Glossary of Common Insurance Terms

Knowing some of the most commonly used health insurance terms can help you select a plan that best meets your needs.

11 min read

Sorting through the various terms and processes involved in choosing the right plan can be overwhelming. To understand the basics of health insurance, it is helpful to first know some common terms.

Glossary of Terms

  • Accumulator programs: Policies implemented by insurers that prohibit manufacturer co-pay assistance from being counted towards individuals' deductible and out-of-pocket plan maximum.
  • Brand-name medication: A medication marketed under a trademark name or patent. The patent gives a drug manufacturer exclusive rights to produce and sell the medication for a limited time
  • Centers for Medicare & Medicaid Services (CMS): Part of the U.S. Department of Health & Human Services that oversees Medicare, the federal parts of Medicaid, the Children's Health Insurance Program, and the Health Insurance Marketplace.
  • Claim: A formal payment request that a policy holder or health care provider submits to the policy holder's health insurance company for coverage of care or services. Claims are submitted by the insurance policy holder or health care provider.
  • Coinsurance: The percentage of the total cost a policy holder pays for services covered by the insurance plan. For example, if an office visit costs $100, and the plan's coinsurance is 20 percent, the policy holder will pay $20. The health insurance plan will then pay the remaining 80 percent, or $80.
  • Consolidated Omnibus Budget Reconciliation Act (COBRA): A federal law that lets an individual stay on an employer's health plan after employment ends, at their own expense and for a limited period of time.
  • Co-payment ("co-pay"): A fixed dollar amount that the policy holder pays for covered health care service. In most cases, co-pays do not count toward (i.e., reduce) the person's deductible but do count toward their out-of-pocket maximum. Different plans require different co-pays for different health care services, such as urgent care, office visits, or medications.
  • Creditable Coverage (Part D): A federal rule that any drug plan a Medicare recipient has (such as a spouse's employer plan) must pay at least as much as the standard Medicare Part D prescription drug coverage.
  • Deductible: A fixed dollar amount the policy holder must pay before the health insurance company starts to make payments for services or medications covered by the plan. Some insurance plans have both individual and family deductibles. Not all services involve a deductible. For example, under the Affordable Care Act, people can get preventive care (such as annual exams and immunizations) without paying toward the deductible.
  • Drug formulary ("formulary"): The list of prescription medications covered by a health insurance plan. Formularies can be open (small or no limit on the medications covered), closed (only medications on the formulary are covered), or restricted (some flexibility in medication choice).
  • Durable Medical Equipment (DME): Reusable medical items that are ordered by a doctor and appropriate for in-home use, such as wheelchairs, home oxygen, aerosol (nebulizer) machines, and diabetes testing strips that are ordered by a doctor and needed for a long time, generally in the home.
  • Exclusion or limitation: A service that a health insurance plan does not cover.
  • Explanation of benefits (EOB): A statement from the health insurance company showing how they paid a claim based on the benefits of a plan.
  • Fully funded or fully insured group plan: A plan offered by employers that purchase coverage for their employees directly from an insurance company. The employer often pays a portion of the premium, and the employee pays the remainder.
  • Generic medication: A medication made by a company that did not create the original brand-name version. Generic medications have the same active ingredients as the brand-name drug and are approved by the U.S. Food and Drug Administration (FDA). They are usually less expensive.
  • Health insurance network: Facilities, providers, and suppliers that provide health care services at a set cost to people in a health insurance plan. These providers are called "in-network."
  • High-deductible option: A health insurance plan with a $1,350 deductible for an individual and a $2,700 deductible for a family, or higher.
  • In-network provider: A facility, provider, or supplier in the plan's health insurance network who provides services at a set cost to people in the health insurance plan.
  • Lifetime reserve days: An extra total of 60 days of inpatient hospital benefits that Medicare recipients can use over their lifetime, after using 90 days of inpatient hospital services in a benefit period.
  • Limited distribution: A system that limits where people can get some specialty medications or therapies.
  • Mail-order pharmacy: A type of pharmacy that fills prescriptions and sends medications to customers by mail. With some health insurance plans your co-pay will be lower if you order a 90-day supply through their mail-order pharmacy. Please note, you can use only the mail-order pharmacies named in the prescription drug benefit part of their health insurance plan.
  • Managed care: A health care plan or system that tries to control medical costs by contracting with a specific network of providers.
  • Medical underwriting: When an insurance company looks at a person's medical or health history as it considers an application for a policy acceptance or premium rate.
  • Medicare: A federal government health insurance program that helps pay medical bills for people ages 65 and older, people younger than 65 receiving Social Security Disability Insurance (SSDI) benefits who meet certain requirements, and people with permanent kidney failure.
  • Medicare Part A: Coverage for inpatient hospital stays, skilled nursing, hospice, and some home health care.
  • Medicare Part B: Coverage for visits to doctors and other health care providers, medical supplies, some medications, and some preventive services, such as annual exams and immunizations.
  • Original Medicare: Hospital and medical insurance coverage (Medicare Part A and Part B) managed by CMS.
  • Medicare Advantage (Medicare Part C): Plans that private insurance companies offer as an alternative to Original Medicare. Centers for Medicare & Medicaid Services must approve these plans. Medicare Advantage plans include hospital and medical coverage (Parts A and B), and many include prescription drug coverage (Part D) and other benefits.
  • Medicare Part D:  Coverage of prescription medications available to people with Original Medicare for an extra cost. Some Medicare Advantage plans include prescription drug coverage for no additional premium.
  • Medication tiers: The groups into which medications are divided on the formulary. There are usually four or five tiers which range from the lowest (e.g., Tier 1 generics) to highest (Tier 4 or 5 specialty medications) and determine the amount a person will pay for each drug
  • Medigap (Medicare supplement) insurance: Plans that private insurance companies offer to help cover costs that would otherwise be paid by the patient. The Centers for Medicare & Medicaid Services must approve these plans. Medigap plans have an additional premium and are available only to those with Original Medicare (not Medicare Advantage). Coverage with Medigap may not be available for those younger than 65 years with Medicare insurance; it is dependent on the states of residence.
  • Nonpreferred medication: A medication that a health insurance company would rather a person not take. These medications often are not on the drug formulary, and may require prior authorization, have a higher co-pay, or both.
  • Open enrollment: A time each year when people can add, drop, or make changes to their health insurance coverage.
  • Out-of-network provider: A health care provider who does not have a contract with the health insurance plan and is not part of the plan's network. Typically, the health insurance company pays less or nothing at all for services from out-of-network providers
  • Out-of-pocket costs: Costs that an insurance company does not cover that the patient must pay.
  • Out-of-pocket maximum: The most a person can spend for services their plan covers in a set coverage period, usually one year. After a person spends that amount, the health insurance plan pays 100 percent of all covered services for the rest of the coverage period.
  • Pharmacy benefit manager: A company that a health insurance plan hires to process and pay prescription medication claims. Pharmacy benefit managers create the drug formulary, contract with pharmacies, and get discounts and rebates from drug makers. They also may offer programs such as medication therapy, disease management, and help with mail-order pharmacies.
  • Preferred medication: A medication on the health insurance plan's formulary or preferred list of drugs. These medications may cost more than generics but less than other brands that are not on the formulary.
  • Premium: The amount a person pays every month to keep their health insurance plan active, whether or not they get care. Not paying by the due date may cancel the person's coverage. For employer-sponsored group plans, the employer pays some of the premium and the rest comes out of the employee's paycheck. Most insurance companies require employers pay at least half of the premium cost for covered employees.
  • Primary insurance: The health insurance plan that pays first when a person is covered by more than one plan. Any amount the primary insurance does not pay goes to the secondary insurance plan to review and pay.
  • Prior authorization: A health insurance company's formal review and approval process before it agrees to cover some services or medications.
  • Reauthorization: A renewal of the prior authorization on file. To get a reauthorization, an insurance company may ask a person to send in medical records that show their health has improved with the treatment, or to fill out a form.
  • Reimbursement: What the insurance company pays health care providers for the care they provide to a person covered by their insurance plan.
  • Retail pharmacy: A local pharmacy (such as a CVS, Walgreens, or a grocery store pharmacy) that has a state license to fill prescriptions. Retail pharmacies usually can give only 30-day supplies, although some may provide 90-day supplies. Pharmacy benefit managers may limit which retail pharmacy chains people can use.
  • Secondary insurance: A health insurance plan that pays claims after a primary health insurance plan, if a person has more than one plan.
  • Self-funded group plan: A plan in which the employer acts like an insurance company and processes and pays health care claims. In some cases, a different company helps process claims. Often, the employer decides whether or not to cover a service.
  • Social Security Disability Insurance (SSDI): A program that pays benefits to people who worked long enough and paid Social Security taxes but are no longer able to work.
  • Special enrollment period: A time outside the open enrollment period when a person can sign up for health insurance. People may qualify for a special enrollment period during certain life events or unusual circumstances, such as the birth of a child or a divorce. They usually have up to 60 days after the event to enroll in a plan.
  • Specialty pharmacy: A pharmacy that serves people with rare and chronic diseases. They offer extra services such as refill reminders, overnight deliveries, and online prescription tracking. They help people take their medications safely and as prescribed. Specialty pharmacies focus on expensive medications, such as injectable or inhaled medications, that local retail pharmacies do not carry. These medications often need to be handled and stored in the right way so they stay effective.
  • Step therapy: A type of prior authorization that requires a doctor to show a person has tried a less expensive or a preferred medication on the formulary that has not worked, before a health insurance plan will cover a different medication.
  • Summary of Benefits and Coverage (SBC): A document that helps people compare different health insurance plans based on price, benefits, and more.
  • Supplemental Security Income (SSI): A Federal income supplement program that helps those who have little or no income, who meet specific criteria, with assistance to meet basic needs like food, clothing, and shelter.
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