Your health insurance cheat sheet

Unless you work in the industry, many health insurance terms can seem like a different language.

It’s important to understand common health insurance terms so you know what you're paying for when you’re using your benefits. Consider this article your health insurance cheat sheet.

But instead of simply listing terms and definitions, let's go through a few scenarios. 

A Mini Health Insurance Cheat Sheet

No matter what health plan you have, you will see certain terms used.

When you need health care services, it all starts with a doctor. We call doctors and hospitals providers. This word represents any health care professional or facility.

Every health insurance company has their own network of providers with whom they contract to deliver services to their members. These contracted providers are considered in-network. Providers who do not have a contract with the insurance company are called out-of-network.

Certain covered services or prescription medications need to be approved by your health plan before they are covered. Precertification is an approval typically used for medical services and applies for certain tests and procedures. Prior authorization is an approval needed before you can fill a prescription medication at the pharmacy. You may also see these called “preapproval.”

If You Have an HMO Plan

Let’s run through a scenario.

Maggie is 51 years old and has a Health Maintenance Organization plan, or an HMO, which required her to select an in-network family doctor when she enrolled. This doctor is called a primary care physician (PCP). A PCP is a provider who coordinates all your care from preventive care (for example, flu shots and mammograms) to sudden illnesses.

Maggie saw her PCP for her annual check-up, but her doctor thought Maggie’s blood pressure was too high. He recommended that she see a cardiologist. Since Maggie has an HMO, her doctor issued her an electronic referral, which is an official recommendation that she see a specialist.

When Maggie visited the cardiologist, she paid a copay, which is a flat fee you pay when you see a doctor or receive other medical services. Your copay amount depends on your plan.

If You Have a PPO Plan

Here’s another scenario, but this time, for someone with a different type of health plan.

David is 32 years old and has a PPO plan or Preferred Provider Organization. It is still a good idea for him to choose a PCP, but he isn't required to tell the health plan who it is. He also has the flexibility to choose doctors from in- or out-of-network and doesn't need a referral from his PCP.

David’s an avid runner, but lately, he’s been experiencing pain in his foot and wants to see a podiatrist. David has the option of choosing an in-network doctor, and he would pay a copay.

But David chose a doctor who is out-of-network. For an out-of-network specialist, his benefits only cover 60% of the cost of his visit, so he’s responsible for paying the other 40% of the total cost — his out-of-pocket costs (the amount of money he pays for care). That 40% is called coinsurance, the percentage you pay for covered medical services.

As it turns out, David had a stress fracture and needed crutches to help him get around. His plan covers crutches, wheelchairs, and canes under the durable medical equipment (DME) benefit. Coinsurance is typically used to cover DME, too.

If You Have an EPO Plan

Here’s a different situation.

John just left his full-time job to start his own business, so he is deciding which health insurance plan to choose.

His PCP is in-network, so he considered picking an HMO. However, he wants to avoid getting referrals when he needs to see a specialist, so he also considered a PPO. But then he realizes there's another type of plan that combines features of these two plan types: an EPO plan, or Exclusive Provider Organization. 

With an EPO plan, John is only covered for in-network providers. Out-of-network services are only covered in the case of an emergency. But John can continue seeing his current in-network PCP, and he can also see specialists without needing a referral. 

If You Have an HDHP

This last scenario runs through a different health plan.

Sarah is 26 years old 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 Sarah receives medical services, her insurance won’t kick in until she reaches her deductible, which is the amount you pay each benefit year before your health plan starts paying for services. Her HDHP plan has a $2,500 deductible, and she will have to pay 20% of costs after she meets her deductible. Her plan also has an out-of-pocket maximum, which limits how much she has to pay for covered services each year. This limit does not include her monthly premium contribution/payment. Sarah's out-of-pocket maximum is $6,000.

One day, Sarah had severe stomach pains. She went to the emergency room and was admitted to the hospital with appendicitis. Sarah is responsible for the cost of her emergency surgery and two-night hospital stay, as well as 20% of any additional cost for services up to her $2,500 deductible. Sarah’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.

One of the tests they ran on Sarah while she was in the hospital wasn’t covered under her plan, so 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 helpful health insurance terms, visit our Health Insurance Basics page. 

Note: These examples are for illustration purposes only.