The following explanation is the way these terms are generally used but an insurance company might define any term in a different way if it wants to. When "expenses" are referred to here it always means only those expenses that are covered by the insurance plan.
Individual Coverage: Individual health insurance means that an individual applies for health insurance instead of an employer applying for group coverage for employees. The individual can add family members. A family is not a group. A family is covered by individual health insurance with family members included in the primary applicant's individual application.
Premium: The amount that you pay to have the insurance is called the "premium".
Deductible: For any category of covered expenses that you may incur in a given year, a deductible is the amount of expenses that you pay in that year before the insurance starts to pay. The year is usually a calendar year although a policy may use a different basis e.g., a policy year going from the annual anniversary of your effective date to the annual anniversary in the next year.
So if you had a $2,000 annual deductible, and expenses were 100% paid by insurance after that, and you had $1000 in medical expenses in a year, you would have to pay it all yourself. Then if you went into the hospital later in the same year and it cost $100,000, you would pay another $1,000 and the insurance would pay the other $99,000 of the covered expenses in the hospital bill.
Coinsurance: After your deductible is met, the insurance may, or may not, pay 100% for the rest of the year depending on the plan you buy. If you had to pay 20% of expenses after you had paid the deductible, that 20% you pay is called "coinsurance" because you are paying some and the insurance is paying some. This particular ratio is often called "80/20".
Stop-loss: The amount that you are liable to pay in coinsurance in a given year is usually limited. For example, 80/20 to $5,000 means that after you pay the deductible that year, you pay 20% of the next $5,000 in expenses and then the insurance pays all expenses for the rest of the year. The $5,000 in expenses is called the "stop-loss" because that is when you stop paying coinsurance.
Copayment or Copay: A plan may have a fixed dollar amount that you pay each time for a specific charge such as a physician office visit. That per incident payment that you make is called a "copayment" or "copay". For prescriptions, a plan may have a $10 copay for each generic prescription and $30 for each brand name. You pay the copay and the insurance pays the rest of the charge. A plan could also have a copay that is a percentage. If the percentage you pay is per incident, it is a copay. By contrast, if the percentage is per year, it is coinsurance.
Copays and Deductible in the same plan: Usually, if a doctor visit is covered by a copay, then the policy deductible is not involved in doctor visits. You pay the copay and the insurance pays the rest for any physician visit. The policy deductible only applies to all other expenses. The same is usually true for prescription copays or copays for emergency room visits.
However, a plan may have a special deductible that applies only to a certain expense, e.g., prescriptions. You have to pay the prescription deductible first each year and only then do you have copays for prescriptions. In such a plan, the prescription deductible is completely separate from the policy deductible.
Prescription copays are often structured like this: $15 for generic, $40 for brand name preferred, $65 for brand name non-preferred, and 30% copay for self-administered injectibles e.g., insulin. It is often written like this: 15/40/65-30%. Preferred means that it is the most cost-effective between alternatives that have the same therapeutic effect. Preferred drugs are said to be in the insurer's formulary.
Maximum Out-of-Pocket (OOP): If you add up the deductible, the maximum coinsurance possible, and whatever copays you incur, that is your out-of-pocket amount for the year. Usually a plan has a pre-set dollar figure for the maximum out-of-pocket you are liable for in a given year. That stated limit is good for comparing competing plans if it approximates your deductible plus coinsurance plus copays that you could incur. That would be a reachable limit.
However, it is not a good measure of comparision if a plan has mostly low copays but a high stated out-of-pocket limit, e.g., if it would take 75 doctor visits and 10 hospital admissions in a year to reach the limit, use a more likely OOP amount instead in your comparisons. For a good comparison, compare maximum out-of-pocket figures that are reachable, not those that are very unlikely to be reached.
Lifetime maximum: This is the most the insurance will pay out over your lifetime. This is in addition to what you may have paid in out-of-pocket expenses. After the Lifetime Maximum is reached, you are liable to pay all the expenses by yourself. A lifetime maximum of less than $2 million is less than desirable but better than nothing if it is all you can afford.
Maximum Payable: Some plans have limits on how much they will pay for a category of expenses, e.g., $25,000 maximum each year for outpatient expenses or $10,000 lifetime for mental health care. That helps reduce the premium but is a lot less coverage than when expenses are subject only to the plan's overall lifetime maximum.
Facility charge: This is like an additional copay that you pay under certain circumstances. For example, at the emergency room, you pay an extra $100 on top of meeting your deductible, or if admitted as a hospital inpatient, you pay an extra $250.
Plan Arrangement
Indemnity: This is the least popular type of plan. You pay cash for your medical expenses, then file a claim with the insurance company to get reimbursed or indemnified. Since there is no prior agreement as to what the charge should be for any particular medical service, the insurer has its own list of what are "reasonable and customary" charges for medical services in a particular geographic area. There can be disputes and payment delays. For the same out-of-pocket, these plans have significantly higher premiums because they are much more expensive for the insurance company to operate.
PPO: This stands for "Preferred Provider Organization". It is a claims network designed to streamline claims processing and reduce the cost and inconvenience. You do not need to file any claims. The medical providers (doctors, hospitals, labs, etc.) have made an agreement with the manager of the PPO to file claims directly with the PPO manager. Each medical procedure has a code and a pre-agreed payment amount. The PPO manager processes the claim according to the terms of the network agreement and sends it to the claims department of the insurance company or plan administrator to pay the provider. An insurance company may be its own PPO manager or it may contract with an outside PPO manager.
The PPO will offer the provider a schedule of what it believes to be a fair payment for each procedure but the provider may be able to negotiate a higher charge. So even though you get the benefit of the pre-agreed network charge when you get treatment, the charge could vary from provider to provider.
A provider who has joined the network is "in-network". Those who have not joined are "out-of-network". PPO networks are usually so large that you never have to go out-of-network. Out-of-network is like indemnity. Since this increases expenses to the insurer, if you go to an out-of-network provider, the insurer usually passes on some of the increased cost to you. Your deductible and coinsurance may be higher, you may lose the use of any copays the plan has, and may lose any preventive wellness checkup benefits the plan may have, depending on the particular plan.
Most plans for non-employer sponsored plans are PPO.
HMO: This involves a special contract between the provider and the insurer. Depending on its terms, the physician may be paid a flat amount per month per enrolled patient instead of a fee per visit. There may also be other cost-control procedures specified by the contract. Alternatively, all the doctors may be employees of the HMO.
There is no out-of-network coverage except for emergencies. The HMO will need to receive a copy of the bill from the emergency treatment provider coded as an emergency in order for the claim to be paid.
The number of providers in an HMO network is usually much less than for a PPO network. In some areas there are no HMO plans available for individuals to buy.
POS: A POS plan combines HMO and indemnity out-of-network coverage. They are not available for individuals to buy in most areas.