Health Insurance Glossary: 40 Terms Decoded in Plain English

Actuarial Value

The percentage of total covered medical costs a plan pays on average across all enrollees. A plan with 70% actuarial value pays roughly 70 cents of every covered dollar; you pay the rest through deductibles, copays, and coinsurance.

Allowed Amount

The maximum a plan will pay for a covered service, also called the negotiated rate or eligible expense. If a provider charges more than the allowed amount and is out-of-network, you may owe the difference.

Balance Billing

When an out-of-network provider bills you for the gap between their charge and your plan's allowed amount. Federal and some state laws now limit balance billing in many situations.

Benefit Period

The span of time during which coverage counts toward your deductible and out-of-pocket maximum — typically a calendar year. Once the period resets, your accumulations start over.

Coinsurance

Your share of costs for a covered service after you've met your deductible, expressed as a percentage. If your plan has 20% coinsurance and a covered service costs $200, you pay $40 and the plan pays $160.

Copay (Copayment)

A fixed dollar amount you pay for a specific covered service at the time of care — for example, $30 for a primary care visit. Copays may or may not count toward your deductible, depending on the plan.

Deductible

The amount you pay out of pocket for covered services before your insurance begins sharing costs. If your deductible is $1,500, you pay the first $1,500 of covered expenses each benefit period.

EOB (Explanation of Benefits)

A statement from your insurer — not a bill — showing what was billed, what the plan paid, and what you owe after a claim. Review EOBs carefully to catch billing errors.

Formulary

Your health plan's list of covered prescription drugs, organized into tiers that determine your cost. Drugs not on the formulary are typically not covered or require a prior authorization exception.

Grandfathered Plan

A health plan that existed before the Affordable Care Act's enactment and has not changed significantly since. These plans are exempt from some ACA requirements but must still meet others.

In-Network

Providers or facilities that have a contract with your health plan and agree to negotiated rates. Using in-network care generally costs you less than going out-of-network.

Out-of-Pocket Maximum

The most you'll pay for covered services in a benefit period. After you hit this cap, your plan pays 100% of covered costs for the rest of that period. Premiums do not count toward the out-of-pocket maximum.

Premium

The fixed monthly amount you pay to maintain your health insurance coverage, regardless of whether you use any services that month. Employer-sponsored plans often split this cost between employer and employee.

Prior Authorization

Advance approval required from your insurer before you receive certain services, procedures, or medications. Without it, the plan may deny or reduce payment even for otherwise covered care.

Utilization Review

A process insurers use to evaluate whether a proposed or ongoing course of treatment is medically necessary and appropriate. It can occur before (prior authorization), during (concurrent review), or after care (retrospective review).