Health Plan Definitions

Understanding the terminology associated with health-plan coverage is essential for making informed decisions about your health-care options. This page provides clear, concise definitions of key terms frequently used in health insurance, such as coinsurance, copays, deductibles, premiums, and provider status. Familiarizing yourself with these concepts can help you evaluate available health-plan options and manage your health-care costs more confidently.

For additional or more detailed definitions, refer to your health plan’s evidence of coverage, certificate of coverage and plan documents.

More Definitions

For definitions relating to provider network and participation status; coverage rules and medical management; using your insurance; government programs; eligibility and enrollment, and more, view the panels below.

Health Plan Types and Funding Sources

Consumer-Directed Health Plan (CDHP)

Also known as a High-Deductible Health Plan (HDHP)

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health-care costs yourself before the insurance company starts to pay its share (also called your deductible). A high-deductible plan can be combined with a health savings account (HSA) for you to pay for certain medical expenses with money you set aside in your tax-free HSA. This is why it’s more commonly called an HSA-eligible plan.

Comprehensive Major Medical (CMM)

A health insurance plan that combines traditional health-care coverage with other, basic medical expenses into a single comprehensive plan at an affordable cost. CMM insurance features a low deductible, high maximum benefits and a coinsurance component, allowing you to choose any health-care provider you prefer. You will save money by using providers within the network.

Exclusive Provider Organization (EPO)

An Exclusive Provider Organization (EPO) is a health plan restricting coverage to a specific network of doctors and hospitals, excluding out-of-network care except for emergencies. EPOs combine HMO-like network restrictions with PPO-like flexibility, typically offering lower premiums and no required referrals for specialists.

Health Maintenance Organization (HMO)

A type of health-insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won't cover out-of-network care except in an emergency. An HMO may require you to live or work in its service area to be eligible for coverage. HMOs often provide integrated care and focus on prevention and wellness.

Preferred Provider Organization (PPO)

A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network. You can use doctors, hospitals and providers outside the network for an additional cost.

Fully-insured Health Plan

A fully-insured health plan is a traditional, group-health insurance policy where an employer pays a fixed, annual premium to a commercial insurer in exchange for covering all employee medical claims and administrative tasks. The insurer bears all financial risk, while the employer has predictable costs and minimal administrative burden.

Self-insured Health Plan

A type of plan usually present in larger companies where the employer itself collects premiums from enrollees and takes the responsibility of paying employees’ and dependents’ medical claims. These employers can contract for insurance services such as enrollment, claims processing and provider networks with a third-party administrator, or they can be self-administered.

Cost and Pricing Terms

Allowed Amount

The maximum amount a plan will pay for a covered health-care service. May also be called “eligible expense,” “payment allowance” or “negotiated rate.”

Balance Billing

When a provider bills you for the difference between the provider’s charge and the allowed amount. For example, if the provider’s charge is $100 and the allowed amount is $70, the provider may bill you for the remaining $30. This happens most often when receiving services from out-of-network providers. An in-network provider may not balance-bill you for covered services.

Coinsurance

Coinsurance refers to your share of the cost of a covered health-care service, calculated as a percent of the allowed amount for the service (for example, 20%). You pay coinsurance in addition to any deductible you owe for your plan. The health plan pays the rest of the allowed amount.

Copay or Copayment

A copay is a fixed dollar amount (for example, $25) you pay for a covered health-care service, such as an office visit, at the time you receive the service, after you have paid your plan’s deductible. The amount can vary by the type of service.

Cost Sharing

The share of costs covered by your insurance that you pay out of your own pocket. This term generally includes deductibles, coinsurance and copayments, or similar charges, but it doesn't include premiums, balance-billing amounts for non-network providers or the cost of non-covered services.

Deductible

Your deductible is the amount you owe for health-care services before your health plan begins to pay. For example, if your deductible is $500, your plan won’t pay anything until you have paid $500 out-of-pocket for covered health-care services, subject to the deductible. The deductible may not apply to all services.

Out-of-pocket Costs

Your expenses for medical care that isn't reimbursed by insurance. Out-of-pocket costs include deductibles, coinsurance and copayments for covered services, plus all costs for services that aren't covered.

Out-of-pocket Maximum

An out-of-pocket maximum is the most you will pay for covered, in-network medical services in a plan year, including deductibles, copayments and coinsurance. Once this cap is reached, the insurance plan pays 100% of covered costs. The out-of-pocket maximum does not include monthly premiums or out-of-network care.

Premium

The premium is the amount that must be paid for your health plan. You pay a portion of the monthly health-plan premium through automatic payroll deductions. View the Rates and Paying for Health Care Coverage web page for details.

Provider Network and Participation Status

Participating Provider

A health-care provider or facility that has a signed contract with a specific health plan to provide services at pre-negotiated rates, often referred to as the allowed amount for the service. The provider will bill your health plan directly, and will not balance-bill you for medically necessary services.

In-network Participating Provider: A predetermined network of providers that you can see while saving money (e.g., U-M Premier Care Network 1 provider). This provider has the lowest out-of-pocket cost for services (e.g., $0 deductible).
Out-of-network Participating Provider: A provider that participates with your health plan, but is not within your pre-determined network of providers (e.g., U-M Premier Care Network 2 provider). This provider has higher out-of-pocket costs for services (e.g., $2,000 deductible).

Non-participating Provider

A provider that does not have a contract with the health plan. The provider often does not bill the health plan, so the patient may have to pay up front and file claims with the health plan for reimbursement. Providers can charge a higher amount than what the health plan will reimburse. Out-of-pocket costs will be the highest when using a non-participating provider.

Service Area

A geographic area where a health-insurance plan accepts members if it limits membership based on where people live. For plans that limit which doctors and hospitals you may use, it's also generally the area where you can get routine (non-emergency) services. The plan may end your coverage if you move out of the plan's service area.

Coverage Rules and Medical Management

Medical Necessity or Medically Necessary

Health-care services provided according to evidence-based clinical practice guidelines (proven to be safe and effective based on current research) for the purpose of preventing, evaluating, diagnosing, or treating an illness, injury, condition, disease, or its symptoms, and that are:

Not primarily for the convenience of the member
Not more costly than alternative, equally-effective options
Not regarded as experimental by the health plan
Rendered in accordance with the health plan’s Utilization Management Criteria

Preauthorization, Prior Authorization or Preauthorized Service

A requirement that certain health-care services, medications or procedures must be approved by your health plan before you receive them. Your provider will submit clinical documentation, such as progress notes, test results and treatment history. This prior approval process ensures that the requested care is medically necessary and meets the health plan’s coverage criteria.

Services and supplies requiring preauthorization may change as new technology and standards of care emerge.

Referral

A written order from your primary care doctor for you to see a specialist or receive certain medical services. In many Health Maintenance Organizations (HMOs), you must get a referral before you can get medical care from anyone except your primary care doctor. If you don’t get a referral first, the plan may not pay for the services.

Lifetime Limit

A cap on the total lifetime benefits you will receive under your health plan. For example, a $20,000 lifetime cap for in-vitro fertilization, or one gastric bypass per lifetime. After a lifetime limit is reached, the insurance plan will no longer pay for covered services.

Using Your Insurance

Claim

A request for payment that you or your health-care provider submits to your health insurer when you receive items or services, such as a physician visit, hospitalization or durable medical equipment, you think are covered.

Coordination of Benefits

A way to determine which plan pays first when two or more health insurance plans are responsible for paying the same medical claim.

Durable Medical Equipment (DME)

Equipment and supplies ordered by a health-care provider for everyday or extended use. Coverage for DME may include oxygen equipment, wheelchairs, crutches, and blood-testing strips for people who have diabetes.

Grievance

A complaint that you communicate to your health insurer or plan.

Preventive Care Services

Under the Affordable Care Act, all U-M health plans cover a set of preventive services — such as blood pressure screening and cholesterol screening — at no cost to you. These services are free only when delivered by a doctor or other provider in your plan’s network. View the HealthCare.gov links that follow to learn which preventive health services are covered for adults, for women and for children.

Primary Care Provider (PCP)

A physician, nurse practitioner or physician assistant who provides, coordinates or helps you access a range of health-care services.

Government Programs

Medicare

A federal health-insurance program for people 65 and older, as well as certain younger people with disabilities. This plan also covers people with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD).

Medicare Advantage (Medicare Part C)

A type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits, with additional benefits not covered by original/traditional Medicare.

Medicare Part D

Medicare Part D is a federally approved program run by private insurance companies that helps cover the cost of prescription drugs for Medicare beneficiaries. It is available as a stand-alone plan (PDP) for original/traditional Medicare, or is included in most Medicare Advantage plans (MA-PD).

Original/Traditional Medicare

Original/traditional Medicare is a fee-for-service health plan that has two parts: Part A (hospital insurance) and Part B (medical insurance). After you pay a deductible, Medicare pays its share of the Medicare-approved amount, then you pay your share (coinsurance and deductibles).

Eligibility and Enrollment

Dependent

A child or other individual for whom a parent, relative or other person may claim a personal exemption tax deduction. Under the Affordable Care Act, individuals may be able to claim a premium tax credit to help cover the cost of coverage for themselves and their dependents.

Modified Adjusted Gross Income (MAGI)

An individual's Adjusted Gross Income (AGI) from IRS Form 1040, plus certain tax-exempt income sources (such as interest or foreign income) and specific, deducted amounts (such as IRA contributions or student loan interest) added back. It is used to determine eligibility for tax credits, deductions and government programs. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn’t include Supplemental Security Income (SSI).

MAGI does not appear as a line on your tax return.

Open Enrollment Period

An employer’s health-plan open enrollment is a designated annual period, usually lasting a few weeks in the fall, when employees sign up for, change or cancel employer-sponsored benefits (health, dental, vision) for the upcoming plan year. Without a qualifying life event, this is the only time of the year when employees can make changes.

Pre-existing Condition

A pre-existing condition is a health problem such as cancer, diabetes, asthma, or pregnancy that a person received treatment for or was diagnosed with before enrolling in a new health-insurance plan. Under the Affordable Care Act (ACA), insurance companies cannot deny coverage or charge higher premiums for these conditions.

Qualifying Life Event (QLE)

A significant change in personal circumstances, such as marriage, birth of a child, loss of employment, or moving that triggers a "Special Enrollment Period." This allows individuals to enroll in, change or update health-insurance plans outside the open enrollment period.

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