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10 minutes to understanding insurance terms

Decode health insurance jargon — in a jiffy

This article was last updated June 23, 2023.

It’s important to understand how your health insurance works, and to do that, you need to understand some important health insurance terms. Yet, few of us take the time.

If you’ve ever wished you could boil down your insurance coverage into a few basic health insurance terms, this list is for you.

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Take a few minutes to understand basic medical insurance terms

Don’t wait until you need your health insurance to understand it. Knowing what these terms mean and the amounts associated with them could save you time and confusion down the road.

  1. Premium

    Your health insurance premium is the amount you pay to have your health insurance plan, and is used to help fund medical care. You, and your employer if you're on an employer-sponsored plan, pay it on a regular basis — usually monthly, quarterly or yearly.

  2. Coinsurance

    Your share of the costs of a covered health care service, calculated as a percent (for example, 20 percent) of the allowed amount for the service. You pay coinsurance plus any deductibles you owe External Link. For example, if your health plan’s allowed amount for an office visit is $100 and you’ve met your deductible, your coinsurance payment of 20 percent would be $20. The health plan pays the rest of the allowed amount. (See deductible and allowed amount.)

  3. Copayment

    A fixed amount (for example, $15) you pay for a covered health care service, usually when you receive the service. The amount can vary by the type of covered health care received. For example, a copayment for routine care from a primary care provider (PCP) may be lower than the copay for care from a specialist.

  4. Deductible

    The amount you owe for health care services your plan covers before your health plan begins to pay. For example, if your deductible is $1,000, your plan won’t pay anything until you’ve met your $1,000 deductible. The deductible may not apply to all services. For example, almost all preventive exams are covered at no cost to you if you have health insurance — regardless if you've met your deductible or not.

  5. Out-of-pocket limit

    The most you pay during a policy period (usually a year) before your health plan begins to pay 100 percent of the allowed amount. This limit never includes your premium, balance-billing amounts or charges for health care your health plan doesn’t cover.

  6. Health insurance network

    A health insurance network is a group of doctors, specialists, facilities and other medical providers who have an agreement with Wellmark to provide health care services. Some common network types are:

    • HMO, which stands for health maintenance organization. This type of network gives you access to specific doctors and hospitals, and typically only covers out-of-network care in the event of an emergency.
    • PPO, which stands for preferred provider organization. This type of network offers broader access to care. Your costs will be lower if you stay in-network, but PPO network plans typically pay a portion of out-of-network care.
    • POS stands for point of service. These networks are a combination of HMO and PPOs.
    • EPO stands for exclusive provider organization. This type of network offers coverage for local services in the plan's network and geographic service area.

A little something extra: fully-insured vs. self-funded

Do you know if your health insurance plan is fully-insured or self-funded? Understanding these terms gives you a look behind the scenes of your plan.

With a fully-insured plan,  your health insurance company takes on the risk of your plan and pays claims based on your coverage. Self-funded plans are only available through an employer. Self-funding means that your employer assumes the risk for your health plan, so you pay your premiums to your employer and they pay claims according to your benefits. In this case, your health insurance company provides support like claims administration, customer service and access to a network of health care providers.

If you purchase a plan directly from a health insurance company, your plan is fully-insured. However, if you have coverage through an employer and are curious, ask your employer or log in to myWellmark to check your coverage manual Secure Site.

Then three more minutes to understand your medical bills

Knowing this terminology helps you take your understanding of health insurance terms a step further.

  1. Allowed amount

    Maximum amount that payment is based on for covered health care services. This may be called “eligible expense,” “payment allowance” or “negotiated rate.” If your provider charges more than the allowed amount, you may have to pay the difference. (See balance billing.)

  2. Balance billing

    Balance billing occurs when a provider bills you for the difference between his or her charge and the allowed amount (the amount negotiated by your health insurer). For example, if the provider’s charge is $100 and the allowed amount is $70, the provider may bill you for the remaining $30. A preferred provider cannot balance bill you for covered services. (See preferred provider.)

  3. Preauthorization

    This is a decision by your health insurer or plan that a health care service, treatment plan, prescription drug or durable medical equipment is medically necessary. It sometimes is called prior authorization, prior approval or precertification. Your health plan may require preauthorization for certain services Opens New Window before you receive them, except in an emergency. Preauthorization isn’t a promise your health plan will cover the cost.

  4. Preferred provider

    A preferred provider is a provider who has a contract with your health plan to provide services to you at a discount. Check your coverage manual Secure Site to see if it lists all preferred providers or if your health plan has a “tiered” network. In a tiered network, you may pay more or less, depending on the provider.

    Your health plan may also have preferred providers who are “participating” — or in-network — providers. If you're not able to see a preferred provider, you can see an in-network provider who also contracts with your health plan to save you money.

    • If you are on an HMO plan, you will want to see a provider within the Wellmark network to ensure your services are covered.
    • If you are on a PPO plan, you can see any provider you want. However, you will pay less if you see a provider in Wellmark's provider network. Out-of-network providers may bill you for the difference in their charge and what Wellmark pays, resulting in higher costs than you expected.

You’ve got 5 more minutes

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  • Estimate your cost of care for procedures and services before you go
  • View detailed claims information, including cost breakdown and status tracker
  • Track and organize your family's medical expenses
  • Receive electronic versions of your Explanation of Benefits (EOB)
  • Find a trusted provider in your plan's network
  • See relevant information related to your specific coverage

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