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Decoding Health Insurance Terms

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Health insurance terms can sometimes seem like a whole different language. But it’s important to understand what they mean — because when you’re using your benefits, you want to make sure you know what you’re paying for.

To help decode what these terms mean, let’s examine a few scenarios. Find your health plan below, and see how it works when you use your benefits.

A Mini Health Insurance Cheat Sheet

No matter what kind of health plan you have, the terms “providers,” “in network,” and “out of network” are important to know.

When you need health care services, the first person you may think of is a doctor. Insurance companies refer to doctors, nurses, and hospitals as providers. This word represents any health care professional or facility.

All health insurance companies have a system of providers with whom they have a contract to deliver services to their members. Contracted providers are considered to be in network. Providers who don’t have a contract with the insurance company are called out-of-network providers.

If You Have an HMO

Let’s look at an HMO example.

Sofia is 51 and has a health maintenance organization (HMO) plan, which required her to select a family doctor when she enrolled. This doctor is called a primary care physician (PCP). With an HMO, a PCP is an in-network provider who coordinates all your care — from preventive care, immunizations, and preventive cancer screenings to sudden illnesses.

When Sofia saw her PCP for her annual checkup, her doctor thought Sofia’s blood pressure was too high and recommended that she see a cardiologist. Since Sofia has an HMO, her doctor issued her an electronic referral, which is an official recommendation to see a specialist.

Sofia then visited the cardiologist’s office, and she paid a copay, which is a flat fee you pay when you see a doctor or receive other medical services. Your copay amount will depend on your plan.

Sofia’s cardiologist determined she needs to start taking blood pressure medication. However, this prescription requires something called prior authorization, which means she needs to get approval from her health plan before she receives the medication. Precertification (typically used for medical services) also applies to certain tests and procedures. You may also see this called “preapproval” or “prior authorization,” but don’t worry, all these terms mean the same thing.

If You Have a PPO

Here’s another scenario, this time involving a different type of health plan.

Tony is 32 and has a preferred provider organization (PPO) plan. He could still choose a PCP, but he may use doctors who are either in or out of network without needing a referral.

Tony’s an avid runner, but lately, he’s been experiencing pain in his left foot and wants to see a podiatrist. Tony has the option of choosing an in-network doctor — and that would mean he’d only have to pay a copay.

But Tony chose a doctor who is out of network which, according to his benefits, means his plan will only cover 60 percent of his visit. Tony will be responsible for paying 40 percent of the total cost of seeing that specialist. That 40 percent is called coinsurance, a percentage you pay for covered medical services.

As it turns out, Tony has a stress fracture and needs crutches to help him get around. His plan covers crutches, wheelchairs, and canes under its durable medical equipment (DME) benefit. Coinsurance typically applies to DME, too.

A Combination of Two Different Plans: EPO

Here’s a different situation.

Bruce just left his full-time job to start his own business. He is beginning the process to shop for health insurance, but he’s having trouble deciding which plan to choose.

His PCP is in network already, so he is considering selecting an HMO. However, he doesn’t want to have to obtain a referral every time he may need to see a specialist, so he is also considering a PPO.

He ultimately decides to get an exclusive provider organization (EPO) plan. With an EPO, Bruce can designate his current PCP who is already in the network, and he can also see specialists without a referral. However, it’s important that Bruce use in-network providers — because out-of-network services are only covered in the case of an emergency.

If You Have an HDHP

This last scenario runs through a different type of health plan.

Taylor is 26 and just purchased her first health insurance plan. She chose a high-deductible health plan (HDHP) because she’s generally healthy and wanted to pay a lower monthly premium.

If Taylor receives medical services, her insurance won’t kick in until she reaches a deductible, which is an amount you have to pay each year before your health plan starts paying for services. Her plan has a $2,500 deductible, and she will have to pay 20 percent of costs after she meets her deductible.

Her annual spending is capped to limit how much she has to pay for covered services each year, not including any monthly premium contribution/payment. This is called the out-of-pocket maximum, and with Taylor’s plan, it is $6,000.

One day, Taylor started experiencing severe stomach pains. She went directly to the ER and was admitted to the hospital with appendicitis. Taylor is responsible for the cost of her emergency surgery, her two-night hospital stay, and 20 percent of any additional cost for services up to her $2,500 deductible. Taylor’s out-of-pocket costs (the amount of money she pays for care) will not exceed her out-of-pocket maximum of $6,000 in her plan year.

But one of the tests they ran on Taylor while she was in the hospital isn’t covered under her plan, and she may have to pay for it. However, she has the right to appeal that decision, which means she can ask the health insurer to reconsider the decision.

For more help with health insurance terms, visit our Common Health Insurance Terms page.

Note: These examples are illustrative only and not intended to represent any particular plan benefits.