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10 Commonly Misunderstood Insurance Terms

In this article, PHP makes health insurance easy by applying commonly misunderstood insurance terms to a real-life scenario.

Insurance Terms Made Easy

For many people, health insurance terms are about as clear as mud. We get it! Insurance lingo can be a bit confusing, but we want you to know that we are here to help.

To give you a headstart, we’re breaking down 10 of the most common health insurance terms in one practical scenario. So without further ado:

Say “Hello!” to John

John is a 34 year old male living in Huntington, Indiana with his wife and 2 dogs, Chester and Bruno. He works for an accounting firm and enjoys cooking and playing video games in his spare time.

John’s accounting firm offers a generous PHP health insurance plan as part of their benefits package. This plan helps cover medical expenses and health care services for John and his family.

In order to receive this benefit, John’s employer pays a fixed amount each month to PHP. This amount is the premium. John contributes a fraction of the premium through a payroll deduction, as well. In exchange for this monthly premium, PHP then pays a portion of John’s and other enrolled employee’s healthcare costs. (To find out more about premiums, watch this helpful video)

And it’s a good thing! In February, John was involved in a serious car accident. The accident caused him to lose consciousness and he woke up very disoriented. Because of these symptoms, John was rushed to the emergency room. John’s head injury was classified as an emergency medical condition because waiting to provide care could cause him severe harm.

While at the emergency room, John’s doctor ordered an MRI to further explore the impact of John’s head injury. MRIs require prior authorization with John’s insurance which means that PHP needs to approve the service before it is conducted in order for it to be covered by insurance. However, because John’s head injury is classified as an emergency, the requirement for prior authorization is waived.

Generally, the purpose of prior authorization is to determine if a service or procedure is actually needed to prevent, diagnose, or treat the illness, injury, etc. that is present. This determination of whether or not something is medically necessary helps prevent patients from having to undergo more extensive procedures than are actually necessary for their condition.

The medical bills for John’s car accident and subsequent MRI quickly begin to pile up. He was paying them all out of his own pocket at first, but then he reached his $3000 deductible with his health insurance plan. Now PHP is contributing towards his remaining covered medical expenses, so John can relax and focus on his recovery. (Watch this video for more information on deductibles)

Fast forward to summertime and John has fully recovered from his accident, but he finds himself needing to visit a doctor for some pain that he has been having in his arm. In order to make the most of his PHP benefits, John checks to make sure that the doctor he is planning to visit is in-network. Each health insurer has contracts with specific facilities, doctors, and healthcare providers to create unique networks. Sticking with doctors in his network will result in the lowest cost for John.

As part of this contract, John’s health insurer will negotiate with in-network providers to determine the allowed amount for various services and procedures. This allowed amount is the maximum amount that he (or his health insurer) will pay for that service. If an in-network provider charges more than the allowed amount, they will only be paid the allowed amount and the remaining amount will be discounted. However, if John would decide to choose an out-of-network provider, he may be responsible for additional charges, and higher deductible levels.

Given all of the benefits of choosing an in-network provider, John finds a doctor in PHP’s network and schedules a visit. Because John has already met his deductible, he will not have to pay the full cost for this doctor’s visit. Instead, John will only need to pay a fixed amount of $30. This $30 is his in-network co-payment or copay: an amount that is pre-determined based upon his health insurance plan. If John would have chosen a doctor outside of PHP’s network this amount would have been higher. (Watch this video for another example of co-payment)

At his doctor’s appointment, the doctor tells John that he believes his arm is actually broken and he refers him on to an orthopedic surgeon. The appointments and procedures that follow end up costing a significant amount of money to the point that John reaches his out-of-pocket limit. John’s health insurance plan has an out-of-pocket limit to guarantee that he will never have to pay more than $5000 in medical expenses within a single calendar year. Since John has already had to pay $5000, PHP will now cover 100% of his allowed medical expenses for the remainder of the year. That means no more co-payments!

John feels relieved and thankful for his health insurance plan. Now he can relax and get back to doing the things he loves because he knows that PHP will cover the cost of remaining medical expenses this year.


Understanding Insurance

As we mentioned earlier, understanding the ins and outs of insurance isn’t for the faint of heart, and we strive to make understanding your employee benefits as simple as possible. Hopefully this example can provide you (or your employees) some insight.

For an even more detailed explanation of insurance terms, visit our Understanding Insurance page to see definitions and helpful videos that can answer all your questions!


*The example used in this article is fictional and in no way resembles a particular person or organization, as it is used for illustration purposes only.