How Healthcare Insurance Works - Glossary

This glossary includes the definitions of some health insurance related terms you may want to know.

Annual maximum out-of-pocket: This is the most you'll pay in one plan year before your insurance company begins to pay 100 percent of the reasonable and customary costs of your care.

Comprehensive coverage - This type of insurance - usually found in group medical coverage - combines indemnity - i.e., basic - and major medical insurance.

Fee-for-service (FFS) plan - When you see a doctor - any doctor since there's no network - you pay the bill and then send the claim paperwork to your insurance company where it's either applied to your deductible [meaning you don't get a check back], or if your deductible is already met, the insurance company will reimburse you for the percentage of your bill [called coinsurance] it's expected to pay. You're not covered for annual physicals or anything "preventive" and your hospital stay may be shortened.

Indemnity - Indemnity Insurance includes the old-fashioned insurance, which is a fee-for-service (FFS) plan. You get basic insurance coverage for doctors, hospitals, and more. You pay the fee, then submit a form to your insurance company for reimbursement or to apply to your deductible.

Major medical - If you get really sick or hurt, you get this major medical fee-for-service plan - which pays your medical bills when the basic indemnity coverage runs out.

Managed care: Managed care is a term to mean a plan that focuses on the use of a network of selected doctors, hospitals, and other providers who have contracted to provide services at a reduced rate. There's also a focus on preventive care - such as coverage for annual checkups and other preventive services. Managed care plans include point-of-service (POS), health maintenance organization (HMO), and preferred provider organization (PPO) plans.

Reasonable and customary charge: Costs vary with different doctors and hospitals, so your insurance company has calculated what it considers to be a "reasonable and customary charge," and won't pay more than that, regardless of what your doctor charges for a procedure. Also, not all services and procedures are covered. What the insurance company doesn't pay, you have to pay. So if you're having an expensive procedure, or go to a high-priced doctor, it's your responsibility to find out costs and ask your insurance company about it in advance.

Waiting period: Some insurance plans require a waiting period - i.e, a period of time you may have to wait before you can get medical care. This includes:

• A pre-existing condition waiting period: If you had a medical condition during the six months prior to signing up for health insurance - such as diabetes or asthma - and you didn't have insurance for a few months, you may have to wait anywhere from one to 18 months before you're covered for that condition. However, if you're just moving from one job to another job - without a gap in insurance - this waiting period won't apply.
• An employer waiting period: Sometimes employers require a new employee to wait from one to three months before being eligible for health insurance.
• Affiliation waiting period: This is a one- to three-month period of time that must pass before your health maintenance organization (HMO) health coverage is effective. Not all HMOs have this waiting period.

Learn more about How Insurance Works.

Watch Healthcare Video: How does health insurance work?