Defining Common Health Insurance Terms

To help you navigate through the pages that lie ahead, here are definitions for some of the insurance terms you meet.

• Copayment: The dollar amount your health insurance policy requires you to pay toward your bills. Examples of copayments include dollar copayment amounts ($15 for physician visits, $10 for prescription drugs) and percentage copayments (20 percent of your hospital bill).
• Deductible: The dollar amount of medical bills you personally pay before your health policy kicks in.
• Excess Major Medical policy: A major medical policy with a very high limit ($2 million, typically) and a high deductible ($5,000 or more) designed to dovetail with your other health insurance policy to cover most of what the other policy doesn’t.
• Health maintenance organization (HMO): An organization set up to provide health care to its members at affordable costs and that puts an emphasis on preventive care. To encourage members to get preventive care, there are usually little or no deductibles or copayments. HMOs usually own their own clinics where the doctors and other medical staff are employees of the HMO. An HMO also sometimes forms a partnership with a local clinic as opposed to owning it outright. HMOs try to provide all the members’ care in the clinic and referrals to outside specialists are given sparingly. HMOs operate under a managed care environment. Pure HMOs don’t cover nonemergency care outside their own clinics without a referral. In recent years, many HMOs, to compete with insurance companies, now cover care outside the system subject to sizable deductibles and copayments.
• Major medical: Serious or catastrophic health problems.
• Major medical policy: A health insurance policy with a policy limit high enough to cover most serious health problems.
• Managed care: Health insurance coverage in which the decisions about your medical care are subject to your insurance provider’s approval, including the type of medical procedures your doctor can use to treat you, what prescription drugs can be used to treat you, and how long you’re allowed to remain in the hospital. Its primary purpose is to control costs and keep insurance premiums affordable. Out-of-pocket maximum: An important feature of health insurance policies that limits your annual responsibility for your health insurance policy copayments and deductibles.
• Preferred provider organization (PPO): Groups of doctors and hospitals that band together and agree to cost and managed-care controls. Formed in an attempt to compete with HMOs, they can be established and controlled either independently or by an insurance company such as Blue Cross. They operate a lot like HMOs except that doctors aren’t employees. And they don’t own their own clinics. To the average consumer, PPOs and HMOs are indistinguishable.