10 Health Insurance Terms You Must Know Before Choosing a Plan

Category: Health Insurance Originally Posted: April 17, 2015 by Colleen McGuire Last modified: September 12, 2016

Researching terminology and phrasing used to summarize a health insurance policy can be adverse, especially when shopping for health insurance for the first time. What is meant to be a simple outline of healthcare coverage is typically the opposite.

Here are 10 essential health insurance terms you should understand before buying a health insurance plan:

Plan Details

When running a free health insurance quote, many websites provide charts of information regarding what the healthcare plan covers. Some of the terms listed below are outlined in Plan Details, which can be a PDF download or another page of information on a website. Plan Details is a summary of the larger health insurance certificate that explains what benefits the health insurance company will cover in the event you use medical services or care. Always review Plan Details for any health insurance plan you are interested in, and if you would like to save the information to compare plans side by side, print the Plan Details for future review.


Premium is usually the first thing individuals look at when comparing health insurance plans. This is the amount paid to the health insurance company to keep healthcare coverage active. Hence, the monthly cost of a healthcare plan is also known as a premium or monthly premium.


The deductible is the total amount you will owe out of your pocket for medical care and services before your health insurance company begins to pay the bills. For example, if your deductible is $3,000, your plan won’t pay anything until you’ve already paid for $3,000 of covered medical services from your own bank account. The deductible may not apply to all services, and these services are outlined in either the Plan Details or your health insurance certificate. Of note, if you visit a doctor for qualified preventive services, those medical expenses are covered at 100% and you will not need to pay anything out of pocket.


Many healthcare plans include coinsurance for specific medical services. It means exactly what you think it might – you have to share the costs of medical care with your health insurance company. The cost is calculated as a percent (for example, 80%) of the allowed amount for the service. You are responsible for your coinsurance share. In our example, you would have to pay the remaining 20% of the medical bill plus any remaining deductible you owe. Another example: If the health insurance company’s allowed amount for an office visit is $100 and you’ve met your deductible, your coinsurance payment of 20% would be $20. The health insurance plan pays the rest of the amount. Another term for coinsurance is “coverage level.”


A copay or copayment is a fixed amount you are required to pay for a covered healthcare service, usually the same day you receive the service. The amount can vary by the type of covered healthcare service. For example, visiting a doctor in-network may require a $30 copay. However, this is still less than paying a higher amount for a doctor out-of-network.


You health insurance company contracts with a large network of doctors, hospitals and clinics that creates an in-network system. These contracted doctors and facilities agree to accept special rates for procedures and services. Knowing the price of contracted medical services helps the insurance company control their costs, and helps them price their health insurance rates. Plus, health insurance policyholders are given better pricing when they visit in-network doctors.


If you receive medical services outside of your in-network approved doctor or hospital facility, you will likely pay more for this out-of-network care. Medical providers outside of your network have not agreed to a set rate with your insurance company so the cost will be higher. Your health insurance plan will also require higher deductibles, coinsurance and copays. Many times the cost is double of what your in-network costs are. Some healthcare plans do not cover out-of network charges at all, so pay close attention to both in-network and out-of-network availability when shopping for a health insurance plan.

Tax penalty

If you can afford to purchase health insurance but choose not to buy it for various reasons, you must either have a healthcare coverage exemption that is granted by the federal government or pay a fine on your income taxes for not carrying health insurance coverage. The fine or fee is also referred to as an “individual responsibility payment” or “individual mandate.” In 2016 the fine increased to $695 per adult ($347.50 per child) or 2.5% of your income.

Tax subsidy

A tax subsidy is a form of financial assistance you can receive from the federal government to help pay for your health insurance costs. The amount of money you receive is based on your total income reported to the Internal Revenue Service (IRS) for the given year. Health insurance subsidies are also known as the Advance Premium Tax Credit. When calculating your Obamacare tax subsidy, be sure to include all members of the household that are claimed as dependents as well as all income that will be reported to the IRS. It’s important to make sure your calculations are correct. If you miscalculate your income or have an increase in income after applying for your tax subsidy, you could be subject to repaying the amount of subsidy granted at tax time.

Drug Formulary

If you take many medications or specialty medications, it’s important to review the health insurance plan’s drug formulary. A drug formulary (or drug list) contains a list of prescription drugs covered by the drug plan or another insurance plan offering prescription drug benefits.