Terms Defined: Co-Payments, Co-Insurance, Deductibles, ETC.

Health insurance has a language of its own. Even words you know have a completely different meaning when in reference to health insurance. So to have a better understanding of this industry, it’s important to know the frequently used terminology. In the video below, Jeff Hess, individual, group, and ancillary health insurance expert, defines some of the most common verbiage. Check it out!

Many insurance agents mistakenly think that everybody understands terminology that’s frequently used in the industry, such as health insurance co-payments, deductibles, co-insurance, and even what’s covered and not covered.


Many who’ve had health insurance before understand co-payments because they know to pay the doctor $30 for example. The $30 is a co-payment, or co-pay for short. Co-pays also apply to prescriptions, including generics, non-formulary, formulary, preferred brands, non-preferred brands, or specialty drugs. Typically, whenever you have a set, or fixed, dollar amount for any service that has to do with your health insurance, it is a co-payment.


As for deductibles, you decide on that when you choose your plan for the year. Let’s say for instance you have a silver plan with a $3,000 deductible. Now for the sake of the example, let’s say you have a heart attack and are rushed to the emergency room for open heart surgery. After several days in the hospital, you finally go home, where you receive the bill that turns out to be $100,000. Your deductible means you’re responsible for the first $3,000 of that bill.

Whether you’re in-patient having surgery or out-patient having a surgery or an MRI or CAT scan, your hospital needs are subject to your deductible. Typically, there’s not a fixed dollar amount that you have to pay or have a co-payment for. If it falls under your deductible, you’re 100% responsible for the first, in this case, $3,000.


Now co-insurance goes hand-in-hand with the deductible because right after the deductible the insurance company pays a percentage of the bill, and you the client pays the other part or the bill. The payment percentage is different. For instance, the carrier would pay 80%, and the client would pay the other 20%. Let’s say the plan that you chose has the $3,000 deductible. After the deductible, the insurance company pays 80%, and you’re going to pay 20% until you reach an additional $3,000 out-of-pocket.

With that same scenario – heart attack, hospital, bill arrives – the deductible, as we’ve already established, requires that you pay the first $3,000. Then after that, the insurance company kicks in, paying 80% while you pay the other 20% until you reach an additional $3,000 out-of-pocket. That’s co-insurance.


Now your maximum-out-of-pocket is your deductible plus your co-insurance. So with the example we’ve been using, your maximum-out-of-pocket would be $6,000 for that plan year.

Plan Year

Plan years go by calendar year. So from January 1st to December 31st – regardless of when your policy goes into effect – that is your plan year. Again, it goes by calendar year.


So once you meet your deductible and your co-insurance – i.e. your out-of-pocket maximum – the insurance company pays 100%. That brings me to the term “covered.” What’s covered and what’s not? Before I got into insurance, if someone told me, “Don’t worry about it, it’s covered,” I’d think, “Great! I don’t have to pay for it.” Actually, when it comes to insurance terminology, covered means it is under the language of the policy. To simplify, it is subject to your deductible, co-insurance, and maximum-out-of-pocket.

Covered means you are responsible for all or a portion of the payment. Now “paid for” means the insurance company is going to pay for it. Ultimately, covered means it’s subject to your deductible and co-insurance. Then, once you meet your maximum-out-of-pocket, the insurance company pays for it 100% as long as it’s a covered item.

Since insurance is oftentimes overwhelmingly confusing, we want to shed light on this industry by answering YOUR questions.  So if you have any questions or concerns, comment below and your question may be the topic of our next video!

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