Health Insurance Terminology

Health insurance terminology can be complicated, so knowing what each new term means can help you make educated health care decisions. Choosing between an HMO and a PPO isn’t just a cost issue–aside from your deductible and co-pay, you’ll need to understand the benefits that come with the option you choose.

Health care terminology can be tricky to navigate. Here are some of the more common terms you’ll need to know:

  • Co-pay: Your co-payment, or co-pay, is a specific fee that you pay each time you use a health care service. You may have different co-pays for different services. For example, you might have a $15 co-pay when visiting your primary care physician, a $10 co-pay on a prescription and a $30 co-pay when visiting a specialist.
  • COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA) passed by the U.S. federal government is designed to help people who have left or lost their jobs, allowing them to extend the health care coverage provided by their previous jobs. The benefit is limited as the extension is temporary and the insured individual or family has to bear the full cost of the coverage that was formerly shared by the employer.
  • Deductible: Health care insurance might kick in only after individuals or families have covered the first portion of their costs out of pocket. The deductible applies to each calendar year. Typically, the higher the deductible, the less you pay each month for health care coverage.
  • Explanation of Benefits (EOB): This is a document the insurance company sends you after you receive health care, itemizing the procedures, costs, what the insurance company pays and your share of the costs.
  • Flexible Spending Arrangement (FSA): An FSA is an account provided by employers to which employees can contribute pre-tax dollars from their salaries each month to be used towards medical expenses. This arrangement helps you save up for expensive procedures by spreading out the costs over the year and it helps you save on your taxes. Each FSA has a preset maximum that employees can contribute.
  • Health Maintenance Organization (HMO): This type of insurance plan employs a network of doctors and specialists that plan members can visit. Employers or individuals with private health insurance pay a monthly fee to participate.
  • Health Savings Account (HSA): Rather than paying for a standard insurance plan, some employees choose to pay into an HSA. It’s a special savings account that accumulates funds to be used solely for health-related expenses. An HSA can be used towards medical expenses upon retirement.
  • Preferred Provider Organization (PPO): A PPO is similar to an HMO in that members choose their physician from a network of providers and specialists. However, unlike an HMO, members can select doctors, hospitals and specialists outside the network and the insurance will pay most of their costs. This is obviously more expensive, as members might pay 20 to 30 percent of their own medical costs for the benefit of choice.
  • Premium: This is the overall cost of the insurance plan. When the plan is an employer-sponsored group plan, the cost is split between the employer and employee.

Whether you’re obtaining health insurance for yourself or from your employer, a better understanding of health insurance terminology lets you compare the features and benefits of your various plan options.

Resources

APTA. (n.d.) Understanding health insurance terms. Retrieved July 6, 2010, from http://www.apta.org/AM/Template.cfm?Section=Home