Your guide to understanding health insurance policies

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Health insurance policies are often filled with complex terms and legal jargon, making it challenging to understand your coverage. However, by understanding the key terms, different plan types and the specific services covered, you can make informed decisions about your healthcare.

This guide breaks down the key terms and what your plan covers so you can confidently navigate your healthcare options and avoid unexpected expenses.

Key health insurance terms you should know

Health insurance policies are written in legal language and filled with medical jargon, which is why they are often difficult to read and understand.

Knowing the key terms can help you feel more confident in understanding your policy and making better decisions about your healthcare.

Premium

A premium is the amount you pay for your health insurance every month. It’s like a subscription fee that keeps your insurance active, even if you don’t use it often.

Deductible

This is the amount you pay out of pocket before your insurance begins to cover your medical expenses. For example, if your deductible is $1,000, you’ll need to pay the first $1,000 of your medical bill before your insurance starts to contribute.

Copay

This is the fixed amount you pay for a covered health service, usually at the time of service. For example, you might pay a $20 copay for a doctor’s visit or a $10 copay for a prescription. Copays help reduce the overall cost for the insurer, and they are usually lower for routine services.

Coinsurance

This is the percentage of the amount you pay for a service after you’ve met your deductible. For example, if your coinsurance is 20%, you pay 20% of the medical bill, and your insurance covers the remaining 80%. It typically applies after your deductible has been paid and helps split the service cost between you and the insurer.

Out-of-pocket maximum

The most you’ll have to pay for covered services in a plan year. Once you reach this limit, your insurance will pay 100% of the costs for covered services, including deductibles, copayments, and coinsurance, but not your premiums. It’s a safety net that protects you from excessive medical expenses.

In-network providers

In-network providers are the healthcare providers, hospitals, or pharmacies that are part of your insurer’s network of contracted providers. If you use in-network providers, you will typically pay lower costs, as the insurer has negotiated rates with these providers.

Out-of-network providers

Out-of-network providers are providers that don’t have a contract with your insurance company. Using out-of-network providers often leads to higher costs, and in some cases, your insurer might not cover the costs at all.

Preauthorization (Prior Authorization)

When your insurance company requires you or your healthcare provider to get approval before receiving a specific treatment or service. It is often needed for certain surgeries, medications, or tests. Without preauthorization, your insurance might not cover the costs of the service.

What are the different types of health insurance plans?

There are various health insurance plans available, whether you are choosing an individual plan, a marketplace policy or a workplace plan. Knowing the difference between the plans can help you select the right one for you or your family.

Health Maintenance Organization (HMO): This plan requires members to choose a primary care physician (PCP). Your PCP will be your first point of contact for any healthcare needs, and if you need to see a specialist, you must get a referral from your PCP.
Preferred Provider Organization (PPO): This gives you more flexibility in choosing healthcare providers. You don’t need a referral to see a specialist; you can see any doctor or specialist, though you’ll pay less if you use providers within the network.
Exclusive Provider Organization (EPO): EPO is similar to a PPO but with stricter network restrictions. EPO members must use in-network providers for all non-emergency care. Unlike an HMO, you don’t need a referral to see a specialist, but you should stay within the network for care to be covered.
Point of Service (POS): This plan combines features of HMO and PPO plans. Like an HMO, you are required to choose a primary care physician (PCP), and like a PPO plan, you can see out-of-network providers at a higher cost.
High-deductible health Plan (HDHP): This plan offers lower premiums but comes with a higher deductible than most other plans. It is often paired with Health Savings Accounts (HSAs), allowing you to save money for medical expenses.
Catastrophic health insurance: Catastrophic health insurance protects you in case of major health emergencies or unexpected medical expenses. These plans typically have very low premiums but high deductibles.
Medicaid: Medicaid is a state and federal program that provides health insurance to low-income individuals and families. Eligibility for Medicaid is based on income and household size, and it covers a wide range of health services.
Medicare: Medicare is a federal program primarily for individuals aged 65 and older, though it also covers certain younger individuals with disabilities. Medicare is divided into parts to cover hospital care, medical services and prescription drugs.

Each health insurance plan has its own advantages and drawbacks, so it’s important to consider your healthcare needs, budget, and preferences when choosing a plan.

Understanding your health insurance policy documents

The Summary of Benefits and Coverage (SBC)

The Summary of Benefits and Coverage (SBC) is a key document that gives you a clear, concise summary of what your health insurance plan covers. It helps you compare different plans and understand the important details of your coverage. The SBC typically includes:

Cost-sharing details: Information about premiums, deductibles, copayments and coinsurance.
Coverage details: A list of services covered under the plan, including doctor visits, prescriptions, emergency services and preventive care.
Out-of-pocket limits: The maximum amount you’ll have to pay in a year before your insurance covers 100% of costs.

Reviewing this document when choosing a plan or renewing your coverage is important, as it helps you make informed decisions about your healthcare.

The Summary Plan Description

The Summary Plan Description (SPD) is the equivalent of a declaration page. It’s a more detailed document that provides the full terms and conditions of your insurance coverage and outlines everything that’s included in your policy.

You should review the SDP carefully to ensure all your personal information and plan details are correct.

Here are a few of the more important details an SPD includes:

Plan name: This is simply the name of your plan.
Plan numbers: This is the plan number and the Employer’s Identification Number (EIN), the number the IRS assigns to the Plan Sponsor.
Type of plan: This details the plan type, such as an HMO, PPO, HDHP, etc.
Type of benefits: This outlines the plan benefits, such as medical, dental, vision, etc.
Plan year: This outlines the plan year or the dates that your health insurance policy is in effect.
Plan administrator: The details of the plan administrator are listed here so you know who to call when you have questions about your policy.

The Department of Labor requires health insurance companies to send a paper copy of your Summary Plan Description, but it should also be online when you log into your account.

Exclusions and limitation

Every health insurance plan has exclusions and limitations, which are services or treatments not covered by your policy. Understanding these exclusions is crucial to avoid unexpected medical expenses. Some common exclusions include:

Cosmetic surgery (unless medically necessary)
Certain elective procedures
Experimental treatments or medications

Additionally, limitations may apply to certain types of care, such as a limit on the number of visits to a specialist or a cap on prescription drug coverage. The policy contract will clearly outline these exclusions and limitations so you can avoid surprises when seeking care.

What does my health insurance plan cover?

While the specific coverage details can vary by plan, most health insurance plans cover the following services:

Preventive care
Doctor visits
Hospital care
Emergency services
Prescription drugs
Mental health services
Maternity and newborn care
Rehabilitation and therapy
Laboratory services
Chronic disease management
Pediatric care

How to choose the right health insurance plan for you

Your health insurance should align with your healthcare needs, budget and personal preferences. Here’s how you can choose the right plan for you:

Assess your healthcare needs: Consider your current health condition, any ongoing treatments or medications, and how often you visit the doctor. If you expect major health events, like surgery or pregnancy, ensure your plan adequately covers those services.
Understand your budget: Make sure the health insurance plan fits your budget. Look beyond the monthly premium and consider other costs like the deductible and out-of-pocket expenses such as copayments and coinsurance.
Evaluate coverage options: Review the Summary of Benefits and Coverage (SBC) to understand exactly what the plan covers. Look for coverage of essential services like doctor visits, preventive care, prescriptions and emergency care.
Consider flexibility and convenience: A PPO or POS plan may be a better fit if you value flexibility in choosing healthcare providers. These plans allow you to see specialists without a referral and give you more freedom in selecting providers.
Look for additional benefits: Many plans offer extra benefits like telemedicine services, wellness programs, mental health coverage and discounts on gym memberships. These perks can make a big difference in your overall health and wellness.

Health insurance plans can change annually, so make sure to review your plan every year during the open enrollment period to ensure it meets your needs.

It’s important to know the coverage options available to you and how your specific plan works, including premiums, deductibles and copayments. By reading your policy documents carefully and understanding the details, you can avoid surprises when seeking care.

Frequently Asked Questions

How can I make changes to my health insurance plan?

If you are unhappy with your current plan, you can compare different plans at any time. However, you can only enroll in a different plan during an open enrollment period or a special enrollment period because of a qualifying event.

For employer-based plans, your company will inform you of its open enrollment period when you are hired, and employers typically notify employees of upcoming open enrollment well in advance.

The open enrollment dates change each year for the marketplace or individual plans.

How do I know if my health insurance covers a specific treatment or procedure?

To determine if your health insurance covers a specific treatment or procedure, review your plan’s Summary of Benefits and Coverage (SBC), which outlines the services covered under your policy. You can also check your policy documents for detailed information about covered treatments and any exclusions. You should also contact your health insurer to confirm what they cover.

How can I check if a doctor is in-network?

To check if a doctor is in-network, you can use your insurance provider’s online directory, which allows you to search for doctors by location.

Sources:

UnitedHealthcare. “Summary of Benefits and Coverage (SBC).” Accessed March 2025.

Aetna. “How health insurance works.” Accessed March 2025.

Mark Vallet

Contributing Researcher

Mark Vallet is a Denver-based insurance expert and journalist with 18 years of experience covering the car insurance industry. He specializes in breaking down complex insurance topics into clear, expert-backed insights that help drivers make smarter insurance coverage decisions.