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10 minutes to understanding insurance terms

Decode the jargon — in a jiffy

This article was last updated on Nov. 23, 2020.

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 health insurance into a few basic definitions, this list is for you.

Take two minutes to understand basic 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. 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. 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.)

  2. 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.

  3. 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.

  4. 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.

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 Opens New Window.

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 policy Opens New Window to see if you can see 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 a participating provider who also contracts with your health plan, but the discount may not be as great, and you may have to pay more.

You’ve got 5 more minutes

Get registered for or log in to your myWellmark account Opens New Window.

With myWellmark, you’ll have access to helpful tools and resources to help you manage health care spending and live a healthier life. You can: 

  • 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

If you're not registered for myWellmark yet, it only takes a couple minutes. 

Take myWellmark on-the-go

Download the myWellmark mobile app Opens new window for easy access to your health plan no matter your location. With the app, you can find in-network doctors, hospitals and facilities, view and email your mobile ID card, plus much more.