Why This Glossary Exists
Every time a family sits down to compare health plans during open enrollment — or tries to figure out why a claim was only partially paid — they run into a wall of unfamiliar language. Terms like coinsurance, formulary, and out-of-pocket maximum appear on every plan document, yet most people have never had them explained in plain English.
This glossary defines the 30 health insurance terms families actually encounter, organized by how you'll typically run into them. For a broader look at how coverage works before diving into terminology, see Health Insurance Explained: What Every Family Needs to Know.
This article is for general informational purposes only and is not personalized insurance, financial, or legal advice. Coverage terms, definitions, and rules vary by insurer, plan type, and state. Always read your actual policy documents and consult a licensed insurance professional for guidance specific to your situation.
Premium
The amount you pay — usually monthly — to keep your health insurance active, regardless of whether you use any medical services. Premiums do not count toward your deductible or out-of-pocket maximum.
Deductible
The dollar amount you must pay for covered health services before your insurance begins sharing costs. For example, with a $1,500 deductible, you pay the first $1,500 of covered care each plan year.
Copay
A fixed dollar amount you pay for a specific covered service, such as $25 for a primary care visit. Copays are often charged at the time of service and may or may not count toward your deductible.
Coinsurance
Your share of costs after you've met your deductible, expressed as a percentage. If your plan has 20% coinsurance, you pay 20% of covered costs and your insurer pays 80%.
Out-of-Pocket Maximum
The most you will pay for covered in-network services in a single plan year. Once this limit is reached, your insurer pays 100% of covered in-network costs for the rest of the year. Premiums are not included.
In-Network Provider
A doctor, hospital, or other healthcare provider that has a contract with your insurance company. Using in-network providers typically means lower costs for you compared to out-of-network care.
Out-of-Network Provider
A provider without a contract with your insurer. Services from out-of-network providers are usually covered at a lower rate or not at all, depending on your plan type.
Formulary
The list of prescription drugs your insurance plan covers. Drugs are typically grouped into tiers with different cost-sharing levels. A drug not on the formulary may not be covered or may require special approval.
Prior Authorization
Approval your insurer requires before you receive certain treatments, procedures, or medications. Without prior authorization when required, the insurer may deny payment for the service.
Explanation of Benefits (EOB)
A statement from your insurer — not a bill — showing what was billed for a service, what the insurer paid, and what you owe. Reviewing EOBs helps catch billing errors.
Health Maintenance Organization (HMO)
A plan type that generally requires you to use a network of providers and choose a primary care physician. Referrals are usually needed to see specialists, and out-of-network care is typically not covered except in emergencies.
Preferred Provider Organization (PPO)
A plan type that lets you see any provider, in or out of network, without a referral. Out-of-network care is covered but costs more. PPOs generally offer more flexibility than HMOs.
Key Cost and Coverage Concepts
Understanding how money moves between you and your insurer is the foundation of reading any health plan. Below are the terms tied directly to what you pay and what the plan pays.
| Plan Year | 12-month period during which your deductible and out-of-pocket limits reset (Standard across most employer and marketplace plans) |
| Open Enrollment | The annual window when you can enroll in or change your health plan (Marketplace open enrollment typically runs Nov–Jan; employer windows vary) |
| Special Enrollment Period (SEP) | A limited window to enroll outside open enrollment after a qualifying life event (marriage, birth, job loss) (Generally 60 days from the qualifying event) |
| Allowed Amount | The maximum your insurer will pay for a covered service from in-network providers (Amounts exceeding this are the patient's responsibility for out-of-network care) |
| COBRA | Temporary continuation of employer-sponsored coverage after leaving a job (Governed by federal law; typically available for up to 18 months) |
| Coordination of Benefits | Rules that determine which plan pays first when a person is covered by more than one health plan (Common for families where both spouses have employer coverage) |
One of the most common points of confusion is the difference between a deductible and an out-of-pocket maximum. Your deductible is the amount you must pay before your insurer begins sharing costs (for most covered services). Your out-of-pocket maximum is the ceiling — once you hit it in a plan year, the insurer covers 100% of in-network covered services for the rest of that year. Premiums, however, never count toward either figure.
Coinsurance and copays are both forms of cost-sharing, but they work differently. A copay is a flat dollar amount (say, $30 for a primary care visit). Coinsurance is a percentage split — if your plan covers 80% after the deductible, you owe the remaining 20%. Many plans use both, depending on the service type.
If you're also comparing terminology used in home or auto coverage, Insurance Jargon Decoded covers terms shared across policy types, and our home and auto insurance glossary explains how terms like deductible and premium apply in those contexts.
After reviewing these definitions, it's worth knowing where families commonly go wrong. Things Families Misread in Their Insurance Policies walks through real mistakes that cost policyholders money — many of which stem from misreading exactly these terms.
~40%
Adults who report confusion about health insurance terms
Multiple consumer surveys have consistently found that a large share of insured adults struggle to define basic terms like deductible and coinsurance.
3 tiers
Typical prescription drug formulary structure
Most plans organize covered drugs into at least three cost tiers — generic, preferred brand, and non-preferred brand — each with different out-of-pocket costs.
