What is the term for the dollar amount a person has to pay before an insurance plan takes effect and the insurance company starts paying?

Deductibles

What is a deductible?

A deductible is the amount you pay each year for most eligible medical services or medications before your health plan begins to share in the cost of covered services. For example, if you have a $2,000 yearly deductible, you'll need to pay the first $2,000 of your total eligible medical costs before your plan helps to pay.

Benefits Information

Error loading table data.

Loading data...

Deductibles for family coverage and individual coverage are different. Even if your plan includes out-of-network benefits, your deductible amount will typically be much lower if you use in-network doctors and hospitals.

How do I decide what deductible amount to choose?

If you're mostly healthy and don't expect to need costly medical services during the year, a plan that has a higher deductible and lower premium may be a good choice for you.

On the other hand, let's say you know you have a medical condition that will need care. Or you have an active family with children who play sports. A plan with a lower deductible and higher premium that pays for a greater percent of your medical costs may be better for you.

What is the difference between a deductible and a copay?

Depending on your health plan, you may have a deductible and copays.

A deductible is the amount you pay for most eligible medical services or medications before your health plan begins to share in the cost of covered services. If your plan includes copays, you pay the copay flat fee at the time of service (at the pharmacy or doctor's office, for example). Depending on how your plan works, what you pay in copays may count toward meeting your deductible.

What is coinsurance?

Coinsurance is a portion of the medical cost you pay after your deductible has been met. Coinsurance is a way of saying that you and your insurance carrier each pay a share of eligible costs that add up to 100 percent.

For example, if your coinsurance is 20 percent, you pay 20 percent of the cost of your covered medical bills. Your health insurance plan will pay the other 80 percent. If you meet your annual deductible in June, and need an MRI in July, it is covered by coinsurance. If the covered charges for an MRI are $2,000 and your coinsurance is 20 percent, you need to pay $400 ($2,000 x 20%). Your insurance company or health plan pays the other $1,600. The higher your coinsurance percentage, the higher your share of the cost is. You are also responsible for any charges that are not covered by the health plan, such as charges that exceed the plan’s Maximum Reimbursable Charge.

What is an out-of-pocket maximum?

Out-of-pocket maximum is the most you could pay for covered medical expenses in a year. This amount includes money you spend on deductibles, copays, and coinsurance. Once you reach your annual out-of-pocket maximum, your health plan will pay your covered medical and prescription costs for the rest of the year.

Here’s an example.** You have a plan with a $3,000 annual deductible and 20% coinsurance with a $6,350 out-of-pocket maximum. You haven’t had any medical expenses all year, but then you need surgery and a few days in the hospital. That hospital bill might be $150,000.

You will pay the first $3,000 of your hospital bill as your deductible. Then, your coinsurance kicks in. The health plan pays 80% of your covered medical expenses. You'll be responsible for payment of 20% of those expenses until the remaining $3,350 of your annual $6,350 out-of-pocket maximum is met. Then, the plan covers 100% of your remaining eligible medical expenses for that calendar year.

Depending on your plan, the numbers will vary—but you get the idea. In this scenario, your $6,350 out-of-pocket maximum is much less than a $150,000 hospital bill!

What's the difference between copays and coinsurance?

Use this chart to compare copays and coinsurance to better understand the differences.

Benefits Information

Error loading table data.

Loading data...

Glossary of Common Insurance Terms

Knowing some of the most commonly used health insurance terms can help you select a plan that best meets your needs.

11 min read

Sorting through the various terms and processes involved in choosing the right plan can be overwhelming. To understand the basics of health insurance, it is helpful to first know some common terms.

  • Accumulator programs: Policies implemented by insurers that prohibit manufacturer co-pay assistance from being counted towards individuals' deductible and out-of-pocket plan maximum.
  • Brand-name medication: A medication marketed under a trademark name or patent. The patent gives a drug manufacturer exclusive rights to produce and sell the medication for a limited time
  • Centers for Medicare & Medicaid Services (CMS): Part of the U.S. Department of Health & Human Services that oversees Medicare, the federal parts of Medicaid, the Children's Health Insurance Program, and the Health Insurance Marketplace.
  • Claim: A formal payment request that a policy holder or health care provider submits to the policy holder's health insurance company for coverage of care or services. Claims are submitted by the insurance policy holder or health care provider.
  • Coinsurance: The percentage of the total cost a policy holder pays for services covered by the insurance plan. For example, if an office visit costs $100, and the plan's coinsurance is 20 percent, the policy holder will pay $20. The health insurance plan will then pay the remaining 80 percent, or $80.
  • Consolidated Omnibus Budget Reconciliation Act (COBRA): A federal law that lets an individual stay on an employer's health plan after employment ends, at their own expense and for a limited period of time.
  • Co-payment ("co-pay"): A fixed dollar amount that the policy holder pays for covered health care service. In most cases, co-pays do not count toward (i.e., reduce) the person's deductible but do count toward their out-of-pocket maximum. Different plans require different co-pays for different health care services, such as urgent care, office visits, or medications.
  • Creditable Coverage (Part D): A federal rule that any drug plan a Medicare recipient has (such as a spouse's employer plan) must pay at least as much as the standard Medicare Part D prescription drug coverage.
  • Deductible: A fixed dollar amount the policy holder must pay before the health insurance company starts to make payments for services or medications covered by the plan. Some insurance plans have both individual and family deductibles. Not all services involve a deductible. For example, under the Affordable Care Act, people can get preventive care (such as annual exams and immunizations) without paying toward the deductible.
  • Drug formulary ("formulary"): The list of prescription medications covered by a health insurance plan. Formularies can be open (small or no limit on the medications covered), closed (only medications on the formulary are covered), or restricted (some flexibility in medication choice).
  • Durable Medical Equipment (DME): Reusable medical items that are ordered by a doctor and appropriate for in-home use, such as wheelchairs, home oxygen, aerosol (nebulizer) machines, and diabetes testing strips that are ordered by a doctor and needed for a long time, generally in the home.
  • Exclusion or limitation: A service that a health insurance plan does not cover.
  • Explanation of benefits (EOB): A statement from the health insurance company showing how they paid a claim based on the benefits of a plan.
  • Fully funded or fully insured group plan: A plan offered by employers that purchase coverage for their employees directly from an insurance company. The employer often pays a portion of the premium, and the employee pays the remainder.
  • Generic medication: A medication made by a company that did not create the original brand-name version. Generic medications have the same active ingredients as the brand-name drug and are approved by the U.S. Food and Drug Administration (FDA). They are usually less expensive.
  • Health insurance network: Facilities, providers, and suppliers that provide health care services at a set cost to people in a health insurance plan. These providers are called "in-network."
  • High-deductible option: A health insurance plan with a $1,350 deductible for an individual and a $2,700 deductible for a family, or higher.
  • In-network provider: A facility, provider, or supplier in the plan's health insurance network who provides services at a set cost to people in the health insurance plan.
  • Lifetime reserve days: An extra total of 60 days of inpatient hospital benefits that Medicare recipients can use over their lifetime, after using 90 days of inpatient hospital services in a benefit period.
  • Limited distribution: A system that limits where people can get some specialty medications or therapies.
  • Mail-order pharmacy: A type of pharmacy that fills prescriptions and sends medications to customers by mail. With some health insurance plans your co-pay will be lower if you order a 90-day supply through their mail-order pharmacy. Please note, you can use only the mail-order pharmacies named in the prescription drug benefit part of their health insurance plan.
  • Managed care: A health care plan or system that tries to control medical costs by contracting with a specific network of providers.
  • Medical underwriting: When an insurance company looks at a person's medical or health history as it considers an application for a policy acceptance or premium rate.
  • Medicare: A federal government health insurance program that helps pay medical bills for people ages 65 and older, people younger than 65 receiving Social Security Disability Insurance (SSDI) benefits who meet certain requirements, and people with permanent kidney failure.
  • Medicare Part A: Coverage for inpatient hospital stays, skilled nursing, hospice, and some home health care.
  • Medicare Part B: Coverage for visits to doctors and other health care providers, medical supplies, some medications, and some preventive services, such as annual exams and immunizations.
  • Original Medicare: Hospital and medical insurance coverage (Medicare Part A and Part B) managed by CMS.
  • Medicare Advantage (Medicare Part C): Plans that private insurance companies offer as an alternative to Original Medicare. Centers for Medicare & Medicaid Services must approve these plans. Medicare Advantage plans include hospital and medical coverage (Parts A and B), and many include prescription drug coverage (Part D) and other benefits.
  • Medicare Part D:  Coverage of prescription medications available to people with Original Medicare for an extra cost. Some Medicare Advantage plans include prescription drug coverage for no additional premium.
  • Medication tiers: The groups into which medications are divided on the formulary. There are usually four or five tiers which range from the lowest (e.g., Tier 1 generics) to highest (Tier 4 or 5 specialty medications) and determine the amount a person will pay for each drug
  • Medigap (Medicare supplement) insurance: Plans that private insurance companies offer to help cover costs that would otherwise be paid by the patient. The Centers for Medicare & Medicaid Services must approve these plans. Medigap plans have an additional premium and are available only to those with Original Medicare (not Medicare Advantage). Coverage with Medigap may not be available for those younger than 65 years with Medicare insurance; it is dependent on the states of residence.
  • Nonpreferred medication: A medication that a health insurance company would rather a person not take. These medications often are not on the drug formulary, and may require prior authorization, have a higher co-pay, or both.
  • Open enrollment: A time each year when people can add, drop, or make changes to their health insurance coverage.
  • Out-of-network provider: A health care provider who does not have a contract with the health insurance plan and is not part of the plan's network. Typically, the health insurance company pays less or nothing at all for services from out-of-network providers
  • Out-of-pocket costs: Costs that an insurance company does not cover that the patient must pay.
  • Out-of-pocket maximum: The most a person can spend for services their plan covers in a set coverage period, usually one year. After a person spends that amount, the health insurance plan pays 100 percent of all covered services for the rest of the coverage period.
  • Pharmacy benefit manager: A company that a health insurance plan hires to process and pay prescription medication claims. Pharmacy benefit managers create the drug formulary, contract with pharmacies, and get discounts and rebates from drug makers. They also may offer programs such as medication therapy, disease management, and help with mail-order pharmacies.
  • Preferred medication: A medication on the health insurance plan's formulary or preferred list of drugs. These medications may cost more than generics but less than other brands that are not on the formulary.
  • Premium: The amount a person pays every month to keep their health insurance plan active, whether or not they get care. Not paying by the due date may cancel the person's coverage. For employer-sponsored group plans, the employer pays some of the premium and the rest comes out of the employee's paycheck. Most insurance companies require employers pay at least half of the premium cost for covered employees.
  • Primary insurance: The health insurance plan that pays first when a person is covered by more than one plan. Any amount the primary insurance does not pay goes to the secondary insurance plan to review and pay.
  • Prior authorization: A health insurance company's formal review and approval process before it agrees to cover some services or medications.
  • Reauthorization: A renewal of the prior authorization on file. To get a reauthorization, an insurance company may ask a person to send in medical records that show their health has improved with the treatment, or to fill out a form.
  • Reimbursement: What the insurance company pays health care providers for the care they provide to a person covered by their insurance plan.
  • Retail pharmacy: A local pharmacy (such as a CVS, Walgreens, or a grocery store pharmacy) that has a state license to fill prescriptions. Retail pharmacies usually can give only 30-day supplies, although some may provide 90-day supplies. Pharmacy benefit managers may limit which retail pharmacy chains people can use.
  • Secondary insurance: A health insurance plan that pays claims after a primary health insurance plan, if a person has more than one plan.
  • Self-funded group plan: A plan in which the employer acts like an insurance company and processes and pays health care claims. In some cases, a different company helps process claims. Often, the employer decides whether or not to cover a service.
  • Social Security Disability Insurance (SSDI): A program that pays benefits to people who worked long enough and paid Social Security taxes but are no longer able to work.
  • Special enrollment period: A time outside the open enrollment period when a person can sign up for health insurance. People may qualify for a special enrollment period during certain life events or unusual circumstances, such as the birth of a child or a divorce. They usually have up to 60 days after the event to enroll in a plan.
  • Specialty pharmacy: A pharmacy that serves people with rare and chronic diseases. They offer extra services such as refill reminders, overnight deliveries, and online prescription tracking. They help people take their medications safely and as prescribed. Specialty pharmacies focus on expensive medications, such as injectable or inhaled medications, that local retail pharmacies do not carry. These medications often need to be handled and stored in the right way so they stay effective.
  • Step therapy: A type of prior authorization that requires a doctor to show a person has tried a less expensive or a preferred medication on the formulary that has not worked, before a health insurance plan will cover a different medication.
  • Summary of Benefits and Coverage (SBC): A document that helps people compare different health insurance plans based on price, benefits, and more.
  • Supplemental Security Income (SSI): A Federal income supplement program that helps those who have little or no income, who meet specific criteria, with assistance to meet basic needs like food, clothing, and shelter.

You Might Also Be Interested

For help with Insurance, Financial, Legal, and Other Issues

Contact a dedicated CF Foundation Compass case manager:
Call us at 844-COMPASS

(1-844-266-7277)
Mon - Thu, 9 am - 7 pm ET
Fri, 9 am - 3 pm ET

More Ways to Get Help

What is the term for the dollar amount a person has to pay before an insurance plan takes effect?

The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. A fixed amount ($20, for example) you pay for a covered health care service after you've paid your deductible.

What is the term for the dollar amount a person has to pay before an insurance plan takes effect and the insurance company starts paying quizlet?

Deductible. Which of the following things does affordable care act do? Stay on your employer's insurance plan after you lose your job.

What is the amount you pay before the insurance company pays?

A deductible is the amount you pay for health care services before your health insurance begins to pay. How it works: If your plan's deductible is $1,500, you'll pay 100 percent of eligible health care expenses until the bills total $1,500. After that, you share the cost with your plan by paying coinsurance.

What is the term for the amount of money that the insured pays?

Premiums. The money paid to insurance companies for insurance benefits.