical bills in the event of an emergency