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).

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 percentage 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.

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.

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.

A generic medication is a prescription medication that has the same active-ingredient formula as a brand-name medication. Generics come to the market after a brand-name medicine’s patents expire, and they usually cost less. The U.S. Food and Drug Administration (FDA) rates these to be as safe and effective as brand-name medications.

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.

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.

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.

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.

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.