The words and phrases used to describe health insurance plans can be confusing to even the most savvy consumer. It practically takes a PhD in exotic languages to make sense of it all. The health insurance professionals at Wilshire Health Insurance have put together this glossary to help you better understand health insurance plan terminology and make better health insurance decisions.
The amount a consumer must pay out of pocket each year before a health insurance plan begins to cover medical expenses. Deductibles vary from company to company and plan to plan.
An amount—usually a percentage—of a total medical bill that the consumer must pay out of pocket. The balance of the bill is paid by the health insurance plan.
Most common with an HMO or PPO health insurance plan, a co-payment, or “co-pay”, is a flat fee that a health insurance plan member must pay for a medical service or prescription drug. The health insurance plan member must make the co-payment at the time medical service is rendered or the prescription medication is purchased. Co-payments are usually small; for example, the health insurance plan member might have to pay $15 for a visit to a doctor’s office.
Covered medical expenses:
The health care expenses paid for by the health insurance plan.
Flexible spending account (FSA):
A savings account that holds funds deposited by a consumer or the consumer’s employer for the express purpose of paying for medical expenses not covered by health insurance. The funds can be deposited before taxes—including federal and state income tax and Federal Insurance Contributions Act (Social Security and Medicare) tax—are deducted from earnings. In many cases, using pre-tax dollars nearly doubles the consumer’s buying power, since combined federal and state withholding taxes approach 50% of each dollar earned. Funds in an FSA account must be used within the benefit year, or else they will be lost.
Group health insurance:
Health care insurance purchased in bulk by a group of affiliated individuals. Most group health insurance is offered to employees by businesses to help attract and retain quality employees.
Health Maintenance Organization (HMO):
An HMO is an organization the delivers medical services to consumers through a network of affiliated health care providers, such as doctors, nurses, clinics, and laboratories. The health care providers in the HMO network are bound by contract to diagnose, screen, and treat patients in accordance with guidelines provided by the HMO. Consumers who enroll in such a health insurance plan must receive medical services from providers within the HMO network in order to have their medical expenses paid for by the health insurance plan.
Health savings account (HSA):
A savings account designed to hold funds to be used for medical expenses incurred before age 65, or for anything else after age 65. As with an FSA, funds can be deposited into an HSA account before withholding taxes are taken out, often doubling the account holder’s purchasing power, depending on the individual’s tax bracket. Unlike an FSA, the funds in an HSA can roll over from year to year. Prior to reaching age 65, the account holder must use the funds to pay for medical fees, medications, or medical supplies. Once the account holder reaches the age of 65, the funds can be withdrawn for any purpose at all. To qualify for an HSA, a consumer must enroll in a qualified High Deductible Health Plan (HDHP).
Indemnity health insurance:
Also known as fee-for-service insurance, indemnity health insurance pays a majority of medical expenses—usually 80 percent—at the time the service is rendered. The policyholder is responsible for paying the 20 percent of the medical bills. In addition, the health insurance company agrees to pay the “usual and customary” rates. If the health care provider charges more than the usual and customer rates, the indemnity health insurance policyholder must pay the difference.
Maximum out-of-pocket expenses:
The total amount of money in the form of deductibles, coinsurance, and co-payments that a health care insurance policyholder is required to pay toward medical expenses before his or her health insurance company assumes full responsibility for health care expenses.
Medical savings account (MSA):
Similar to an HSA or FSA, an MSA is designed to allow self-employed individuals and the employees of small businesses to deposit pre-tax dollars be used for medical expenses not covered by their health insurance plan.
A U.S. government program that provides health care insurance to qualified individuals—those with disabilities and those aged 65 and older. Funded with taxpayer dollars, Medicare consists of two health insurance plans: Part A and Part B. Medicare Part A pays for hospitalization, including skilled nursing facilities, critical access hospitals, hospice, and some home care. A qualified Medicare recipient does not have to pay a premium for Part A. Medicare Part B, covers essential medical services, such as doctor’s visits, outpatient care, physical therapy, and home care. Medicare recipients must pay a premium for Part B coverage.
The ability of a health insurance plan member to change health insurance plans without losing coverage due to pre-existing conditions.
Point of service health insurance plan (POS):
A managed care health insurance plan that incorporates elements of an HMO and a PPO, paying a greater share of medical expenses when the policyholder seeks medical attention from a network of health care professionals bound by contract to the health insurance company. As with an HMO, a POS policyholder chooses one physician to monitor care. This is the “point of service” physician. Point of service health insurance plan members can seek medical services outside the network, but they will pay a greater share of the expenses. They also are responsible for taking care of the health insurance paperwork, such as submitting bills and keeping receipts.
Preferred Provider Organization (PPO):
Similar to an HMO and POS, a PPO is a managed care health insurance organization that provides coverage through a network of health care professionals bound by contract to follow the organization’s guidelines for diagnosis, testing, and treatment. Unlike an HMO, a PPO will pay for services received from medical professionals outside the preferred provider network; however, the portion paid by the insurer is smaller when services are received outside the network.
A medical condition that has been diagnosed prior to purchasing a health insurance policy. Under California law, health insurance companies can delay or deny coverage to an individual for certain pre-existing conditions. However, members of a group health insurance plan cannot be denied coverage for pre-existing conditions.
Supplemental health insurance:
A health care insurance policy that covers only those medical expenses that are not paid for by a primary health insurance policy.