Insurance letters and medical bills use words that are easy to misread. This page explains the ones that most often decide what you pay. Definitions are general. Your own plan documents are the final word on how a term applies to you.
Start with these five. If you only learn five terms, learn premium, deductible, coinsurance, out-of-pocket maximum and Explanation of Benefits. Together they explain most bills.
Costs you pay
Premium
The amount you pay, usually monthly, to keep your coverage active. You pay it whether or not you use any care. It does not count toward your deductible or your out-of-pocket maximum.
Deductible
The amount you pay for covered care each plan year before your plan starts paying its share. Some services, such as preventive care or visits with a flat copay, may be covered before you meet it. Most deductibles start over each plan year. See what to check before your deductible resets.
Copay (copayment)
A fixed dollar amount you pay for a covered service, such as $30 for an office visit. A copay usually covers the visit itself, not every test or supply connected to it.
Coinsurance
Your share of the cost of a covered service, stated as a percentage. With 20% coinsurance on a $1,000 allowed amount, you pay $200 and the plan pays $800, once your deductible is met.
Out-of-pocket maximum
The most you pay in a plan year for covered, in-network care. After you reach it, the plan pays 100% of covered in-network services for the rest of that year. Premiums and care the plan does not cover do not count toward it. More in the number that can cap your bills.
Allowed amount
The most your plan will recognize as the price of a covered service. With an in-network provider, this is the negotiated rate, and it is usually lower than the amount the provider first bills.
Facility fee
A separate charge for the use of a hospital-owned building or clinic, billed in addition to the doctor’s own fee. It can appear even for a routine office visit if the office is part of a hospital system.
Documents you receive
Explanation of Benefits (EOB)
A statement from your health plan showing how a claim was processed: what was billed, what the plan allowed and paid, and what it says you owe. It is not a bill. Compare it with the provider’s bill before you pay. See EOB vs. hospital bill.
Claim
A request for payment that a provider, or sometimes you, sends to the health plan after you receive care.
Itemized bill
A bill that lists every charge separately, usually with billing codes, instead of one total. You can ask the billing office for one. See how to request an itemized hospital bill.
Good faith estimate
A written estimate of expected charges that providers generally must give to people who are uninsured or not using insurance, when care is scheduled in advance or on request.
Networks and plan types
In-network
A provider or facility that has a contract with your plan and has agreed to its negotiated prices. In-network does not mean free. Your deductible, copays and coinsurance still apply. See why an in-network visit can still produce a bill.
Out-of-network
A provider with no contract with your plan. The plan may pay less or nothing, and outside of protected situations the provider may bill you for the difference.
Balance billing
When a provider bills you for the difference between its charge and the amount your plan allowed. Federal law restricts this for most emergency care and for certain out-of-network care at in-network facilities. See what balance billing is.
HMO, PPO, EPO, POS
Plan types that differ mainly in whether you need a referral to see a specialist and whether care outside the network is covered at all. See how to pick between them.
Approvals, drugs and appeals
Prior authorization
Approval your plan requires before it will pay for certain services or drugs. Also called preauthorization or precertification. See why your insurance has to approve it first.
Formulary
Your plan’s list of covered prescription drugs, usually sorted into tiers with different costs. A plan can change its formulary from year to year. See how drug tiers work.
Step therapy
A rule that asks you to try one or more lower-cost drugs before the plan will cover the one originally prescribed. Plans have an exception process. See how step therapy works.
Preventive care
Screenings, checkups and vaccines on a recommended list that most plans must cover at no cost to you when you use an in-network provider. Care for a specific symptom or problem is usually diagnostic, not preventive, and normal cost-sharing applies.
Appeal
A formal request asking your plan to reconsider a denial or a payment decision. Plans must explain how to appeal and by when. If the plan upholds its decision, many cases can go to an independent external review.
Accounts and enrollment
Flexible spending account (FSA)
An employer account funded with pre-tax pay for eligible health costs. Unused money is generally forfeited at the end of the plan year unless the plan offers a carryover or grace period. See how FSA deadlines work.
Health savings account (HSA)
A tax-advantaged account you own, available only with a qualifying high-deductible health plan. Unused money rolls over every year and stays with you if you change jobs.
Open enrollment
The yearly period when you can sign up for or change a health plan. Dates differ for employer plans, Marketplace plans and Medicare.
Special enrollment period
A window outside open enrollment when you can enroll or change plans because of a qualifying life event, such as losing other coverage, moving, marrying or having a baby.
COBRA
A federal law that lets many people keep their employer health plan for a limited time after leaving a job, usually by paying the full premium themselves.
Financial assistance (charity care)
A hospital program that reduces or forgives bills for patients who qualify, usually based on income. Nonprofit hospitals are required to have a written policy. See how hospital financial assistance works.
Medicare terms
Medicare Advantage (Part C)
A private plan that provides your Medicare Part A and Part B benefits, usually through a network, often with drug coverage included.
Part D
Medicare prescription drug coverage, offered through private plans.
Medigap (Medicare Supplement)
A private policy that helps pay costs Original Medicare leaves to you, such as deductibles and coinsurance. It cannot be combined with a Medicare Advantage plan.
Annual Notice of Change
The letter a Medicare Advantage or Part D plan sends each fall listing what will change in the coming year. See why the same plan can be different in January.
General information only. These definitions are simplified and are not legal, medical, tax or financial advice. For official definitions, see the HealthCare.gov glossary and Medicare.gov.