Health Insurance Terms Explained: The A to Z Guide Every Patient Should Know

Health insurance can feel like learning a new language. Between deductibles, copays, coinsurance, prior authorizations, and Explanation of Benefits (EOBs), it's easy to feel overwhelmed when reviewing your medical bills.

In this episode of Take Care, Melody Mulaik walks you through an easy-to-understand A-to-Z glossary of the most important health insurance and medical billing terms every patient should know. Whether you're reviewing a medical bill, choosing a health plan, or simply trying to understand what your insurance covers, this episode will help you become a more informed healthcare consumer.

By understanding these common terms, you'll be better equipped to avoid billing surprises, ask the right questions, and make confident decisions about your healthcare.

In This Episode, You'll Learn:

• What the allowable amount really means
• The difference between copays and coinsurance
• How deductibles affect what you pay
• Why your Explanation of Benefits (EOB) matters
• The purpose of FSAs and HSAs
• Who the guarantor is on a medical bill
• How HIPAA protects your medical information
• Why you should request an itemized statement
• What medical necessity means to insurance companies
• The difference between in-network and out-of-network providers
• How your out-of-pocket maximum protects you financially
• Why prior authorization can delay care
• What qualifies as a qualifying life event
• How timely filing affects insurance claims
• What a write-off really means on your medical bill
• Why understanding your financial responsibility is essential

Resources Mentioned:

• Explanation of Benefits (EOB): https://www.cms.gov/medical-bill-rights/help/guides/explanation-of-benefits 
• Flexible Spending Account (FSA): https://www.uhc.com/understanding-health-insurance/understanding-health-insurance-costs/flexible-spending-accounts 
• Health Savings Account (HSA): https://www.hsabank.com/Products/HSA.html 
• HIPAA: https://www.melodymulaik.com/blog/the-patients-guide-to-hipaa-access-privacy-and-confidentiality 
• Prior Authorization: https://www.verywellhealth.com/prior-authorization-1738770 

Related Episodes:

• Paying Medical Bills Before You Meet Your Deductible: A Simple Tip That Can Save You Money
• Office Visit Fees Explained: What Patients Need to Know
• What Patients Need to Know About Surprise Billing
• Why Did I Get a Separate Lab Bill? Understanding Unexpected Charges
• When to Choose the Self-Pay Option Instead of Insurance

Timestamps:

• 00:00 Introduction
• 00:45 Allowable Amount
• 01:35 Copay vs. Coinsurance
• 02:20 Deductible
• 02:55 Explanation of Benefits (EOB)
• 06:20 Medical Necessity
• 07:00 In-Network vs. Out-of-Network
• 08:00 Out-of-Pocket Maximum
• 08:45 Prior Authorization
• 11:05 Timely Filing
• 13:30 Know Your Financial Responsibility
• 13:55 Final Thoughts

If you found this episode helpful, subscribe to Take Care so you never miss practical advice that helps you better understand healthcare, medical billing, and health insurance.

If you have a question or a medical billing topic you'd like covered in a future episode, send it through our website. We'd love to hear from you.

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Transcript

Melody 0:11

Hello everybody, and welcome to this episode of Take Care. This time I'm going to do something a little different. So we've covered a lot of different topics in previous episodes of the podcast together. And we've had a lot of different terms that have come up, and some of them may be things that you're very familiar with. Other ones maybe in the first time that you've heard them. And so I thought it might be really good to do an episode that really is almost a glossary of the key terms that we talk about. A lot of these are very much based on business or the billing of medicine. The piece of what do we owe and things like that, but some of it may venture into the other. So it's going to be a lot of fun, but let's go ahead and get started. So A to Z, here we go. So A is for the allowable amount, which is the maximum amount your insurance company is going to pay for a service based on their negotiated rate or their contract with your particular provider. So it doesn't matter what your provider charges, it's a matter of what is your insurance company required or negotiated to pay. B is for billing. Billing is that comprehensive, activity that occurs where we determine how much we're owing back to a provider. They're billing us for amounts that's the overall process. We really just call that that billing process. C is for coinsurance, which is the percentage of a bill that you owe after you meet your deductible. So that's different than a copay, so we could also say C is for copay. Copay is that flat rate amount of money when you go to visit your primary care or you visit a specialist or the emergency room. Most insurance plans have that flat dollar amount that you give. That's a copay. A coinsurance is after your deductible is met. For many services, like mine, for example, says I owe twenty percent for covered services. So that means the insurance company for their amount, they'll have that allowable amount. Let's say it's a hundred dollars. They may pay eighty percent or eighty dollars of that. I pay that twenty percent, so that's my coinsurance, which is different than my copay. D is for deductible, that we've just mentioned, and that's that dollar amount that you know in advance when you pick your plan or you have the plan that was provided for you. That could be five hundred, a thousand, two thousand. The list goes on. High deductible plans even getting up into a ten thousand dollars. Not quite that much. But basically, it's whatever that deductible is, that's what the insurance company is wanting to make sure you're paying out of pocket prior to them kicking in. And usually, the amount of the deductible that you have drives what your monthly premium is going to be as well. The higher the deductible, typically the lower that your premium will go. E is for explanation of benefits. That's the statement that we get from our insurance company that shows us all the things we've just mentioned. It shows what was billed, what was the allowable amount, what they paid, and then what our obligation is at. So that's called the EOB, that explanation of benefits. F is for our FSA or and I would almost say HSA as well. So that's our flexible spending account. Those are pre-tax accounts where we can put money into those in advance and use that to pay for healthcare with it. So again, that's pre-tax, so that's money that comes out that we're allowed to use towards healthcare expenses And it is pre-tax, so it comes off our overall salary. G is for a guarantor, which is the person financially responsible for a bill. So the guarantor is the one, usually it's the patient, but it's whoever ultimately holds that particular insurance policy So for a minor, a child, the guarantor is the parent, typically, in most relationships. H is for HIPAA. HIPAA is that federal law that protects our private information. It protects your medical records. It's also the law that says basically the medical record is yours and that you're entitled to get copies of it and to be able to take it to new providers and other things like that. I is for itemized statements. That's for any services that we have, regardless of who's providing them. We should not just get a bill that has an overall dollar amount. We're entitled to ask for that itemized statement, where it breaks it down into detail to tell us every single service that was provided, billed for, et cetera, so we can look at the individual detail for that versus just a big lump sum payment. J, I haven't really talked about what's called J codes, but I'll just throw those out there 'cause of J, this is what came to mind. J codes are codes that describe services, and generally it's more injections. It could be vaccines, could be other things like that that are common on bills. If you look at if you've got a child and you've gone to your pediatrician and they've done an injection, you might see a J code on there, or for yourself, when you're getting certain injectables. So again, I haven't really talked a lot about J codes, but I just put that in for the J piece of it. K is for kickback. Again, I'm going to throw some new terms in here maybe. This is a federal law that actually bars providers from receiving money for referrals. So for example, it is not appropriate that you have a physician who sends you to an imaging center, as an example. Sends you to get an MRI, and that MRI service gives them money back and says, "Thank you very much for your referral." They can't do that. They used to could. I won't say they didn't have a law prohibiting it. And so now there's a good reason they have a law. It's been around for a while, but that's an important piece, and that's called a kickback. L is for lifetime maximum. Sometimes in older plans, not so much today, there would actually be a lifetime amount that was placed on the total benefits for that. For the most part, that's now gone away because of the Affordable Care Act. But it's still worth knowing that that was out there in the past. And for some of you may remember that and think, "Well, didn't there used to be something in our policy that said there was, like, a million-dollar lifetime benefit?" Yes, it used to be there, and fortunately, that is now gone. So they don't really track those, quote, "lifetime maximums" anymore. M is for medical necessity, and we definitely have talked about medical necessity, through several of the podcasts together. But basically, insurance companies define what they consider to be medically necessary now. In medicine, the physicians definitely drive medical necessity, but this is where we may see variations by different insurance companies, but they define what they consider to be medically necessary to receive a particular service. So if I've scheduled or my doctor wants me to get an MRI imaging study, for example, that insurance company may say, "We don't think that's medically necessary." Hopefully, that doesn't happen. But those are the types of things, whether it's a surgery, whether it's an imaging study, et cetera. But medical necessity is what drives whether or not that insurance company is actually going to provide coverage or payment, really, for that particular service. N is for network, whether we're in-network or out-of-network. In-network means that our physician's office has negotiated with an insurance company and says, "Yes, we are in-network with you. We will take your patients, and we agree to take the rates that we've negotiated together. We have a contract in place." That means we're in-network. Out-of-network means, for any number of reasons, there's not just one reason for it, but for any number of reasons, your provider has does not have a specific contract with that particular payer. It could be because maybe you're coming in from out of state. That might be an example. Or it could be that when that insurance company came to your doctor's office, they offered him such a low rate that your doctor's office said, "No, I do not want to be in-network with you." There's a whole lot of different reasons. The reasons, all of those are not really relevant for the definition. But in-network, they have a contract. They've agreed to take those rates from the insurance company. Out of network, they do not have a contract, and they have not agreed to accept those particular rates. O is for out-of-pocket maximum. Anytime you look at your insurance plan, it will have the most that you're going to pay out of pocket for a given year. So we have our deductible. We also have our percentage, our co-payments, and our co-deductibles. This is based on co-deductibles. Co-payments really don't fit into the equation. So deductible plus our co-payments, or co-insurance, I should say, all that gets added together. Once we hit that cap, and it's generally pretty high, then the insurance company will pay for everything. So if you're in a catastrophic situation where you've got a pretty, you know, heavy inpatient stay or there's other things that have happened, it's very possible you might meet your out-of-pocket maximum, and therefore, the insurance company will be paying for all of the services going forward. P is for prior authorization. Prior authorization is where the insurance company requires that they give approval in advance prior to getting a particular study that is performed. So they call that prior authorization. Again, I'll go back to my MRI examples. MRIs typically do require prior authorization where the insurance company says, "Yes, I've reviewed the reason that your physician ordered this particular study, and I approve or I don't approve." That's called prior authorization. Q is for qualifying life event. Not something we've really talked about, but when we look at insurance company, you have an annual open enrollment time period, and typically for most people, that's at the end of the year. And once you're locked down for your benefits for the year, you don't get to change it unless you have what's called a qualifying life event, and that could be something major. You could have a birth of a child. Well, that's going to change. Now the child can be added into the insurance. Or if you have a change of jobs, for example, regardless of the reason. If you change employers, you're now going to be moving, potentially to a different employment plan. Even if it's with the same insurance company, you now are in a different plan because the way we do things is things are tied as a general rule to the employer, so that's a qualifying life event. R is for remark code. Remark code are when you look at that EOB, that explanation of benefits, it says again what was charged, what they considered, what they paid, et cetera. You'll see remark codes, and those are digit, those are numbers that have an explanation to them that says why they didn't pay for something or why something was paid at a certain rate. And so remark codes are good to read so we understand why the insurance company took the actions that they did. S is for a super bill. We don't really use that phrase as much, but it's an itemized receipt, an itemized listing that shows all of the procedure codes that were done. Meaning what services were provided to us, as well as our diagnoses. So that's important sometimes if you're wanting to submit to the insurance company yourself, which most people don't tend to do. But if you're wanting to do it yourself, sometimes you will ask them for a copy of that itemized or for that super bill. T is for timely filing, which we've definitely talked about. And that is that for every insurance company, all the way up to Medicare, everybody has a certain amount of time that providers have to get their claims into the insurance company. And that could be 30 days, it could be 60 days, it could be 180 days, which is six months, it could be a year. It varies depending on the insurance company, but if someone doesn't submit a claim to that insurance company within that time period, the insurance company does not pay for it. So that's what's called timely filing. So they must meet that insurance company's timing in order to receive payment for those particular services. U is for usual, customary, and reasonable That is when we look at what is that allowed amount. Basically, what is it that they're going to pay? A lot of times they will talk and mention about it being usual, customary, and reasonable. So it's how they look at their different rates for different things. V is for verification of benefits. So when anytime we go into our doctor's office, we go to a hospital, we get imaging done, all those things, them asking you information up front to verify your insurance information, they're always looking and talking electronically to your insurance company to make sure that you still have the benefits that you say that you did. And I know for a lot of people, you're like, "I've had it all year. It doesn't change." That's not always true for everybody, and so they do need to check that information to make sure that it's accurate. W is for write-off. Write-off are the things that a provider may what they call write-off because there's a gap between what was billed and what was the rate. So for example, I'll go back to, $100 charge. Let's say my insurance company's allowable for that is $50. They pay $50. Let's say the patient doesn't owe anything on it. That $50 that is left is a write-off for them. So it's an allowable write-off, and it's basically money that is not owed to them at that point. We'll go ahead and have an X. Basically, X is for x-ray. We know we have a lot of different imaging studies that are done. Um, most type different services, different specialties order different imaging for a lot of different things. Y is for your responsibility. Your responsibility financially. We need to always make sure that we know for any plan that we have, what is our responsibility? And so we look always on our insurance company's website. We look at it, understanding it overall what our responsibility is. But at every single claim that gets submitted to the insurance company for services, we're always reviewing every single one of those to make sure that we're paying the right amounts to our providers, and we're not underpaying or overpaying. So that's really the wrap-up. I can't think of a good Z. There are some things called Z codes that are out there that relate to diagnosis coding. And I'm really going down a, a rabbit trail with that. But I hope these ABCs were helpful for you as you look some of the definitions. If there's other definitions of things that you want me to cover, drop me a note. Please do. You can send that through the website, and I'll be happy to get that and answer any other questions. But thanks for going through the ABCs, with me today. Until next time, take care.