Glossary of Health Insurance Terms
Balance Billing – This is the difference between what your physician charges for a service and what your insurance company will pay for the service. This is especially important to pay attention to if you have a PPO or POS Plan and you choose a doctor outside of the plan’s network. This is also of concern if you have indemnity health insurance — also called a “Fee-For-Service” plan.
Brand name drugs – These are name brand prescription drugs marketed by pharmaceutical companies. Many have a ten year patent (or longer) which protects them against competition from generic drugs. The price of these drugs is usually two to ten times the cost of their generic equivalents. You may sometimes see the term “brand name drugs” abbreviated as “brand name Rx.”
Co-insurance – Usually refers to the percent of medical expenses that you share with the insurance carrier. For example, after you satisfy the annual deductible, you may still have to pay 30% of your medical costs. Once you reach the out-of-pocket-maximum the insurance company pays 100%.
Co-Pay – Usually refers to the amount that you pay for a doctor office visit, prescription drugs and sometimes a fixed amount for hospital admissions. In most cases co-pays are exempt from deductibles.
Deductible – A deductible is the annual amount that must be paid out of your pocket before the insurance company starts picking up the bill. Similar to the deductible on auto insurance.
Family Maximum – Usually refers to a maximum of 2 deductibles or a maximum of 2 out of pocket maximums for a family. It means that if 2 members of a family have both satisfied the deductible (or the out-of-pocket maximum for the year), then no other member of that family would need to pay toward the deductible or out of pocket maximum again.
Generic drugs – These drugs are required by FDA regulations to contain the same active ingredients as brand name drugs. The only difference may be the inactive ingredients such as flour-based versus wheat-based tablets. Sometimes patients with allergies to wheat or some other ingredient may need to choose one or the other. The cost of generic drugs are in most cases half to one-tenth the cost of brand name drugs. New drugs are usually introduced in brand name form and are protected by a patent against generic drug competition. The patent for brand name drugs expires in 10 years or more. You may sometimes see the term “generic drugs” abbreviated as “generic Rx.”
Lifetime maximum – The maximum amount that your insurance plan will pay out on your behalf during your lifetime.
Maximum out-of-pocket (OOP) – The maximum amount that you are responsible for paying toward health expenses in a year. Most insurance plans limit your out-of-pocket to a few thousand dollars — even if you incur millions in medical expenses. Note: some carriers include the annual deductible in the maximum out of pocket, but some do not. And remember, this maximum usually only applies to services from in-network providers.
Negotiated Rate – The discounted rates that health plans have negotiated with doctors, hospitals and other providers in their networks. These discounts are usually very significant. Doctor’s office charges may be as little as one-half or a one-third of their walk-in rates. Hospital charges may be as little as one-half to one-tenth of posted rates.
Over-the-counter drugs – These drugs do not require a doctor’s prescription, and may be purchased off the shelf at a drug store. These drugs are deemed to be safe enough to be self-prescribed by consumers without a doctor's permission. Typically, the costs of these drugs are much lower than prescription drugs. Health plans usually do not pay for over-the-counter drugs. However, over-the-counter drugs save you time and money by not requiring a doctor's office visit to receive the drug. You may see the term “over-the-counter” abbreviated as “OTC.”
Premium – Your premium is the monthly amount that you pay to the health insurance carrier (such as Blue Cross) to keep covered. Similarly, you pay your auto insurance company a monthly premium to keep your car covered.
To learn more, read our health insurance, group health, and life insurance glossaries.