With open enrollment on the horizon, many employees may be considering changes to their health plan. In order to make an informed decision, it’s important to have a clear understanding of common health care terms. To help make these definitions easier to understand, we’ve grouped the most common terms into 6 categories that all employees should know going into open enrollment.
1. Cost sharing basics
Cost sharing terms are the key to really understanding the costs associated with a health plan. Here are the types of cost sharing members may be expected to pay, along with a few other relevant terms.
This is the cost of your health care, usually billed monthly, direct from a health plan sponsor or through your employer. In most cases, your employer contributes to paying your premium (called the “employer contribution”). You pay a portion of the premium, and that is usually deducted from your paycheck.
This is the amount you pay in a benefit year for certain covered health care services before your health insurance plan starts to pay. For example, if your individual deductible is $3,000, you will need to pay this much for certain covered services before your insurance starts to pay for them. Your plan may include a separate deductible for prescription drugs. After you’ve met your deductible, you may also be required to pay a copayment and/or coinsurance.
Also known as the copay, a copayment is the fixed amount you’re required to pay for certain covered services and/or prescription medications, typically at the time of service. For example, you might have to pay a $25 copay at each office visit.
This amount represents your share of the costs of a covered service, calculated as a percent of the allowed amount for the service. You may pay coinsurance in addition to any deductibles you owe. For example, if the plan’s allowed amount for crutches (durable medical equipment) is $100 and you’ve met your deductible, your coinsurance payment of 20% would be $20. Your plan pays the rest of the allowed amount.
The allowed amount is the maximum amount that your plan will pay for covered benefits minus any applicable member cost-sharing. The allowed amount for in-network benefits is the contracted rate accepted by in-network providers. The allowed amount for out-of-network benefits is based on the lower of the provider’s charge or the usual and customary charge used by providers in a particular geographic area. The allowed amount for out-of-network providers may sometimes be less than your in-network’s provider’s actual charge. If this is the case, you will be responsible for the amount of the provider’s actual charge that is in excess of the allowed amount.
This is the most you could pay in a plan year for covered services. After you reach this amount, your insurance pays 100% for covered services through the remainder of the plan year. Generally, all medical, behavioral health, and prescription drug copayments, deductibles, and coinsurance amounts you have paid apply toward the out-of-pocket maximum. Some plans include a separate out-of-pocket maximum for prescription drugs.
2. Plan types
There are many different types of health plans, but most of them fall into the three categories below. There may be differences in the provider networks that are available with these plans.
Health Maintenance Organization (HMO)
A type of health insurance plan that usually limits coverage to care from providers who contract with the HMO. It generally won’t cover out-of-network care except in urgent or emergency situations. HMOs require a Primary Care Provider (PCP) who provides integrated care and focuses on prevention and wellness.
Preferred Provider Organization (PPO)
PPO plans have a larger network than HMO plans. They also provide coverage for out-of-network covered services, at higher cost sharing than with in-network providers. PPOs don’t require you to have a PCP, which means you can go to specialists without a referral. (Note: There’s always value in having a PCP to coordinate your overall health and well-being.)
HSA Qualified High Deductible Health Plan (HDHP)
Also known as Health Savings Account Compliant plans that follow IRS rules, this is a type of health plan with lower monthly premiums and a higher deductible. This plan can be a more affordable type of health insurance in terms of monthly premiums. The deductible applies to most services, except preventive. Once you reach your annual deductible, you may also be required to pay a copayment and/or coinsurance. Employers often offer an HSA alongside these plans to help offset costs.
Health plans have specific terms for the people who use the plan and administer health care services. Knowing the differences can be important when it comes to using your insurance and getting care.
A subscriber is the person who is responsible for a contract with a health insurance plan. The subscriber is the person subscribing to the health insurance plan and is responsible for paying the plan premiums. The subscriber can enroll eligible dependents under a family contract.
An eligible individual, other than the subscriber (generally a spouse or child), who is covered for health care benefits under the subscriber’s policy. Employers may include other categories of covered dependents, see your employer group for qualifying dependent eligibility.
A health care professional or facility licensed as required by state law. Providers include doctors, hospitals, laboratories, pharmacies, skilled nursing facilities, nurse practitioners, registered nurses, physician assistants, psychiatrists, social workers, licensed marriage and family therapists, licensed mental health counselors, clinical specialists in psychiatric and mental health nursing, and others.
Primary Care Provider (PCP)
A health care professional qualified to provide general medical care for common health care problems who: supervises, coordinates, prescribes, or otherwise provides or recommends health care services; initiates referrals for specialist care; and maintains continuity of care within the scope of practice.
A specialist is a type of provider who has specialized knowledge of specific medical issues, conditions, areas, or functions of the body. A podiatrist—a doctor who treats the feet and ankles—is a type of specialist.
4. Types of care
Some health care services have no cost for members, while others will require cost sharing. Knowing the difference between these two terms will help determine when cost sharing is required.
Diagnostic care involves services that assess your symptoms with the goal of treating an existing problem. These services typically happen when you aren’t feeling well and visit your doctor to see what might be wrong, or get treatment for an existing condition. Examples of diagnostic tests can include: X-rays, MRIs, CT scans, bloodwork, pregnancy tests, and biopsies. Diagnostic services covered by your health plan may require cost sharing.
Preventive is a term for a very specific list of services. This list is defined by nationally established guidelines. These services typically look for or prevent health issues and are done before you are diagnosed with a condition, while you’re healthy and show no symptoms. Health plans cover preventive services at no cost with an in-network provider. Preventive care can include screenings, lab tests, immunizations, and patient counseling.
5. Savings account types
Some health insurance plans are offered alongside savings accounts that alleviate the high cost of medical care and provide tax advantages to both employers and employees. Some employers may offer these accounts through their preferred vendors. Here are the 3 most common types.
Flexible Spending Account (FSA)
Also known as a Flexible Spending Arrangement, this is a pre-tax account you put money into to pay for certain eligible medical, dental, vision and hearing expenses not covered by the medical plan for you, your spouse if you’re married, and your dependents. These funds typically do not carry over into the next plan year. There are varying types of FSA accounts, the most common types are Health FSA, Dependent Care FSA, and Limited Purpose FSA.
Health Reimbursement Account (HRA)
Also known as a Health Reimbursement Arrangement is an employer-sponsored and employer-funded arrangement from which employees are reimbursed tax-free for qualified medical expenses that are not covered by the employer-sponsored health plan such as deductibles and coinsurance up to a fixed dollar amount per year. Employers may allow unused amounts to be rolled over in subsequent years.
Health Savings Account (HSA)
A Health Savings Account (HSA) is a medical savings account fund you can establish to pay for out-of-pocket medical expenses with pre-tax dollars if you are enrolled in a qualified High Deductible Health Plan (HDHP). An HSA account is owned by the individual account holder.
6. Other helpful terms
Some other important terms to know include:
This is the group of doctors, facilities, vendors, and other health care service providers an insurance company has contracted with to provide covered health care services. Providers who are “in-network” participate in the plan. Providers who are “out-of-network” do not participate in the plan.
Prior Authorization (Preauthorization)
Approval from a health plan that may be required before you get a service or fill a prescription in order for the service or prescription to be covered by your plan.
A written order from your primary care provider for you to see a specialist or get certain health care services. In many HMOs, you need to get a referral before you can get health care services from anyone except your primary care provider. If you don’t get a referral first, the plan may not pay for the services.
For more helpful health care terms and definitions, visit the glossary at healthcare.gov.