Common Health Insurance Terms Everyone Should Know

Building a better understanding of health insurance includes becoming familiar with common terms. From premiums to provider networks, being familiar with these concepts makes it easier to anticipate costs, choose the right coverage, and access necessary services.

The sections below explain key health insurance terms through questions people often ask when reviewing or using their coverage.

“When people understand health insurance terms, they may feel more confident comparing plans, estimating likely costs, and understanding what care providers and services are covered,” said Dr. Catherine Gaffigan, president of the Health Solutions division at Elevance Health. “This knowledge can help them seek care sooner, before small health concerns become bigger.” 
 

Understanding Medical Insurance Terminology Can Make Costs Clearer

Many common health insurance terms explain how costs are shared between a member and their health plan. Understanding these terms can make it easier to estimate costs, compare plan options, plan ahead for care, and make the best use of available benefits.

What is a health insurance premium?

A health insurance premium is the amount a member pays—typically each month—to maintain health coverage. Just like auto insurance, the monthly premium keeps the plan active. Even if an individual doesn’t receive care during a given month, the premium contributes to a broader pool of funds that helps pay for covered care when members need it.

What is a deductible?

A deductible is the annual amount a member pays for covered services before their health plan begins sharing the cost. For example, if a member has a $1,500 deductible, they pay the covered health costs that add up to $1,500 before the plan starts to pay. This is similar to auto insurance, where a driver pays a deductible before the insurance company covers damages from an accident.

What is a copay?

A copay is a fee that a member pays for each care provider visit, service, or prescription. Copay amounts may vary depending on the care provider type, prescription (brand name versus generic), or service.

What is coinsurance?

Coinsurance refers to the percentage of healthcare costs an individual pays after meeting a deductible. Using the $1,500 deductible example above, a member visits the dermatologist and the bill comes to $1,700. The member would pay the first $1,500, and then the insurance plan would cover the remaining $200. If the plan had coinsurance, the member would pay a percentage of the $200. For instance, if a plan includes 20% coinsurance, the health plan pays 80% of covered costs and the individual pays the remaining 20%. In this case, the member would also pay $40 (20% of $200).

Coinsurance can be confused with copayments. While both involve cost sharing, coinsurance is typically a percentage of the total service cost, and a copay is a fixed fee.

What is the difference between a deductible and an out-of-pocket maximum?

• A deductible is the annual amount paid before the plan begins sharing costs. Some health plans will cover routine preventive care even if their deductible is not yet met.
• The out-of-pocket maximum is the most the member will pay for covered services during a plan year. Once an individual reaches the out-of-pocket maximum, the health plan generally pays 100% of covered costs for the rest of the year.

What is a high-deductible health plan (HDHP)?

A high-deductible health plan (HDHP) usually has lower monthly premiums and higher out-of-pocket costs before coverage kicks in. This means members often pay less each month, but more when they use healthcare services.

HDHPs are often paired with a health savings account (HSA), which allows people to set aside pre-tax money for eligible medical expenses. Like other plans, most HDHPs cover preventive services such as annual checkups, screenings, and vaccines at no additional cost to the member, which can help people prioritize routine care even before they meet their deductible.
 

Understanding Additional Health Insurance Terms

These terms help explain the provider network included in a plan, which care providers are covered, and how network choices may affect what members pay.

What does “in network” mean?

When a doctor, hospital, or clinic is “in network,” it means they have a contract with a health plan to provide services. Seeing in-network care providers generally results in lower costs for members because the insurer has negotiated rates on behalf of members to ensure members receive higher quality care at a fair price.

What does “out of network” mean?

If a care provider is out of network, that care provider does not have a negotiated agreement with the health plan. In these cases, members who visit a care provider outside their plan’s network may pay higher costs—or the services may not be covered—depending on their plan. Understanding what “out of network” means can help people plan ahead, avoid unexpected bills, and make more informed choices about where to receive care. Provider networks also help health plans support quality standards across the care system and manage costs.

PPO vs. HMO: What’s the difference?

Two common types of health insurance plans are PPOs (Preferred Provider Organizations) and HMOs (Health Maintenance Organizations).

• PPO plans generally offer more flexibility. Members can often see specialists without referrals and their plan may pay some of the costs for out-of-network care providers.
• HMO plans typically require members to select a primary care physician and obtain referrals before seeing specialists. However, these plans often have lower premiums and more coordinated care structures.

Comparing PPO vs. HMO options helps consumers choose plans that align with their healthcare preferences.
 

Understanding Health Insurance Terms Can Support Better Decisions

Understanding health insurance terms can make it easier to navigate coverage, compare options, and make informed decisions about care. These terms don’t need to be memorized, but knowing what they mean can help people:

• Compare plan options during enrollment
• Estimate potential healthcare costs
• Understand which care providers and services are covered
• Prioritize preventive care and routine services that may be available at no additional cost

“When questions come up, a health plan can be a helpful resource,” said Beth Keyser, president, Commercial West Region, Elevance Health. “Elevance Health-affiliated plans offer members support through the number on their member ID card and through the Sydney Health app.”

Frequently Asked Questions

What are common health insurance terms everyone should know?

Common health insurance terms include premium, deductible, coinsurance, copay, out-of-pocket maximum, provider networks, and plan types such as PPOs and HMOs.

What is a copay?

A copay is a fee that a member pays for each care provider visit, service, or prescription. Copay amounts may vary depending on the care provider type, prescription (brand name versus generic), or service.

What is coinsurance in health insurance?

Coinsurance is the percentage of healthcare costs a member pays after meeting their deductible.

What does ‘in-network’ mean in health insurance?

In-network care providers have a contract in place with a health plan to provide services for the plan’s members. Insurers negotiate with care providers on behalf of members to ensure members receive higher quality care at a fair price. When a care provider is “out of network,” this means the care provider does not have an agreement in place with that member’s health plan.

What is a high-deductible health plan?

A high-deductible health plan (HDHP) is a type of coverage with a higher deductible and typically lower monthly premiums.