Let’s be honest… in the health insurance industry, there are a lot of confusing words. And when you don't understand terms like "deductible" or "copay," it's harder to make benefits decisions. Let’s change that.
This guide breaks down insurance terminology into three simple levels, starting with the essentials everyone needs to know, then building to more complex concepts.
Whether you're a pastor choosing benefits for your church staff or someone new to health insurance, this guide will help ensure you’re on the right track.
Want to skip the instructions? Dive into the terms here.
How to Use This Guide
Level 1 Terms: For Beginners
Need an overall grasp on the health insurance industry? Check out these 15 level 1 terms that will handle 80% of your insurance interactions.
Level 2 Terms: For Growing Confidence
Move to Level 2 when you're comfortable with the basics. These terms help you use your benefits more effectively and understand your options better.
Level 3 Terms: For Vocabulary Mastery
Level 3 terms are for when you want a comprehensive understanding or are dealing with complex healthcare situations.
Quick Reference Guide
Need to choose a plan? Focus on: Premium, Deductible, Out-of-pocket Maximum, HMO vs PPO, and Network Providers
Using your benefits? Focus on: Copay, Coinsurance, Prior Authorization, Referral, and Formulary
Understanding bills? Focus on: EOB, Allowed Amount, Claims, and Balance Billing
Having problems? Focus on: Appeals Process, Case Management, and Utilization Review
Level 1: Essential Insurance Terms
Master these fundamental terms first. These are the concepts you'll encounter most often and need to understand to make basic decisions about your healthcare.
The Money Terms
Premium - Regular payments you make to your insurance provider to maintain your coverage. Think of this as your monthly membership fee for having health insurance.
Deductible - The amount you pay for healthcare services before your health insurer begins to pay. Deductibles reset each year. Example: If your plan has a $2,000 annual deductible, you'll pay the first $2,000 toward your healthcare services. After reaching $2,000, your health insurer will start covering costs according to your plan terms.
Copayment (Copay) - A fixed amount you pay to a healthcare provider at the time you receive services. For example, you might pay a $20 copay for each doctor visit.
Coinsurance - A percentage you pay for healthcare services after you've met your deductible.
Out-of-Pocket Maximum - The most you'll pay for covered healthcare services in a year. After you reach this amount, your insurance covers 100% of covered services.
The People & Places
Provider (Healthcare Provider) - A doctor, hospital, pharmacy, or other licensed healthcare professional or facility.
Primary Care Provider (PCP) - Your main doctor who provides routine healthcare and coordinates your overall medical care.
Network Provider/In-Network Provider - Healthcare providers who have a contract with your insurance plan and offer services at discounted rates.
Non-Network Provider/Out-of-Network Provider - Healthcare providers who don't have a contract with your insurance plan. You'll typically pay more for their services.
The Basics of Coverage
Benefits - The healthcare services covered by your health insurance plan.
Covered Service - A healthcare service or medical supply that your health plan will pay for.
Claims - Requests for payment submitted to your insurance company for medical services you received.
Formulary - Your health plan's list of covered prescription drugs. Different drugs have different costs depending on which "tier" they're in.
Open Enrollment - The annual period when you can sign up for health insurance or make changes to your existing coverage.
Level 2: Intermediate Insurance Terminology
Once you're comfortable with Level 1, these terms will help you better understand how to use your benefits and navigate the healthcare system.
Plan Types & Features
HMO (Health Maintenance Organization) - A type of health plan where you choose a primary care doctor who coordinates all your care and provides referrals to specialists. Usually lower cost but less flexibility.
PPO (Preferred Provider Organization) - A more flexible health plan that lets you see any doctor without referrals, though you pay less for in-network providers.
EPO (Exclusive Provider Organization) - A hybrid plan that doesn't require referrals to see specialists but only covers in-network providers (except emergencies).
HSA (Health Savings Account) - A personal savings account for medical expenses that comes with tax benefits. Must be paired with a high-deductible health plan. This money rolls over from year to year and goes with you if you change jobs.
HRA (Health Reimbursement Account) - An employer-funded account that helps pay for your medical expenses.
FSA (Flexible Spending Account) - An account that lets you set aside pre-tax money for medical expenses, but you must use it within the plan year.
Getting Care & Approvals
Durable Medical Equipment (DME) - Medical equipment you can use at home for extended periods, like wheelchairs, oxygen tanks, or CPAP machines.
Emergency Medical Condition - A serious medical problem requiring immediate treatment where delays could put your health at serious risk.
Evidence of Coverage - The official document that explains exactly what your health plan covers, what it costs, and the rules you need to follow.
Referral - A written recommendation from your primary care provider for you to see a specialist. Required by some insurance plans.
Prior Authorization (PA) - Approval you must get from your insurance company before receiving certain medical services or prescription drugs.
Specialist - A doctor who focuses on a specific area of medicine, like heart conditions or skin problems.
Preventive Care - Healthcare services aimed at preventing illness, like annual checkups and screenings. Usually covered at 100%.
Urgent Care - Medical care for problems that need attention soon but aren't life-threatening emergencies.
Prescription Drug Terms
Step Therapy - A requirement to try a less expensive medication first before your insurance will cover a more expensive drug for the same condition.
Quantity Limits - Restrictions on how much of a medication you can get within a certain time period.
Tier/Drug Tiers - Categories for prescription drugs with different copay amounts:
- Tier 1: Generic drugs (lowest cost)
- Tier 2: Preferred brand-name drugs
- Tier 3: Non-preferred brand-name drugs
- Tier 4: Specialty drugs (highest cost)
Understanding Your Bills
Explanation of Benefits (EOB) - A statement from your insurance company showing how your medical claim was processed and what you owe.
Allowed Amount - The maximum amount your insurance plan will pay for a service.
Balance Billing - When an out-of-network provider bills you for the difference between their charge and what your insurance pays.
Out-of-Pocket Maximum - The most you'll pay between your deductible and coinsurance during your benefit period. Once you reach this limit, your insurance covers 100% of covered and approved services for the rest of the period.
Types of Care
Inpatient Services - Medical care received when you're admitted to a hospital and stay overnight.
Outpatient Services - Medical care that doesn't require an overnight hospital stay.
Enrollment & Life Changes
Qualifying Life Events - Major life changes (marriage, birth of a child, job loss) that let you change your health insurance outside of open enrollment.
Special Enrollment Period - Time outside open enrollment when you can sign up for or change health insurance due to qualifying life events.
COBRA - A law that lets you temporarily keep your employer's health insurance after leaving your job (you pay the full premium).
Waiting Period - The time you must wait after enrolling in a health plan before certain benefits become available.
Coverage Details
Benefit Period - The timeframe when your health plan provides coverage, usually one calendar year.
Medically Necessary - Healthcare services that are needed to diagnose or treat a medical condition and meet accepted standards of care.
Covered Charges - Medical expenses that your health plan agrees to pay for.
Non-covered Charges - Medical expenses that your health plan doesn't cover, like cosmetic surgery.
Appeals Process - How to challenge insurance company decisions about coverage or claims.
Primary/Secondary Insurance - How coverage works when you have more than one insurance plan.
Summary of Benefits - A shorter, easy-to-read document that highlights the key features of your health plan, like deductibles, copays, and covered services.
Level 3: Advanced Insurance Terms
These health insurance terms provide deeper insight into how health insurance works and help you navigate complex situations.
Financial & Administrative Concepts
Actuarial Value - The percentage of healthcare costs a plan covers on average. Bronze plans cover 60%, Silver 70%, Gold 80%, and Platinum 90%.
Medical Underwriting - The process insurance companies use to evaluate health risks when determining coverage and pricing (limited under current healthcare laws).
Risk Pool - A group of people whose medical costs are combined to calculate insurance premiums.
Coinsurance Limit (Maximum) - The most you'll pay in coinsurance costs during a benefit period.
Grace Period - Time after your premium is due when you can still pay without losing coverage.
Coverage & Legal Terms
Contract - The legal agreement between you and your insurance company that outlines your coverage.
Creditable Coverage - Previous health insurance coverage that counts toward reducing waiting periods for new coverage. Includes employer plans, Medicare, Medicaid, and military health plans.
Dependent Coverage - Health insurance coverage for your eligible family members.
Legal Guardian - The person legally responsible for a child's healthcare decisions.
Marketplace - The government website (Healthcare.gov) or state-run websites where individuals and small businesses can shop for, compare, and purchase health insurance plans. Also called the Health Insurance Exchange.
Care Management & Quality
Case Management - Coordination of healthcare services for people with complex medical conditions.
Utilization Review - A process insurance companies use to determine if medical treatments are necessary and appropriate.
Health Assessment - A survey that measures your current health status and risks.
Medical & Treatment Terms
Condition - An injury, illness, disease, or disorder requiring medical attention.
Medical Care - Medical services received to treat a health condition.
Experimental or Investigational Treatment - Medical treatments not yet approved by the FDA or not considered standard care.
Institution (Institutional) - A hospital or other qualified medical facility.
Prescription Drug Details
Prescription Drug - Medicine that requires a doctor's prescription due to federal or state law.
Provider & Network Details
Covered Person - Anyone who has coverage under a health insurance plan.
Billing & Payment Processing
Claims Processing - How insurance companies review and pay medical claims.
Plan Administration
Formulary Management - How insurance companies decide which drugs to cover and at what cost.
Network Management - How insurance companies contract with healthcare providers.
Quality & Safety
Patient Safety Programs - Insurance company programs designed to ensure safe, appropriate care.
Coordination of Benefits
Primary/Secondary Insurance - How coverage works when you have more than one insurance plan.
A Good Next Step
Now that you've got a solid foundation for health insurance terminology, it's a good time to take another step. Check out the RBA Chuch Health Insurance Assessment Tool. It will help you see how well your current plan is working for you and your church staff.