Looking over an employer-provided insurance plan summary can often feel like you’re reading something in another language. In all fairness, you sort of are. Those summaries, which are supposed to be easy for anyone to understand, are full of industry terms almost meaningless to the general public. The problem is, as confusing as they are, all of those terms are important, and you don’t want to find yourself getting a crash course in what they mean as you’re sitting in an ER and a hospital billing staff member is asking you to pay your $400 copay before they proceed to treat you.

While having a general understanding of your insurance benefits is essential in emergencies, it’s also crucial in less extreme circumstances, from your child’s yearly well visit to your dental cleaning to your pre and post-natal care. If your employer offers multiple plan options or can use your partner’s insurance, understanding the terminology and how it will impact your life can help you make the best financial decision. Also, it may not be as simple as choosing whichever plan costs less.

Health Insurance Terminology 101
First and foremost, to understand the benefits, you need to translate the industry jargon into a language you can understand. Here are some common words or phrases you’ll come across when you’re evaluating your benefits, and a brief explanation for what they mean:

Premium: How much it costs you to simply have insurance (often, this is taken directly from your paycheck if you’re on an employer-provided plan). Typically, plans with lower deductibles have higher premiums.

Deductible: Flat amount of money that you have to pay out of pocket before your insurance company starts paying their portion of your medical bills. There are usually parameters around which payments are applied to your deductible, which is important to look for when evaluating your plan

Example: If you are on an 80/20 plan (where your insurance pays 80% of the cost of your medical bills and you are only responsible for 20%) and you have a deductible of $500, that means you have to pay $500 out of pocket before your insurance company will start covering 80% of your bills.

Co-Insurance: The portion of a medical bill that is your responsibility after you’ve met your deductible and your insurance provider starts covering the cost of services.

Example: If you are on an 80/20 plan, your insurance covers 80% of the bill and your co-insurance is 20% of the bill.

Out-of-Pocket Maximum: This is the maximum amount of money you will have to spend on healthcare services in a given year. Typically every dollar you spend on your medical bills for services covered by your insurance provider is applied to this number (unlike your deductible).

Co-Pay: A predetermined flat amount that you will pay for specific appointments and services. This amount can vary based on appointment type/provider. The amount you spend on co-pays is often applied to your Out-of-Pocket Maximum limit, but not towards your deductible.

Covered Services: The costs your insurance provider will pay.

Example: A dermatologist appointment to check for skin cancer might be a covered service, but a dermatologist appointment for cosmetic Botox likely is not.

Pre-Authorization: You or your healthcare provider have to call your insurance company for authorization (permission) before certain services, medications, or treatments are administered/prescribed for your insurance provider to cover the cost.

In-Network: Healthcare providers, hospitals, groups, etc., that your insurance company has a contract with are considered “In-Network,” and the amount you have to pay to see them is typically significantly lower than if you were to have the same appointment/procedure out-of-network.

Out-of-Network: Healthcare providers, hospitals, groups, etc., that your insurance company does not have a contract with. You will have to pay more for these services, and the amount you pay is applied to a separate “out-of-network deductible” and “out-of-network out-of-pocket maximum”.

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