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9 Individual Health Insurance Terms You Should Know

September 2, 2020
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When shopping for a new individual health insurance plan, one of the main challenges people face is understanding the sea of acronyms and terminology.

To shop smart, work with a health insurance broker. It’s also useful to take a few minutes to understand the four main types of individual and family health plans, and five primary individual health insurance definitions.

Top four individual health insurance categories

1. PPO

PPO stands for Preferred Provider Organization. With a PPO plan, you are encouraged to use a network of preferred doctors and hospitals. These providers are contracted to provide service to plan members at a negotiated or discounted rate. You generally are not required to designate a primary care physician (PCP) but will have the choice to see any doctors or specialists within the plan’s network.

You typically have an annual deductible that you would be required to pay before the insurance company begins covering your medical bills. You may also have a copayment for certain services or co-insurance where you are responsible for a percentage of the total charges of your medical expenses.

With a PPO, services rendered outside of the network may result in a higher out-of-pocket cost.

A PPO may be a good option for you and your family if you:

  • Need flexibility when choosing physicians and other providers
  • Don’t want the burden of obtaining a referral to see a specialist
  • Prefer greater choice of providers over lower premiums

2. HMO

An HMO is a Health Maintenance Organization. With an HMO plan, you generally have a lower out-of-pocket expense but also have less flexibility in the choice of physicians or hospitals than other plans. An HMO may require you to choose a PCP. You will see that PCP for most of your health care needs. Generally, to see a specialist, you will need to obtain a referral from your PCP.

With an HMO, you typically will have coverage for a broader range of preventative services than you would have through a different plan. You may or may not be required to pay a deductible before your coverage starts. Generally, you will have a minimal copayment. There are typically no claim forms to file when you receive services through an HMO. The main thing you will want to keep in mind is that with most HMO plans, you have no coverage if you go outside of your network without proper authorization from your PCP or in cases of emergencies.

An HMO may be a good option for you and your family if you:

  • Prefer lower premiums
  • Don’t mind being limited to services within a narrower set of providers and locations
  • Want preventive services covered for checkups and immunizations

3. HSA-eligible plans

HSA-eligible plans are usually PPO plans with higher deductibles, designed specially for use with health savings accounts (HSAs). An HSA is a tax-favored savings account that is used in conjunction with an HSA-compatible high deductible health plan (HDHP) to pay for qualifying medical expenses.

An HSA-compatible health plan can save you money if you’re healthy and don’t use your plan for any major expenses. Since premiums are almost always lower for HDHPs, you’ll save more money on premiums than you’ll pay for any healthcare expenses. You can then make pre-tax contributions to an HSA with those savings, up to certain limits set by the IRS. Some employers may even contribute to the HSA on your behalf as part of their health benefit. Unused funds in an HSA rollover year to year and accrue interest, tax-free. Funds are tax-free for qualified healthcare expenses, but may be used for other life events as well. However, these withdrawals will incur tax penalties and require interest to be paid.

An HSA-eligible plan paired with an HSA may be a good option for you and your family if you:

  • Want greater control over benefits and costs
  • Prefer paying higher deductibles over covered benefits you may not use
  • Would like to save money tax-free for current and future medical expenses

4. Indemnity

Indemnity health plans are known as fee-for-service plans because members pay predetermined amounts or percentages of costs for covered services. The member may be responsible for deductibles and coinsurance amounts.

In most cases, you will pay first out of pocket and then file a claim to be reimbursed for the covered amount.

An Indemnity Plan may be a good option for you and your family if you:

  • Seek high levels of flexibility and choice for doctors and hospitals
  • Prefer paying higher rates for more service control
  • Don’t mind the burden of potentially increased administrative activity for referral and claims paperwork

Read more about small business health benefits.

Top five individual health insurance terms

1. Premium

Your premium is the amount you pay to the health insurance company each month to maintain your coverage. When you're researching plans, it's usually the first cost you see and consider, but it's important to also factor in the cost of copayments, deductible, coinsurance, and out-of-pocket maximums, described below.

2. Copayment

Your copayment, or co-pay, is a flat dollar amount you pay your healthcare provider for a covered service. For example, you may have to pay a $30 copayment for each covered visit to a PCP and $10 for each generic prescription filled. Copayments vary from plan to plan and are sometimes different depending on the type of covered service you receive. Tip: If you have frequent doctor's visits, look for an affordable copayment.

3. Deductible

Your deductible is the amount you must pay for covered services before your health insurance provider begins to pay. Insurers apply and structure deductibles differently. For example, under one plan, a comprehensive deductible might apply to all services, while another plan might have separate deductibles for covered services such as prescription drug coverage and emergency care. Deductibles can significantly affect the price of your insurance premium. Typically, plans with lower deductibles offer more comprehensive coverage but have higher premium costs.

4. Coinsurance

Coinsurance is the percentage of covered services that you're required to pay after your deductible is met. For example, your health insurance may cover 70% of the charges for a covered hospitalization, leaving you responsible for 30%. Note that until your deductible is met, you are typically required to pay 100% of these expenses. Coinsurance can also significantly affect the price of your insurance premium. Typically, plans with lower coinsurance have higher premium costs.

5. Out-of-pocket maximum

An out-of-pocket maximum is the maximum amount of money you will pay for covered services during a benefit period. The out-of-pocket maximum never includes your premium, balance-billed charges, or services your health insurance plan doesn’t cover. The out-of-pocket maximum will vary from plan to plan but can include copayments, deductibles, and co-insurance. Once you have paid the full amount toward your out-of-pocket maximum, your insurance will pay 100% of the allowed amount for your covered healthcare expenses. Note that this limit does not apply to expenses for non-covered or out-of-network services.

Looking for more health insurance terms? Check out this list of 73 health insurance terms.

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