These 9 Health Insurance Terms Confuse You … and Everybody Else

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

If shopping for health insurance has you in a state of confusion, you're not alone. Find out what common health insurance terms mean before you make a costly mistake when buying coverage.

Now that we’re all being required to buy health insurance thanks to the Patient Protection and Affordable Care Act, it would be nice if we understood what we’re getting, right?

Unfortunately, a study published last month in the journal Health Affairs raises some serious doubts about whether we really understand what the insurance companies are selling us.

Researchers from the Urban Institute surveyed more than 7,000 people between the ages of 18 and 64 and found that not quite half said they weren’t even somewhat confident they knew the meaning of nine common health insurance terms. Among the uninsured, fewer than 1 in 4 said they knew the meaning of all these common words and phrases.

These are the terms that tripped them up:

  • Premium.
  • Deductible.
  • Co-pay.
  • Coinsurance.
  • Maximum annual out-of-pocket spending.
  • Provider network.
  • Covered services.
  • Annual limits on services.
  • Excluded services.

In case you’re scratching your head over some of these terms too, here’s a handy guide to help clear the confusion.

1. Premium

The premium is the amount you pay to the health insurance company to keep your policy in effect. Think of it as your membership fee. Premiums are often assessed on an annual basis but may be paid monthly, quarterly or biannually depending on your insurer.

2. Deductible

More than three-fourths of those surveyed by the Urban Institute said they were somewhat or very confident they understood what a deductible meant. That’s good, because a deductible can add up to some serious cash coming out of your pocket.

However, less than half of those who are uninsured understood deductibles. If you fall into this category, pay close attention.

A deductible is the annual out-of-pocket cost you pay before your health insurance coverage kicks in. So if your deductible is $1,000, your insurance company will not pay for a dime of your care (other than for some preventive services mandated by the health reform law) until you pay $1,000 out-of-pocket in medical costs. And no, your premium payments don’t count toward the deductible.

Here’s an example: Let’s say you have a policy with a $5,000 deductible, and you need an MRI. Other than one doctor office visit, you haven’t had any other medical care for the year. The MRI costs $3,000. Now, how much is the insurance company going to contribute toward that $3,000? Zero. That’s right. Zip. Zilch. Nada. It’s all on you.

Understanding your deductible is crucial because in order to keep premiums low, some insurance companies are raising deductibles. A high-deductible plan can make perfect sense for some people, but if you have a chronic condition or need regular medical care, you might want to keep shopping.

3. Co-pay

Co-pay is the most widely understood health insurance term, according to the Urban Institute survey. A co-pay is your portion of the bill after the deductible has been met. Co-pays are fixed rates, such as $20 per office visit.

4. Coinsurance

While most people are confident they know what a co-pay is, coinsurance is the least understood term. Only 57 percent of all survey respondents said they felt somewhat or very confident they knew what the word meant, and less than a third of those uninsured said the same.

However, coinsurance is almost the same thing as a co-pay. It’s your portion of a medical bill. The only difference is that coinsurance is a percentage while a co-pay is a fixed amount.

You might see coinsurance referred to in terms of 80/20 or 70/30 coverage. Those numbers mean you pay for 20 percent or 30 percent of the bill, respectively. Then, your insurance company will pick up the tab for the rest of the approved amount.

5. Maximum out-of-pocket annual spending

You want this number to be as low as possible. Maximum out-of-pocket annual spending means that once you have paid a certain amount for the year, your insurance company will begin paying 100 percent for all covered services. Your co-payment and coinsurance requirements essentially disappear at that point.

In 2014, health insurance sold on the government exchanges cannot have out-of-pocket spending limits higher than $6,350 for individual plans or $12,700 for family plans. Be aware that premiums and some costs you may have to pick up for out-of-network care do not count toward this out-of-pocket maximum.

6. Provider network

It’s unusual to find a health insurance plan that doesn’t include a provider network nowadays. The network includes all the providers who have an agreement in place with the health insurance company to accept patients from their plans. The agreement typically also stipulates an acceptable price for the provider to charge for certain services.

If you use a provider outside your health plan’s network, your insurer could charge you a higher co-pay or coinsurance or they could refuse to pay your bill altogether. Before switching plans, always check to see if your preferred health care professionals and facilities are in the provider network.

7. Covered services

Just like it sounds, covered services are those your health insurance plan will pay. Under the Affordable Care Act, there are 10 essential health benefits all plans must cover. These range from mental health services to prescription drug coverage.

For everything else, it’s up to the insurer to decide what’s offered in the plan. If it’s important that you have a certain benefit, such as chiropractic care, make sure it is in a plan’s covered services before signing up.

8. Excluded services

After coinsurance, excluded services got the second lowest vote of confidence in the Urban Institute study. However, excluded services are just the opposite of covered services. They’re items your health insurance plan specifically says it won’t cover. Examples of commonly excluded services may include cosmetic surgery or weight loss regimens.

9. Annual limits on services

Health insurance companies sometimes limit how much they will pay for some covered services. Going back to chiropractic care as an example, a health plan might include coverage but limit you to 20 visits per year. Once you hit the limit, you have to pay 100 percent out-of-pocket for future chiropractic care.

Annual limits on services can also be dollar amounts. Once a company has paid a certain amount, they may stop paying for that particular service.

Congratulations! You made it to the end. Reading about health insurance may be about as much fun as studying for college final exams, but your wallet will thank you when you pick a plan that covers the care you need and doesn’t leave you to foot the bill.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: 50 Ways to Make a Fast $50

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,009 more deals!