DEFINING TERMS IN HEALTH INSURANCE
Health insurance communications are filled with a vocabulary that isn’t always intuitive. To add to the confusion, acronyms are commonly used. What you’re left with is a nondigestible alphabet soup that contains important information for your out-of-pocket cost as a patient.
In this blog, we hope to shed light on some important health insurance terms. We will list several commonly used terms with their acronyms and provide some context and transparency to the language of health insurance.
Out-of-pocket (OOP) is the term used to indicate the total amount due from the patient. It is their financial responsibility for the processed claim. The final OOP amount is determined by the health plan after any copayments, coinsurance, and unmet deductible amounts are calculated into the amount to be paid to the provider. Patient OOP, plus insurance payment, results in the total amount due to the provider.
A claim is a term for a healthcare bill from a provider to an insurance company for a member’s services. A claim contains important information describing the services rendered and the diagnosis information justifying the services. An insurance company will only pay on “clean” claims, meaning claims that have all required fields accurately completed by the provider’s billing office.
A copayment is a flat rate fee due from the patient directly to the provider at the time of service. Copayment amounts vary by type of service and are predetermined by a health plan at the time you elect your health plan benefits.
Coinsurance denotes the percentage of the amount due (as determined by the health plan), which is the financial responsibility of the patient. Like copayments, the coinsurance percentages vary by type of service and are predetermined by a health plan at the time you elect your health plan benefits.
A deductible is the amount a patient must pay out-of-pocket for healthcare services before health insurance benefits kick in. Deductibles usually come in two amounts, one for in-network services and one for out-of-network services. As motivation to steer patients to contracted providers, the in-network deductible is typically lower than the out-of-network deductible amount.
In-Network v. Out-Of-Network (OON):
In-network and out-of-network denotes the contracted status of a provider with a health insurance company. In-network means the provider is a fully contracted and credentialed participating provider with a health plan’s provider network. Health plans may have different provider networks for different types of benefit plans. For example, a health plan may have different contracted providers in their health maintenance organization network v. their participating provider organization network. Or, they may have different contracted providers in their Medicare Advantage (senior) network v. their Medicaid health plan offering.
Out-of-network (OON) means a provider is not directly contracted to the health plan. OON providers are not part of the health plan’s provider network, but some benefit plans (i.e., participating provider organization) provide health plan payments for OON providers. Patients generally pay more out-of-pocket cost when receiving services from an out-of-network provider.
Health Maintenance Organization (HMO):
Health Maintenance Organization (HMO) is a health plan type that limits access to a defined network of providers. The advantages of an HMO are lower premium costs to enrollees and higher coordination of care within the tighter provider network. The disadvantages of an HMO are limited access to specialty providers and the fact that referrals usually require a referral from the patient’s primary care provider.
Participating Provider Organization (PPO):
Participating Provider Organization (PPO) is a health plan type where patients may access a broad network of providers. The advantages of selecting a PPO are self-referral to specialists and a greater choice of providers including in-network and out-of-network providers. The disadvantages of a PPO are more out-of-pocket costs to patients and higher premium costs.
Explanation of Benefits (EOB):
Explanation of Benefits (EOB) is a document the health plan sends the patient after a provider claim has been filed for that patient. The EOB outlines that services are covered and what amounts might be owed by the patient. The EOB is not a bill.
Verification of Benefits (VOB):
Verification of Benefits (VOB) is a service some providers offer to their patients that predicts the coverage and payment of the services a patient is considering. The VOB process examines a patient’s health insurance benefits for any copayments, coinsurance, and unmet deductible amounts that will be the patient’s financial responsibility. The VOB may include an investigation of whether the insurance plan requires a “prior authorization” for services to be rendered or if the insurance plan considers the prospective service to be a “covered service”.
Some services require permission from the health plan for the provider to be paid for its services. Services requiring “prior auth” are generally related to newer technology and are higher in cost. Genetic testing often requires prior authorization from a health plan.
Covered v. Non-Covered Services:
Covered or non-covered services refer to the insurance plan’s determination of whether a service is considered a covered medical benefit for the patient. Covered services are reimbursable to the provider whereas non-covered services may not be the responsibility of the insurance plan. Non-covered services may still be performed. Payment, however, may not be provided by the insurance plan.
Medical necessity indicates a health plan’s determination of whether a medical service is considered appropriate and necessary. Services considered medically necessary are usually supported by well-understood scientific evidence and are part of medical practice standards.
Sometimes insurance companies deem a test investigational. This does not mean the test is not an appropriate test. It does mean that the insurance company does not believe that there is enough evidence to consider the testing “medically necessary,” and therefore it’s often a non-covered service.
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