What's your health insurance IQ?: Know the lingo

March 2, 2017

Sometimes, health insurance policies feel like they're written in a foreign language. You read them and wonder, "What in the world does that mean?"iStock-516215772.jpg

Understanding basic medical insurance terms is important—especially if you're shopping for a new policy. That knowledge can help you pick the plan that best fits your needs and may save you money.

Healthcare.gov also provides plain-language definitions of many health insurance terms. You'll find a list of terms at www.healthcare.gov/glossary.

You can also read definitions of some basic terms below.

Premium. The monthly amount you pay for insurance.

Coverage. The health services your plan will pay for.

Deductible. The amount you're required to pay for medical care each year before your insurance begins to pay. If you have a deductible of $1,000, you'll pay $1,000 out of pocket for covered health services before your insurance pays anything. The deductible may not apply to all services.

Co-pay. This is short for co-payment. It's a set dollar amount ($15, for example) you pay each time you see a provider, get a prescription or use another covered health service. Your co-pay can vary, depending on your plan and the type of service you get. Your insurance company pays the rest of the bill, up to the amount allowed by your plan.

Allowed amount. The most your plan will pay for certain health care services. If your health care provider charges more than your insurance will pay, you may have to pay the difference.

Co-insurance. The percentage of the cost of a service that you must pay after you've met your deductible. A common co-insurance ratio is 80-to-20. In other words, insurance pays 80 percent of the allowed amount for the service and you pay 20 percent.

Formulary. A list of prescription drugs that your health plan or prescription plan will cover. It's also called a drug list.

In-network/out-of-network. Providers—hospitals, doctors, specialists and therapists, for example—who accept your health insurance are called in-network providers. Ones that don't are called out-of-network providers. It typically costs you more to see out-of-network providers, so check carefully to see if the health care providers you use or are considering using are in-network or out-of-network.

Sources: AARP; Centers for Medicare & Medicaid Services

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