The Most Confusing Health Insurance Terms, Explained

Health insurance can be complicated, and most policies include confusing medical terms and industry jargon. In order to determine the right coverage for you and avoid overpaying on out-of-pocket costs, you need to understand what these terms and definitions actually mean.

Banner Health Network, part of Banner's Insurance Division, works with providers and insurers to maintain strong partnerships to provide high-quality care at the lowest cost to patients. Banner's mission is to make health care simpler and more approachable for patients through a broad network of insurance plans. Since your insurance company is knowledgeable about the specifics of your plan, it can talk you through your policy and explain any potentially confusing terms or definitions.

If you're looking for some general guidance on what those terms in your health care policy really mean, Healthcare.gov, a website managed and paid for by the U.S. Centers for Medicare & Medicaid Services, has a helpful glossary of common terms and their definitions. It's important to note that these terms might not have exactly the same meaning when used in your policy or plan.

With that said, here's an educational breakdown of some potentially confusing health insurance terms.

Allowed Amount

You may also see this called "eligible expense," "payment allowance" or "negotiated rate." Essentially, it's the maximum dollar amount that a plan will pay for a covered health care service. If you see a provider that charges more than this allowed amount, you may have to pay the difference.

Balance Billing

Balance billing, sometimes called extra billing, is when the provider charges you for the difference between their charge and the allowed amount. Per CMS, a preferred provider may not balance bill you for any covered services.

Co-insurance

Co-insurance is the percentage you pay of the allowed amount for a covered health service. You pay this amount in addition to any deductibles you still owe. For example, if your plan's allowed amount for an office visit is $100 and you've already met your deductible, your co-insurance payment for 20 percent would be $20. If you haven't yet met your deductible, you'd pay the full $100.

Deductible

Your deductible is the amount you owe for health care services before your health insurance or plan begins to pay. Once you've met this deductible, you typically only pay a copay or co-insurance for covered health care services.

Some services, like checkups or preventative visits, are covered in full by many health insurance providers even before you've met your deductible.

Excluded Services

Put simply, excluded services are health care services that your health insurance or plan doesn't pay for. Per First Quote Health, excluded services can be as a simple as a specific drug or as complicated as a type of surgery your plan will not cover.

Excluded services can vary widely from one plan to another, so it's important to read your plan documents carefully to understand what is covered under your plan. An explanation of benefits provides details about a medical insurance claim that has been processed and explains what portion was paid to the health care provider and what portion of the payment, if any, is the patient's responsibility.

You can also call the information number on your insurance card to ask any questions you might have about whether or not a service is covered and what your cost might be.

Out-of-pocket Limit

This is the maximum amount you pay during a policy period (usually a year) before your health insurance or plan begins to pay 100 percent of the allowed amount. This amount does not include your premium, balance-billed charges or charges for excluded services.

Per CMS, some plans don't count all of your co-payments, deductibles, co-insurance payments, out-of-network payments or other expenses toward this limit.

Preauthorization

Preauthorization, sometimes called prior authorization, pre-service authorization, prior approval or pre-certification, is a decision by your health insurer that a health care service, treatment plan, prescription drug or medical equipment is medically necessary. Your health insurance plan may require preauthorization for certain services before you can receive them, except in the event of an emergency.

Premium

Your premium is the amount that must be paid to keep your health insurance coverage in effect. Depending on your particular plan, your premium typically is paid by you and/or your employer monthly, quarterly or yearly.

Preferred Provider

A preferred provider is a physician, health care professional or health care facility that has a contract with your health insurer to provide services at a discount. Some plans have a "tiered" network that may require you to pay extra to see some participating providers. You'll pay more to see a non-preferred provider (or an out-of-network provider), and depending on your plan, certain out-of-network services may not be covered at all.

For a comprehensive glossary of health insurance terms and definitions, check out Healthcare.gov/glossary. If you qualify for Medicare, you'll find a wealth of information about what Medicare covers and how to sign up for plans at Medicare.gov.

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