Health Care Insurance Terms
The terminology used by professionals in the health insurance industry can confuse even savvy consumers. You almost need a combination of an M.D., a law degree, and a PhD in linguistics to understand it all. To help you be better informed and make better health insurance decisions, we have put together this short glossary of health insurance terms.
Annual deductible: The total amount of money a health insurance plan member must pay within a year before the health insurance plan begins to pay for medical expenses. Annual deductible amounts vary from plan to plan and from one health insurance provider to another.
Coinsurance: The portion of a medical bill that the insured is responsible for paying. The health insurance provider pays the balance of the bill.
Co-payment: Also know as a “co-pay,” a co-payment is a flat fee the insured is required to pay for a common medical service or prescription medication. A co-payment is made at the time the medical service is provided or the medication is purchased.
Covered medical expenses: Those healthcare costs that are paid by the health care insurance provider.
Flexible spending account (FSA): An account holding funds deposited by a healthcare consumer and/or the consumer’s employer for the purpose of paying medical expenses that are not covered by a health insurance plan. Funds are deposited into an FSA before payroll taxes are taken out. Depending on the individual’s tax bracket, the use of pre-tax dollars nearly doubles the buying power of the funds deposited in the FSA account, because state and federal income taxes and FICA payroll taxes normally reduce earned dollars by 35-50 percent. The funds deposited in an FSA account must be spent within the benefit year, or else they will be forfeited.
Group health insurance: A health insurance policy covering a group of people who work together or are otherwise affiliated. The vast majority of group health insurance plans are purchased by companies to attract and retain quality employees.
Health Maintenance Organization (HMO): A health insurance provider that delivers medical services to plan members through a network of healthcare providers. The healthcare providers, such as doctors, clinics, laboratories, and hospitals agree, by contract, to render medical services according to the health maintenance organization’s guidelines. HMO plan members must receive medical attention from providers within the HMO’s network, or else their expenses will not be paid. Most HMOs designate a physician, known as a primary care physician to manage services and make referrals as needed.
Health savings account (HSA): Similar to an FSA, an HSA account holds funds for medical expenses. Funds are deposited before withholding taxes are taken out, increasing the buying power of the HSA funds. Unlike the funds in an FSA, the funds in an HSA do not have to be spent within the benefit year. They roll over from one year to the next. Before the account holder reaches age 65, the funds in an HSA must be used for medical purposes. Once the account older has reached 65, however, the funds can be used for any purpose without incurring penalties from the IRS. An HSA account holder must be enrolled in a High Deductible Health Plan (HDHP).
Indemnity health insurance:
Indemnity health insurance pays a set portion of the policyholder’s medical expenses—typically 80 percent. The policyholder pays the balance of the medical bill. The amount the health insurance company pays is based on a survey of “usual and customary” rates. Should your doctor of clinic charge more than the usual and customary rates, you would be responsible for paying the difference. Indemnity health insurance is also known as fee-for-service insurance.
Maximum out-of-pocket expenses: The total amount of money a health insurance policyholder must pay out of pocket before the health insurance provider assumes total responsibility for medical expenses . Out-of-pocket expenses include co-payments (co-pays), deductible amount, and coinsurance..
Medical savings account (MSA): Like an FSA or an HSA, an MSA is a savings account that allows small business employees and self-employed individuals to deposit pre-tax earnings for the express purpose of paying for medical expenses not paid for by a health insurance plan.
Medicare: A program of the U.S. federal government that provides health insurance to qualified people, including individuals with disabilities and people aged 65 and older. Funded with payroll tax contributions, Medicare offers two distinct health care insurance plans: Medicare Part A and Medicare Part B. Part A is a program that pays hospitalization expenses. The Medicare recipient is also covered when admitted to critical access hospitals, hospices, skilled nursing facilities, or receives some form home medical care. The Medicare does not have to pay a premium to receive Medicare Part A benefits. Medicare Part B is partially paid for with taxpayer money and partially paid for by insurance premiums. Part B pays for general medical care, such as doctor’s office visits, physical therapy, outpatient care, and home care.
Portability: The guaranteed ability of a health insurance policy holder to drop one health insurance plan and enroll with another without having coverage denied or delayed due to pre-existing medical conditions.
Point-of-service health insurance (POS): Like an HMO or PPO, a POS health insurance plan uses a managed model to contain costs and manage care. Like HMO members, POS policyholders choose one doctor to oversee their care. This doctor is known as the “point of service” doctor. As with a PPO, members of a point of service health insurance plan can obtain medical care outside the POS network, but they are required to pay a larger portion of the medical bills. Unique to the POS system, plan members are responsible for managing of the paperwork related to out-of-network care. For example, the individual plan member must submit the bills for reimbursement and keep receipts.
Preferred Provider Organization (PPO): Like HMOs and POSs, PPOs are managed care organizations that provide medical care to plan members via a network of medical professionals who agree by contract to abide by the PPO’s guidelines for health care. A PPO differs from an HMO by allowing plan members to seek medical attention outside the network of preferred providers. The PPO pays a smaller portion for services obtained outside the network, however.
Pre-existing conditions: Medical conditions, including chronic illnesses, that have been diagnosed before enrolling to purchasing a health insurance plan. By California law, health insurance providers can postpone or refuse coverage to a person with pre-existing conditions. California law does not permit benefits to be delayed or denied to members of group health insurance plans, regardless of pre-existing conditions they might have.
Supplemental health insurance: Health insurance that pays medical expenses not covered by a primary health care insurance policy.