Health insurance terminology: your ultimate health insurance jargon buster

Health insurance helps protect you and your family from high medical expenses should you become sick. However, choosing your health insurance can often involve sifting through a hefty amount of jargon.

Ensuring you understand what health insurance terminology means can help you make informed decisions about healthcare plans for you and your family.  

With so many types of healthcare plans – with crucial and potentially costly technical differences between them – it’s easy to become overwhelmed by all the jargon.  

Understanding your health insurance can help you avoid any costly additional expenses. 

Here are some of the most essential healthcare insurance vocabulary terms you need to understand: 

Health insurance glossary 

Allowed amount 

Your allowed amount is the maximum payment your healthcare plan offers for a service. You can be asked to pay the difference if you are charged more than your plan’s allowed amount for a service. 

The allowed amount can sometimes be called a “payment allowance,” “negotiated rate,” or “eligible expense.”  

Balance billing 

Balance billing means picking up the shortfall (if there is one) between your allowed amount and the cost of the healthcare service. 

For example, if your allowed amount is $150 and you need a healthcare service costing $200, the balance billing you will have to pay would be $50. 

Coinsurance 

Coinsurance is the amount you pay towards medical bills once you’ve paid your deductible. It’s given as a percentage of costs for a covered healthcare service. 

Let’s look at an example of coinsurance. Say you’ve paid your deductible and need to access a service costing $1,000 – your allowed amount. 

Then if your coinsurance is 20 percent, you’ll pay 20 percent of the bill (in this case, $200), and the health insurance will cover the rest. 

On the other hand, if you haven’t paid your deductible, you’ll have to cover the full allowed amount. 

When choosing a healthcare plan, making note of the coinsurance rate is a good idea to avoid any unexpected surprises if you need medical care. Generally, plans with higher monthly premiums will offer lower coinsurance.  

Copay 

The copayment is the amount you owe when you receive healthcare after you’ve paid your deductible. The amount of copayment will change depending on the service you’ve had. 

For example, you might have a copay of $20 for a GP appointment but $200 for a visit to the emergency room. If you haven’t paid your deductible, you can’t make a copayment and will have to pay the full amount for the service.  

Deductible 

The deductible is the amount you must pay each year before your healthcare insurance company pays its share.  

So, for example, if your deductible was $1,000, you will only need to pay the first $1,000 of any services you access – as long as the total cost of the service is within your plan's allowed amount. 

The deductible resets every year. 

Health Savings Account 

A health savings account (HSA) allows you to save money towards healthcare expenses before you are taxed on it. 

Contributions to your HSA can lower your overall tax bill; if you withdraw for medical bills, you won’t be taxed on it. For the 2023 tax year, you can put up to $3,850 into an HSA. 

High Deductible Health Plan 

A high deductible health plan (HDHP) means you pay a higher deductible. In exchange for paying more, your premiums (the amount you pay each month) will be lower. 

The IRS defines an HDHP as any plan with a deductible starting at $1,400 for an individual or $2,800 for a family. HDHPs can be popular amongst people who aren’t likely to need much medical care and want to keep their premiums as low as possible. 

Health Maintenance Organization (HMO) 

HMO plans are very specific about which medical providers are covered by the plan. If you see a physician outside the HMO plan, you may have to pick up a large bill, as your insurer won’t cover it. 

Out-of-pocket maximum 

The out-of-pocket maximum limits how much you can pay on your deductible, copay and coinsurance. After you spend this maximum, your health plan pays for any more essential care you may require.  

The out-of-pocket maximum does not include monthly premiums or the cost of services not covered by your plan. For 2023, the maximum an individual can pay is $9,100, and $18,200 for a family. 

Point of service (POS) 

POS plans allow you to pay less if you only use healthcare providers from the plan’s network. You’ll also need a referral from your primary physician to see a specialist. 

POS plans may sound similar to HMO plans, but POS tends to give you a greater choice of doctors. 

Premium 

A premium is the monthly payment you make towards your healthcare insurance plan. The entire cost of your plan is spread between the deductible, copay, coinsurance and premiums. All these together cannot exceed the out-of-pocket maximum. 

Preferred provider organization (PPO) 

PPO plans mean you may pay more if you use healthcare services outside your plan’s preferred services. Your insurer may still cover some of the costs, but you will likely have to pay more. You can keep costs down by sticking to healthcare providers approved by your plan.  

The bottom line 

When researching healthcare plans, multiple terms and phrases will pop up. Understanding these concepts should help you shop for a plan that suits you and your family. 

The best route to choosing your healthcare plan is to seek expert advice from a financial advisor. An expert will be able to take you through all the different options for healthcare plans, and they’ll help to explain the subtle differences between different plans. 

Find your perfect financial advisor with Unbiased today.