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Your Insurance 101 Glossary

Your Insurance 101 Glossary

If you want to understand how HSAs work, you need to understand how health insurance works (since making HSA contributions requires being covered by a specific type of health insurance). You’ve probably heard the below terms before, but here’s exactly how they relate to health insurance.


Balance billing: When a medical provider bills you for the difference between the total cost of a medical service and the amount your insurance provider will pay. Typically, this happens when you’re received out-of-network medical care.

COBRA: COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. COBRA allows employees of companies with 20 or more employees to continue getting the health insurance they had through the company after quitting their job or being fired. Under COBRA, however, employees are responsible for the full cost of the health insurance. COBRA coverage can last for up to 18 months, with exceptions for longer coverage.

Coinsurance: A fixed percentage of a medical service’s total cost that you are required to pay. Your health insurance provider pays the rest of the cost. Coinsurance typically comes into play once you reach your annual deductible and only applies to in-network medical expenses.

Copayment: A fixed amount of money you must pay for medical services, in addition to what your insurance provider pays. Different medical services typically have different copayments, and copayments generally only cover in-network medical services. Generally, copayments do not count towards your annual deductible.

Deductible: The amount of money you must pay for medical services before your insurance provider will start to pay. Once you reach your annual deductible, your insurance provider will pay for some or all of any additional in-network medical costs.

Embedded deductible: A lower deductible for each individual in certain family insurance plans. For instance, if your plan’s total annual deductible is $5,000 with an embedded deductible of $2,600, your after-deductible benefits would begin once you incurred $2,600 of medical costs. However, another family member could be liable for up to $2,400 of medical expenses before their after-deductible benefits would kick in.

Explanation of benefits (EOB): A document sent by your insurance provider after your received medical care. An EOB shows what service you received and the total cost, how much of the cost your provider covered, and how much you’re responsible to pay. An EOB is not a bill; bills will come from your medical providers.

Family insurance: An insurance plan that covers the insurance accountholder and at least one other individual (like a spouse or child).

Health Maintenance Organization (HMO) coverage: HMO coverage lets you gain access to a network of doctors, hospitals, and other healthcare providers that has been established by your insurance provider. Your insurance company has negotiated with the members of this network to provide medical services at specific rates. However, HMO coverage typically doesn’t pay for medical services received outside its networks (except in a true emergency).

Also, HMO coverage requires you to pick a primary care physician (PCP) and get a referral from him/her before making an appointment with a specialist. HMO coverage typically has lower monthly premiums compared to PPO coverage, and you likely won’t have to file claims, since you’ll only be getting in-network services.

High deductible health plan (HDHP): Also known as a consumer driven health plan, an HDHP is a type of health plan that has higher deductibles than many other plans. HDHPs can be designed as either HMOs or PPOs, depending on the plan. Not all HDHPs are HSA-qualified; see the requirements for HSA qualification here.

In-network medical costs: Medical expenses incurred within your health insurance’s network of healthcare providers. Typically, copays, coinsurance, and deductible apply to in-network costs.

Network: For insurance purposes, a network is a group of doctors, hospitals, and other healthcare providers that has been established by your insurance provider. Your insurance provider has negotiated with the members of the group to provide medical services at specific rates.

Out-of-network medical costs: Medical expenses incurred outside your health insurance’s network of healthcare providers. Typically, copays, coinsurance, and deductible do not apply to in-network costs.

Out-of-pocket costs: Any medical costs not paid for by your insurance provider (like copayments, coinsurance, and deductibles). Your premiums are not considered out-of-pocket expenses.

Out-of-pocket maximum: The maximum amount of money you’re required to pay each year under your health insurance coverage. Once you’ve reached this maximum, your insurance covers all other medical expenses for the year. The out-of-pocket maximum typically only applies to in-network costs.

Pre-existing condition: A medical condition that existed before your health insurance coverage started.

Preferred provider organization (PPO) coverage: PPO coverage is also based around networks of medical providers, but you are allowed to go out-of-network for medical services. PPO coverage usually pays some of the cost for out-of-network service, but not as much as for in-network service. However, your out-of-network service likely won’t count toward your annual deductible, so you could end up paying more before you reach your deductible.

Also, PPO coverage doesn’t require you to choose a PCP and doesn’t require referrals for seeing specialists. PPO coverage typically has higher monthly premiums than HMO coverage, since PPO coverage allows you to go out-of-network for medical service. And with PPO coverage, you may have to file claims for any out-of-network services you receive. Learn more about PPO and HMO coverage here.

Premium: The monthly cost of your health insurance coverage. You pay premiums in addition to any other medical expenses you incur.

Preventive care: Services such as annual physicals or immunizations that are covered at no cost to you by many health insurance plans. See more examples of preventive care here; check with your insurance provider to find out which preventive care services are covered by your plan.

Self-only insurance: An insurance plan that only covers the insurance accountholder.


Want to understand exactly how HSAs work and why they’re such powerful savings vehicles? Get the Ultimate Guide to HSAs.