Common Health Insurance Terms & Definitions

By Diana Kelly Levey. May 25, 2023 · 5 minute read

This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

Common Health Insurance Terms & Definitions

When shopping for a new health insurance policy — or when your employer introduces a new health plan — you might wonder what certain health insurance terms mean.

In this guide, you’ll discover health insurance terminology for beginners and anyone who’s ever been confused about a policy, so you can make informed decisions.

Top Health Insurance Terms to Know

Discover the health insurance definitions that can help you better utilize health insurance for you and your family.

Accident-Only Policies

These policies pay only in cases that were due to an accident or injury.

Benefits

These are the health care services covered by the insurance plan for an individual. Your health benefits might also be called a “benefits package.”

Claim

An itemized bill that shows all of the services and procedures that were provided to the member.

Coinsurance

This refers to the percentage of the medical charge you must pay out of your own pocket after meeting your deductible. The rest will be paid by your health insurance company. If you have a 15% coinsurance plan, you would pay 15% of each medical bill (after paying the full deductible), and the insurer would cover the rest.

Contract

In most cases, this means the insurance policy, which is a contract between the insurance company and the policyholder.

Copayment

The amount you pay out of pocket when you receive medical care or a prescription drug. A copayment is typically paid in person at the doctor’s office.

Deductible

This refers to the amount you must pay out of pocket before your insurance starts paying some of your health care expenses. The deductible resets at the beginning of the year or when you enroll in a new health insurance plan.

If your deductible is $2,000, your health insurance plan won’t cover any services until you have paid $2,000 out of pocket for the year. Someone with a high deductible and lots of medical costs could consider getting help in the form of medical loans, which are personal loans for medical and dental procedures.

Disability Benefits

If you are unable to work because of an illness or injury, the insurance company pays for lost wages. You’ll receive a portion of your income until you are able to return to work. Each policy defines what constitutes a “disability,” so you’ll need to meet those requirements and submit medical paperwork before receiving payment.

Health Insurance

Health insurance terminology 101: This is a contract that requires your health insurer to pay some or all of your health care costs in exchange for a premium.

Health Maintenance Organization (HMO)

An HMO is a health plan that provides health care services to members through a network of doctors, hospitals, and other health care providers.

HMOs are popular alternatives to traditional health care plans because they usually have lower-cost premiums while still offering a variety of services.

Health Savings Account (HSA)

This is pretax money you set aside to pay for qualified medical expenses. You and your employer may contribute.

HSA funds roll over if you don’t spend them by the end of the year.

Indemnity Plan

Sometimes referred to as a fee-for-service plan, an indemnity plan allows you to go to any physician or provider you want, but requires that you pay for the services yourself and file claims in order to get reimbursed.

Mandated Benefits

This refers to the health care benefits that state or federal law say must be included in health care plans. Mandated health insurance benefit laws may require plans to cover substance abuse treatment or maternity services; cover treatment by providers like chiropractors, acupuncturists, and midwives; or include dependents and domestic partners.

Out-of-Pocket Maximum

This is the most you’ll pay for expenses covered by the plan in a calendar year. If you reach your deductible, insurance will begin paying some expenses covered by the plan. If you hit your out-of-pocket maximum, insurance will pay all expenses covered by the plan. (Monthly premiums don’t count toward your out-of-pocket maximum or deductible.)

Out-of-Network Services

This is when you seek out services from providers who aren’t in your HMO’s or PPO’s network. Usually, HMOs will only pay for care received within its network. If you’re in a PPO plan, you will have to pay more to receive services outside the PPO’s network.

Preexisting Condition

This health insurance term refers to a medical problem or illness you had before applying for health care coverage. If you have a preexisting condition, it’s a good idea to shop around and educate yourself when choosing an individual health plan.

Preferred Provider

This refers to a provider who has a contract with your health plan to provide services to you at a discount. If you have a favorite doctor, you might want to see if they are a preferred provider or “in network” for any new insurance plan.

When you’re looking to find a new physician, choosing a “preferred provider” found via the plan’s website will help keep medical costs down.

Your health insurance or plan may have preferred providers who are also “participating” providers. Participating providers can also have a contract in place with your health insurer, but you may have to pay more.

Preferred Provider Organization (PPO)

PPO plans provide more flexibility than HMOs when choosing a doctor or hospital. They also feature a provider network, but have fewer restrictions on seeing out-of-network providers.

PPO insurance will pay if you see a provider out of the network, though it may be at a lower rate.

PPO plans usually cost more than HMO plans.

Premium

This is the amount paid to the insurance company to obtain or maintain an insurance policy. Usually it’s a monthly fee.

Provider Network

This is a list of all the doctors, specialists, hospitals, and other providers who agree to provide medical care to the members of an HMO or PPO.

Waiting Period

This is the time an employer may make employees wait before they are eligible for coverage under the company’s insurance plan.

The Takeaway

Do you know your HMO from your PPO and HSA? Have you looked closely at copays, deductibles, and out-of-pocket maximums? Knowing health insurance terms can help you make an informed decision when looking at health insurance policies.

Speaking of insurance, check out a variety of insurance offerings at SoFi Protect, bringing you fast, easy, and reliable insurance.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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