Insurance Terms Glossary
The words on an insurance plan are not everyday words. Here is what they mean, in plain language, with no jargon and no sales pitch.
Four terms do most of the work in any health plan: the premium you pay every month, the deductible you pay before the plan starts paying, the coinsurance or copay you share after that, and the out-of-pocket maximum that caps your year. Understand those four and the rest of the page gets much easier.
If a term you need is missing, or a definition raises a question about your own plan, call us at (805) 966-4900. There is no charge for the conversation.
A
Actuarial value
The share of covered medical costs a plan is expected to pay, on average, across everyone enrolled in it. It is how the metal levels are set: a Silver plan has an actuarial value of about 70 percent, meaning the plan pays roughly 70 percent of covered costs and members pay the rest. It describes the plan design, not what any one person will spend in a given year.
Annual Enrollment Period (Medicare)
The fall window, October 15 through December 7, when anyone on Medicare can join, drop, or switch a Medicare Advantage plan or a Part D drug plan. Changes take effect January 1. Medicare Advantage members get a second window, January 1 through March 31, to move to a different Advantage plan or go back to Original Medicare.
B
Beneficiary
On a health or Medicare plan, the person the coverage belongs to. On a life insurance policy the word means something different: the person or people you name to receive the benefit.
C
Coinsurance
Your share of a bill after the deductible has been met, expressed as a percentage. If the plan pays 80 percent, your coinsurance is the other 20 percent. It usually applies to the larger items: hospital stays, inpatient and outpatient surgery, and the more expensive imaging tests.
Copay
A flat amount you hand over at the time of service, typically for an office visit or a prescription. A copay usually applies before the deductible is met, and it counts toward your out-of-pocket maximum. Plans with low copays carry higher premiums, because the plan is paying the rest of the doctor's negotiated fee out of everyone's premium dollars.
Creditable coverage
Prescription drug coverage that is at least as good as Medicare Part D, such as many employer and retiree plans. Keeping creditable coverage lets you delay Part D without a late enrollment penalty. Your plan must tell you in writing each year whether its drug coverage is creditable, so keep that notice.
D
Deductible
What you pay for covered care each calendar year before the plan begins paying. Family plans usually have both a per-person deductible and a larger family deductible; once the family amount is reached, no one else in the household has to meet an individual deductible for the rest of the year. Care from an out-of-network provider is normally subject to a separate and larger deductible.
E
Effective date
The day your coverage actually begins. An approval letter is not coverage. Care received before the effective date, and before the first premium is paid, is not covered.
EOB (Explanation of Benefits)
The statement your insurance company sends after a claim is processed. It is not a bill. It shows what the provider charged, the lower negotiated fee the plan allowed, what the plan paid, and what is left for you. It is the clearest place to see the negotiated fee at work and the first place to look when a bill seems wrong.
EPO (Exclusive Provider Organization)
A plan that covers care only from providers inside its network, except in an emergency, but generally does not require a referral to see a specialist. Think of it as sitting between an HMO and a PPO.
Essential health benefits
The ten categories of care the Affordable Care Act requires individual and small group plans to cover: ambulatory (outpatient) services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services including dental and vision care.
F
Formulary
The list of prescription drugs a plan covers, sorted into tiers. Generics sit on the lowest tiers and cost you the least; brand name and specialty drugs sit higher. Formularies change from year to year, which is why it is worth checking your medications before each renewal rather than after.
G
Guaranteed issue
The right to buy a policy without answering health questions. When you first enroll in Part B at 65 or older, and in certain other situations such as losing employer coverage, you can buy a Medicare Supplement on a guaranteed issue basis. These windows are short: for most of them you have 63 days from the day the other coverage ends, so act quickly. Outside those windows an insurer may review your health before it agrees to cover you.
H
HDHP (High Deductible Health Plan)
A plan with a higher deductible and, in exchange, a lower premium. Federal rules do not allow an HSA qualified high deductible plan to charge copays for office visits or prescriptions until the deductible has been met. Plans meeting those federal rules let you contribute to a health savings account. Since January 1 2026, Bronze and Catastrophic marketplace plans also count, whether or not they meet the usual deductible test.
HMO (Health Maintenance Organization)
A plan built around one network. You choose a primary care doctor who coordinates your care and refers you to specialists, and care outside the network is generally not covered except in an emergency. Premiums are usually lower than a comparable PPO.
HSA (Health Savings Account)
A tax free savings account you can open when you are covered by a qualified high deductible health plan. Federally, money goes in untaxed, grows untaxed, and comes out untaxed when it is spent on qualified medical care. California has never adopted these rules, so contributions are not deductible on a California return and the earnings are taxable by California. Ask your tax preparer how this affects you. The account is yours, and whatever you do not spend carries over year after year. Once you enroll in Medicare you can no longer contribute, though you may keep spending what you have saved.
I
In-network
A doctor, lab, hospital, or pharmacy under contract with your insurance company and accepting its negotiated fees. Staying in network is the simplest way to keep your costs down. Use the plan's find a provider tool, and check again when you call to make the appointment, because networks change.
Initial Enrollment Period (Medicare)
Your first chance to sign up for Medicare: a seven month window that opens three months before the month you turn 65 and closes three months after it. Enrolling in that window avoids late penalties, unless you are still covered by qualifying employer coverage and delay on purpose.
M
Medicare Advantage (Part C)
A private plan that takes the place of Original Medicare. It bundles Part A and Part B, usually includes Part D drug coverage, and often adds extras. In return you use the plan's network and follow its rules, which can include referrals and prior authorization. You keep paying your Part B premium.
Medicare Part A
Hospital insurance. It covers inpatient hospital stays, skilled nursing facility care following a qualifying hospital stay, some home health care, and hospice. Most people paid for it through payroll taxes during their working years and owe no premium for it.
Medicare Part B
Medical insurance. It covers doctor visits, outpatient care, laboratory work, durable medical equipment, and preventive services. Part B has a monthly premium, usually deducted from a Social Security payment, and people with higher incomes pay more for it.
Medicare Part D
Prescription drug coverage, sold by private companies either as a stand-alone plan alongside Original Medicare or built into a Medicare Advantage plan. Each plan has its own formulary and its own pharmacy network, and there is now an annual limit on what you pay out of pocket for covered drugs.
Medicare Supplement (Medigap)
A policy that pays the deductibles and coinsurance Original Medicare leaves to you. You keep Original Medicare and can see any provider who accepts it, so there is no network to check. Medigap plans are standardized by letter, which means Plan G from one company covers the same as Plan G from another; the premium and the service behind it are what differ. Medigap does not include drug coverage, so most people pair it with a Part D plan.
Metal tiers
The four levels of individual and family plans: Platinum, Gold, Silver, and Bronze. The metal describes the actuarial value, that is, how the plan splits costs with you. Platinum pays the largest share and charges the highest premium; Bronze pays the smallest share and charges the lowest. The metal says nothing about the quality of the care you receive.
N
Negotiated fee
The lower price a doctor, laboratory, or hospital has agreed to accept from your insurance company. It is often well below the provider's regular fee, and access to it is one of the biggest benefits of carrying insurance at all. These prices are not published anywhere; the place you can see one is your Explanation of Benefits, where the amount charged sits next to the amount allowed.
Network
The group of doctors, hospitals, laboratories, and pharmacies contracted with a plan. For most people the makeup of the network matters more than any other feature of the plan, because it decides whether you can keep the providers you already trust.
O
Open enrollment
The yearly window when you can buy or change a plan without needing a special reason. For individual and family coverage in California it generally runs from November 1 through January 31. Medicare has its own separate windows; see Annual Enrollment Period and Initial Enrollment Period.
Out-of-network
A provider with no contract with your plan. You will generally be charged the regular fee rather than the negotiated fee, and what you pay applies to a separate, larger out-of-network deductible and out-of-pocket maximum. Some plans do not cover out-of-network care at all except in an emergency.
Out-of-pocket maximum
The most you can pay for covered in-network care in a calendar year. It includes your deductible, coinsurance, and copays, but not your premium. Once you reach it, the plan pays the rest of your covered costs for that year. Family plans carry a higher family maximum alongside the individual one.
P
Part D late enrollment penalty
A permanent surcharge added to your Part D premium if you go 63 days or more without creditable drug coverage after you first become eligible. The longer the gap, the larger the surcharge, and once it applies you pay it for as long as you have Part D. This is the reason to enroll in a drug plan on time even if you take no medications today.
PPO (Preferred Provider Organization)
A plan that covers care both inside and outside its network, paying a larger share when you stay in network, and that does not require a referral to see a specialist. Premiums are usually higher than a comparable HMO.
Premium
The fixed amount you pay every month to keep coverage in force, whether or not you see a doctor. Premiums do not count toward your deductible or your out-of-pocket maximum, which is why the cheapest premium is not always the cheapest plan.
Preventive care
Screenings, immunizations, and wellness visits that plans must cover in full when you use an in-network provider, with no deductible and no copay. If a screening turns into treatment, the treatment is billed the usual way.
Prior authorization
Approval a plan requires before it will cover certain procedures, imaging, or drugs. Requesting it is the provider's job, but it is worth confirming that it has been granted, because care delivered without a required approval can be denied afterward.
Q
Qualifying life event
A change in your life that opens a special enrollment period: losing other coverage, marriage, a birth or adoption, a permanent move that gives you access to new plans, or a child turning 26 and coming off a parent's plan. Divorce or legal separation qualifies when it causes someone to lose coverage or dependent status. Most events give you 60 days to act, so tell your agent as soon as one happens.
S
Special Enrollment Period
A window outside open enrollment when you may enroll or change plans because of a qualifying life event. Medicare has its own special enrollment periods, including one for people who kept working past 65 with employer coverage and are now leaving it behind.
Subsidy (premium tax credit)
Government help with the premium on an individual or family plan bought through Covered California, based on household income and family size. It is applied to your monthly premium during the year and reconciled on your tax return. There is a hard income limit: above it no premium help is available at all, and any credit paid in advance must be repaid in full. That limit returned on January 1 2026. Subsidies do not apply to Medicare plans.
U
Underwriting
An insurer's review of your health history to decide whether to issue a policy and at what price. Individual and family health plans no longer use it, and it does not apply during your Medicare Supplement guaranteed issue window. It can apply if you decide to switch Medigap policies later on, which is why the first choice deserves care. California is an exception worth knowing: the Birthday Rule gives you 60 days following your birthday each year to switch to a policy with the same or fewer benefits, from any company, without underwriting.
Still Not Sure What Your Plan Says?
Bring us the plan documents, the letter, or the bill. We will read it with you and tell you plainly what it means.