Allowed Amount/Allowed Charges
When insurance companies contract with a doctor, hospital, pharmacy or medical equipment supplier to include them in the plan’s network, they agree to specific amounts that will be paid for items or services rendered by those providers. This contracted rate, usually called the “allowed amount” or “allowed charges,” can be significantly lower than what the providers would charge if you did not have the insurance company negotiating these discounts on your behalf. You will usually see a note of what the allowed amount/allowed charge is on the explanation of benefits you receive from your insurance company, and it typically comes after the amount that the provider bills (which is their non-negotiated rate).
Billed Amount/Billed Charges
Providers set charges for the various medications, items and services they provide, in the same way that a retailer sets prices on items sold in its store. This amount is the provider’s “billed amount” or “billed charge” and represents what you would pay if you had no insurance. When you have insurance, the insurer will negotiate a discount from the provider’s billed amount/charge, which can protect you from what you would otherwise have to pay. On the explanation of benefits you receive from your insurance company, you will see the provider’s billed amount/charge, usually followed by the allowed amount/charge that the insurer (and you) actually pay.
A claim is a request for payment that you or your doctor submit to your health insurance company when you receive care or services. The insurance company reviews the claim for its validity and then pays you or your doctor. If you submit the claim, you are usually reimbursed, while if your doctor does so, they are paid.
For plans with a deductible, the coinsurance is the percent you, as the patient, are required to pay for a medical service after you’ve met your deductible. To calculate coinsurance for a service, you’ll need to know how much in total you will be charged for the service. Then, you’ll calculate the percentage of that total cost to determine how much you’re responsible for paying. For example, if your plan has coinsurance of 20 percent and you have met your deductible, a medical service that costs $1,000 will require you to pay $200. Costs can vary by hospital or facility and location, so it’s important to know if your policy has coinsurance. If it does, you should be prepared to pay the required amount. Coinsurance has become increasingly more common in recent years.
Co-payment (also known as co-pay)
A co-payment is a flat amount, found in your policy documents, that you are required to pay for certain medical services or medications. The amount can vary by the type of service. For example, you may have a co-pay of $30 for a doctor’s visit, $20 for one kind of prescription, and $50 for another type of prescription.
The annual deductible is the amount you are required to pay for medical services before your health insurance plan begins to pay. For example, if your deductible is $1,000, your plan won’t pay anything in a given year until you’ve spent $1,000 on covered medical services, devices or medications. Depending on your plan, different types of services are included in spending that counts towards the deductible amount. Also, some services, including preventive services, may be covered before you spend the deductible amount. Be sure to check your plan for those specific details before scheduling any appointments.
An exception request is a written request that your health insurance company cover the medication, device or service you need as advised by your doctor. An exception request should be received before the medication, device or service has been obtained.
Exclusive Provider Organization (EPO)
An Exclusive Provider Organization (EPO) is a type of insurance plan with fewer providers to choose from. You can choose your primary care doctor or a specialist you want to see from a smaller list than one found in a PPO [See Preferred Provider Organization (PPO), below] network. An EPO health insurance plan may not cover your medical costs if you see a doctor who is out-of-network.
Flexible Spending Account (FSA)
A flexible spending account (FSA) is a special type of account used to pay for health expenses. With this type of account, you (along with your employer, in some cases) can make contributions up to a maximum of $2650 in 2018 (the cap on contributions changes every year). You decide how much you will contribute at the beginning of the year and cannot change it thereafter. The money in an FSA is front-loaded, meaning you may use the full amount immediately at the beginning of the year, even though the full amount has not yet been withheld from your paycheck. You must use the funds in the FSA during the calendar year (some employers allow you to use a previous years funds through March of the following year), or you will lose the funds. You may only use the funds on IRS-defined allowable expenses, so make sure to check that your expenses qualify.
Formulary (also known as drug or formulary list)
A formulary is a list of prescription medications, both generic and brand-name, covered by your insurance plan. Prescription medications are grouped into tiers, and the tier your medication is on determines your portion of the cost. Tier 1 usually covers generic medications, making this the lowest-cost tier. Higher tiers cover preferred and non-preferred brand-name medications at a higher cost to you. If your medication is not included on a formulary tier, it is not covered by a plan.
Generic Medication (also known as generic drug)
A generic medication is a prescription medication that has the same active-ingredient formula as a brand-name medication. Generics enter the market when a brand-name medicine’s patents expire, and they are often less expensive. The Food and Drug Administration (FDA) in the United States considers these to be as safe and effective as brand-name medicines.
Health Savings Account (HSA)
A health savings account (HSA) is a special type of savings account that is designed to be paired typically with a high-deductible health plan (see High Deductible Health Plan [HDHP], below) to help you save for medical expenses that your HDHP does not cover. With this type of account, you (along with your employer, in some cases) can make contributions up to a maximum of $3,400 for an individual or $6,750 for a family in 2017 (the cap on contributions changes every year) and an additional $1,000 for adults over 55. You may spend funds saved in an HSA only on qualified medical expenses. Any money in an HSA at the end of the year can remain in the account, which means that if you do not spend it, you can build up savings tax-free over time to spend on your health expenses. The IRS has a list of allowable expenses that HSA funds can be used for, so make sure to check that before using your funds.
Health Maintenance Organization (HMO)
A Health Maintenance Organization (HMO) is the type of insurance plan with the most restricted provider network. In an HMO, you are almost always required to see a primary care doctor first and get a referral before you can see a specialist. An HMO insurance plan may not cover your medical costs if you see a doctor who is out-of-network.
High Deductible Health Plan (HDHP)
A high-deductible health plan (HDHP) is a type of insurance plan with a higher deductible than traditional insurance plans. The monthly premium is usually lower, but you pay more of the healthcare costs when you seek care before your deductible is met. Once you’ve met your deductible, your insurance company will be responsible for payment of the remaining medical services. HDHPs are often paired with a health savings account (HSA), which allows you to pay for certain medical expenses with money exempt from federal taxes.
In-network doctors, hospitals, laboratories, clinics and facilities work with your health insurance plan and maintain a contract for their services to provide you care at a negotiated rate. You will pay less for services provided by an in-network health provider than one that is out-of-network. And some health insurance plans will not pay at all for out-of-network services.
Inpatient care generally refers to any medical service that requires admission into a hospital or medical facility. Inpatient care tends to be directed toward more serious ailments and trauma that require one or more days of overnight stay at a hospital. Health insurance companies usually require you to be formally admitted into a hospital for a stay for a service to be considered inpatient. This means a doctor has to write a note to give the order to admit you.
Investigational treatments or medications are those that are currently under review in a clinical study. Clinical studies, or trials, are part of the process by which new therapies receive approval by the FDA. Your doctor may suggest that you participate in a clinical trial as a treatment option. Ask your doctor about the current clinical trials that may be appropriate for your situation. Insurance usually does not cover costs related to investigational treatments.
When an insurance company is deciding whether to cover a medication or service, it considers whether that service is medically necessary. This means that the service is actually treating a condition or disease according to clinical guidelines. Healthcare services are defined as medically necessary (or to have medical necessity) if a doctor would normally provide those services to a patient for the purpose of evaluating, diagnosing or treating an illness, injury or disease or its symptoms, and if they are:
- In accordance with the generally accepted standards of medical practice
- Clinically appropriate in terms of type, frequency, extent, site and duration
- Considered effective for the patient’s illness, injury or disease
- Not primarily for the convenience of the patient or doctor
- Not more costly than alternative services that are at least as likely to produce equivalent therapeutic or diagnostic results for that patient’s illness, injury or disease.
Medication Discount Card (also known as prescription or drug discount card)
Medication discount cards are one way to help lower your prescription medication costs. Companies providing these cards offer discounts on any FDA-approved medication by leveraging the power of group purchasing to help negotiate lower costs for their customers. Each program manages this in different ways, and your program may have restrictions on what pharmacies you use. Costs for your medications may also vary depending on how you receive them—if you go to a local pharmacy or if you get them via mail-order—so make sure to check those details before using a discount card. Also, you should be aware that the discounted amounts you pay toward these medications may not count toward your deductible if you are insured. Usually, once you meet your deductible, your costs can drop, so it can be an advantage to pay down the deductible first.
If you have health insurance, you pay a flat amount each month called your premium. Any additional costs that are not covered by insurance when you visit your doctor, hospital or pharmacy are out-of-pocket costs. Examples of out-of-pocket costs include co-payments, coinsurance and deductibles.
There can be limits on how much a patient is responsible for paying out-of-pocket, determined by each insurer. An out-of-pocket maximum is the total amount you will pay before your health insurance begins to pay 100 percent of the cost for in-network services. This limit never includes your monthly premium or services your plan doesn’t cover. Insurance plans count all in-network co-payments, deductibles, and coinsurance payments toward this limit.
Outpatient care is a medical service provided that does not require an overnight stay at a facility (less than 24 hours at the facility). This can include routine services such as checkups or visits to clinics. It can include minor surgical procedures, as long as you are allowed to leave the hospital or facility on the same day.
Pharmacy Benefit Manager (PBM)
A pharmacy benefit manager (PBM) is a third-party administrator of prescription medication programs. The PBM’s role is to negotiate and manage prescription services for its customers, which include commercial health insurance plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program and state government employee plans. PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with manufacturers and processing and paying prescription claims.
Prior authorization is a term used by health insurance companies to convey a process for obtaining certain healthcare services. Before a health insurance company will agree to cover some services, it may require patients to seek approval or permission. Many plans have specific forms that you must complete for your prior authorization request to be processed.
Your monthly premium is the amount you pay to keep your membership in your insurance plan every month. You pay this even if you don’t use healthcare services in a particular month. Because health insurance contracts last for one year, your monthly premium multiplied by 12 months is the minimum amount you’ll spend in a given year
Preventive Drug List
A preventive drug list is a list of medications your health insurance plan classifies as not being subject to your deductible. Unlike other services, which you will have to pay for out-of-pocket until you meet your deductible, these medications are covered by your plan even before your deductible is met.
Preferred Provider Organization (PPO)
A Preferred Provider Organization (PPO) is a type of insurance plan with a broader network of doctors. If you are in a PPO, you can choose a doctor you want to see from a larger list of primary care and specialty doctors. A PPO may cover some costs if you see an out-of-network provider, but you will pay more to see them.