Know Your Health Insurance Terms
Whether it's choosing a doctor, insulin, medication or diabetes device, the better you know your health insurance terms, the better decisions you can make. Use this glossary whenever you navigate the healthcare system.
Health Insurance Glossary
Premium. A premium is a fixed amount you pay monthly to keep your health insurance active, just like paying rent. Employees typically pay about half of their monthly premium, and sometimes more.
Deductible. A deductible is the amount you pay out-of-pocket before your insurance provider covers medical bills. For example, if you have a $1,000 deductible, your insurance coverage will not start until you have paid $1,000 in health care costs for that year.
Copay. Copays are the fixed amount you pay for a health service or medication, while your insurer covers the rest of the costs. In some cases, a copay contributes to your deductible. Copays are a helpful way to pay for diabetes care, because they are fixed costs that people can plan in advance.
Coinsurance. A percentage of the total price of a health service or medication is coinsurance costs. For example, if your coinsurance is 20% and you have to get a medication costing $100, you would expect to pay $20, while your insurance would cover the other $80. These costs are less predictable because health care and medication prices can fluctuate.
Health maintenance organization (HMO). Health maintenance organizations have high premiums and low deductibles. A HMO plan covers health care within a network of hospitals and health professionals. Your providers must be in-network to get your diabetes care covered. If you have a fine team of diabetes care professionals in-network, this is often the most cost-effective healthcare option for people with diabetes, because you have a lower deductible, which means a lower out-of-pocket cost.
Preferred provider organization (PPO). PPOs are more flexible than HMOs because you can see providers outside the network and consult specialists without a referral. Due to this, PPOs typically have higher premiums and out-of-pocket costs than HMO plans.
High deductible health plan (HDHP). High deductible health plans typically have low monthly premiums and high deductibles. In 2020, the IRS defined HDHP as any plan with a deductible of at least $1,400 for a person and $2,800 for a family. These health plans are ideal for people who don't anticipate needing regular healthcare. Paying for diabetes care can be difficult with this type of plan, as you will have high upfront costs before you meet your deductible.
Flexible spending account (FSA) and health savings account (HSA). FSAs and HSAs are used to put aside money not taxed to cover medical costs. HSAs are often paired with high-deductible health plans. FSAs can be used for any type of health insurance, and all FSA funds must be used in the same calendar year. Learn more about FSAs and HSAs here.
Out-of-Pocket. Out-of-Pocket costs include your share of health care costs, including deductible, copay or coinsurance. These are the charges not covered by insurance.
Medicare. Medicare is a federal health insurance program for people 65 or older. And it's crazy overly complicated. There are two main options for getting Medicare. Medicare Original includes Medicare Part A (hospital insurance) and Part B (medical insurance). If you want drug coverage, you can sign up for a separate Medicare Drug Plan (Part D). Medicare Advantage (also known as Part C) is an all-in-one alternative to original Medicare. These "bundled" plans include Part A, Part B, and usually Part D. Most Medicare Advantage plans offer additional benefits that Original Medicare does not cover, like vision, hearing, dental care, and more. Your Medicare health plan decisions affect how much you pay for coverage, what services you get, what doctors you can use, and what quality of care you have.
Medicaid. Medicaid is also a government health insurance program, but for people and families below a certain income limit. The states run Medicaid – so coverage and access will vary depending on which state you live in.
Pharmacy Benefit Manager. PBM's are companies that process prescriptions for insurance companies and work in the middle of the distribution chain to negotiate deals and discounts with pharmacies and drug manufacturers. These companies also develop and maintain lists of formularies (approved drugs) on behalf of insurers.
Formulary. Every health insurance plan has a list called formulary. It describes what coverage the plan provides for all prescription drugs. Different levels of coverage are called tiers. Typically, lower levels mean lower out-of-pocket costs than higher levels, e.g. Tier 1 medications, usually generic drugs, have a lower out-of-pocket price than Tier 3 medications.
Non-Formulary. These drugs are not listed on your health insurance plans formulary and are not covered by your insurance.
Prior Authorization. A prior authorization, also known as a pre-authorization or pre-authorization, means your health care provider or device company must obtain specific approval from your health insurance company (to pay for it). The requirements for prior authorization vary between and within insurance plans. A prior authorization is intended to ensure that prescription drugs or devices come from the approved formulary, and only if medically necessary.
Medical Policy Guidelines. Insurance companies set these guidelines to determine whether a medical procedure is necessary.
Medical Review. This is the collection and review of medical records and related information to ensure that payment for a procedure or treatment is only made for those who meet all the requirements of your health plan, coding, billing and medical requirements.
Denial. When a medical claim has been received and processed by an insurance company, but marked as not payable, this is referred to as a claim denial. If a claim has been rejected, you may be able to appeal.
Appeal. Appeal means asking an insurance company to reconsider its decision to refuse to pay for therapy or treatment. There are two main types of appeals, an internal appeal or an external appeal.
That's a lot, isn't it? But valuable in navigating the US health-care system, which needs overhaul.