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Understanding Common Health Insurance Terms

Updated: 8/23/21 3:00 pmPublished: 8/23/21
By Arvind SommiMatthew GarzaCherise Shockley

Navigating health insurance can be tricky. We’ve compiled a list of the most common terms you might come across to minimize any confusion in the terminology.

Diabetes is a chronic condition that requires consistent management. Staying well informed about the healthcare system and your coverage can help you make sure you get the care you deserve while avoiding excessive costs. Learning all the lingo when talking about health insurance can help you better understand how to get affordable care and advocate for yourself.

“Learning about insurance takes time,” said diaTribe’s Community Manager, Cherise Shockley, “but the more an individual with diabetes understands, the better decisions they may make, whether it be choosing an endocrinologist, primary care provider, medicine, insulin, or diabetes device.”

We’ve compiled a list of common terms that come up when discussing health insurance. Use this glossary whenever you’re navigating the healthcare system or want a better explanation of a term you saw in our Access series.

Health Insurance Glossary

  • Premium – Similar to paying rent, a premium is a fixed amount that you pay every month to keep your health insurance active. It is common for employers to pay about half of your monthly premium, and sometimes more. In 2019, people with employer-sponsored health insurance paid an average of $1,242 a year on health insurance premiums.

  • Deductible – A deductible is the amount you pay out-of-pocket before your insurance provider covers medical expenses. For example, if you have a $1,000 deductible, your insurance coverage will not kick in until you’ve paid $1,000 in healthcare expenses for that year.

  • Copay – Copays are a fixed amount that you pay for a health service or medication, while your insurer covers the rest of the cost. In some cases, a copay contributes to your deductible. Copays are a helpful way to pay for diabetes care because they are fixed costs that people may be able to plan in advance. 

  • Coinsurance – Coinsurance costs are a percentage of the total price of a health service or medication. For example, if your coinsurance is 20% and you have to get a medication that costs $100, then you would expect to pay $20 while your insurance would cover the other $80. These expenses are less predictable because health services and medication prices can fluctuate.

  • Health maintenance organization (HMO) – Health maintenance organizations usually have high premiums and low deductibles. An HMO plan covers healthcare within a network of hospitals and healthcare professionals. Your providers must be in-network to get your diabetes care covered. If you have a good team of diabetes care professionals in-network, this is often the most cost-effective healthcare option for people with diabetes because you have a lower deductible, which means a lower out-of-pocket cost.

  • Preferred provider organization (PPO) – PPOs are more flexible than HMOs because you have the option to see providers out-of-network and can see specialists without a referral. Because of this, PPOs typically have higher premiums and out-of-pocket costs than HMO plans.

  • High deductible health plan (HDHP) – High deductible health plans typically have low monthly premiums and high deductibles. In 2020, the IRS defined an HDHP as any plan with a deductible of at least $1,400 for an individual and $2,800 for a family. These health plans are good for people who don’t anticipate needing regular healthcare; paying for diabetes care can be difficult with this type of plan because you will have high out-of-pocket costs upfront before you meet your deductible.

  • Flexible spending account (FSA) and health savings account (HSA) – FSAs and HSAs are used to put money aside that is not taxed to help pay for medical expenses. HSAs are often paired with high deductible health plans. FSAs can be used for any kind of health insurance, and all FSA funds must be used in the same calendar year. Learn more about FSAs and HSAs here.

  • Out-of-pocket – Out-of-pocket expenses include your share of healthcare expenses, such as the deductible, copay, or coinsurance. These are the expenses that are not covered by insurance.

  • Medicare – Medicare is a federal government health insurance program for people who are 65 or older. There are 2 main ways to get Medicare. Original Medicare includes Medicare Part A (Hospital Insurance) and Part B (Medical Insurance). If you want drug coverage, you can join a separate Medicare drug plan (Part D). Medicare Advantage (also known as “Part C”) is an “all in one” alternative to Original Medicare. These “bundled” plans include Part A, Part B, and usually Part D. Most Medicare Advantage plans offer extra benefits Original Medicare doesn’t cover–like vision, hearing, dental, and more. Your Medicare health plan decisions affect how much you pay for coverage, what services you get, what doctors you can use, and your quality of care.

  • Medicaid – Medicaid is also a government health insurance program, but for people and families below a certain income threshold. Medicaid is run by the states – so coverage and access will vary depending on which state you live in.

  • Pharmacy Benefit Manager – Also called PBMs, these companies process prescriptions for insurance companies and work in the middle of the distribution chain to negotiate deals and discounts with pharmacies and drug manufacturers. These companies also develop and maintain lists of formularies (approved medications) on behalf of insurers.

  • Formulary – Each health insurance plan has a list called a formulary. It describes what kind of coverage the plan provides for all prescription medications. Different levels of coverage are called tiers. Typically, lower tiers mean lower out-of-pocket costs than higher tiers  – e.g., Tier 1 medications, usually generic drugs, have a lower out-of-pocket price than Tier 3 medications.

  • Non-Formulary – These drugs are not listed on your health insurance plans formulary and are not covered by your insurance.

  • Prior Authorization – A prior authorization, also known as a pre-authorization or pre-certification, means that your healthcare provider or device company has to get specific approval from your health insurance company (in order for the company to pay for it).  The requirements for prior authorization differ between and within insurance plans. A prior authorization is designed to make sure prescription drugs or devices are from the approved formulary and only when medically necessary.

  • Medical Policy Guidelines – These guidelines are set in place by insurance companies to help determine whether a medical procedure is necessary.

  • Medical Review – This is the collection and review of medical records and related information to make sure that payment for a procedure or therapy is made only for those that meet all your healthcare plan’s coverage, coding, billing, and medical necessity requirements.

  • Denial – This is when a medical claim is received and processed by an insurance company but has been marked as not payable. When a claim has been denied, you may be able to file for an appeal.

  • Appeal – Appealing means asking an insurance company to reconsider its decision to deny paying for a therapy or service. There are two main types of appeals, an internal appeal or an external review.

Did you encounter a term that you don’t understand but don’t see it in our glossary? Reach out to us at [email protected]. We will try to add to this glossary as new terms come up.

If you want to learn more, check out some of our helpful articles on the topic of health insurance and diabetes care:

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About the authors

Arvind Sommi joined the diaTribe Foundation in 2021 after graduating with Phi Beta Kappa and honors from the University of Florida where he majored in Biology and minored in Sociology.... Read the full bio »
Matthew Garza joined the diaTribe Foundation as an associate in 2020 where he worked on diaTribe Learn and the dSeries Executive Innovation Labs. In February 2022, he helped launch Read the full bio »
Cherise Shockley joined The diaTribe Foundation in 2019 as the organization’s first Community Manager. Shockley was diagnosed with Latent Autoimmune Diabetes in Adults in 2004 and she is a guest... Read the full bio »