Insurance: What Does It All Mean?

Did you know that one single insurance company can have several different insurance plans?

And each of those insurance plans can have multiple tiers of coverage and benefit options???

Most of these insurance plans also have different “networks” of physicians, too!

Between group plans, individual plans, state aid, premiums, co-pays, co-insurance, deductibles, in-network vs. out-of-network, covered vs. non-covered benefits, billed amounts vs. allowed amounts, referrals vs. prior authorizations, primary care vs. specialists…. it can be EXTREMELY confusing!

Physician’s offices have a general idea of your coverage, but are generally not aware of the actual policy details.

Hopefully the following information will help you understand your insurance a little bit better!

Group Insurance:

Typically provided by an employer (yours, your spouse, or a parent’s employer) or a large organization. Group plans typically have richer benefits and lower out-of-pocket expenses than individual plans because of the number of people on the plan sharing the costs.

Individual Insurance:

Purchased directly from a broker, insurance company, or through a state/federal marketplace website.

These are usually higher deductible plans with fewer benefits. Lower premiums typically mean higher deductible amounts.

Federal marketplace open enrollments occur every November.

State Assistance/Aid:

A state funded plan in which you must meet certain criteria and financial eligibility requirements in order to enroll.

In Arizona, it is called AHCCCS (Arizona Health Care Cost Containment System). You can apply for coverage through DES (The Department of Economic Security).

There are usually strict rules you must know and follow on state aid plans. For instance, you must obtain referrals from your primary care office any time you see a specialist!

Primary Care Physician:

This is a physician typically a family practice or internal medicine doctor who takes care of “primarily” everything, but does not “specialize” in any one area.


This is a physician who “specializes” or focuses on one particular body system.

OB/GYN’s specializes in women’s health, cardiologists specialize with heart issues, a dermatologist specializes with skin, a podiatrist specialist in foot problems/disorders, etc.

In-Network Benefits:

Insurance companies have many “networks” of physicians, laboratories, radiology facilities, hospitals, etc. which accept a lower payment for services.

Out-Of-Network Benefits:

Not all physicians/facilities are part of every “network” under every insurance plan.  When you see an out-of-network physician or facility, your insurance company will pay a smaller portion of the bill and assign more of the financial responsibility to you.

An office/facility will not refuse to see you if you choose to utilize your out-of-network benefits option.

Covered Services:

These are health benefits covered under your policy that the insurance company will pay for.

Some insurance policies cover preventative care services and some do not. Some policies will pay for maternity care and some do not. Some policies will pay for diagnostic testing, while others do not.

You can find this information in the insurance manual given to you when you enrolled with your insurance plan, on your insurance company’s website or you can call the 1-800 number listed on the back of your insurance card and speak to a representative.

Non-Covered Services:

These are health benefits NOT COVERED under your insurance policy and your insurance company will NOT pay for these services, even when they’re medically necessary.

Physicians will provide necessary and in some cases, elective, medical treatments whether they are covered services under your insurance policy or not!

Not all insurance policies are the same so you must become familiar with what your insurance policy considers covered and non-covered services.

You can find this information in the insurance manual given to you when you enrolled with your insurance plan, on your insurance company’s website or you can call the 1-800 number listed on the back of your insurance card and speak to a representative.


Some HMO or “gate keeper” type plans, like AHCCCS, require referrals from primary care physicians to see specialists.

This is meant to keep patients from unnecessarily seeing higher cost specialists when it’s an issue a primary care physician can take care of themselves.

Most policies do not require referrals, but it’s a good idea to verify that before making an appointment with a specialist.

Prior Authorization:

Prior authorizations are required for many procedures, surgeries, and some laboratory services.

Insurance companies have certain protocols for procedures and surgeries which need to be met before they will agree to pay for them.

Even if it’s medically necessity, proof needs to be submitted before they will “approve” payment.


This is what an insurance company charges per month for you to have insurance coverage.

With group insurance, employers might pay a portion of the premium and deduct the rest of the amount from the employee’s paycheck, while other employers require employees to pay the full cost of the premium themselves.

For individual coverage, the individual pays the full premium amount each month.

Billed Amounts:

This is the amount a physician’s office (laboratory, facility, etc.) charges for the services performed.  This is NOT what you are being charged, this is what is being billed to the insurance company.

Allowed or Allowable Amount:

This is the agreed upon amount or discounted rate the office or facility accepts for the services it performs based on the contract between the office/facility and the insurance company.

The office/facility must then “write off” the difference between the amount billed and the allowed amount.


This is the amount an insurance company assigns to your responsibility for each office visit.

This amount may change on whether you are seeing a primary care physician or specialist or an in-network or out-of-network provider.

The amount of the co-pay is determined by your insurance company according to your insurance policy.

Co-pays are also the assigned payment for prescription medications at the pharmacy.


This is the amount you and insurance company share for the cost of services (procedures, blood tests, laboratory services, x-rays, etc.)

Depending on your particular insurance policy, you could be responsible for 10%, 20%, or more of the “allowable” charge, not the billed amount.

The co-insurance amount is determined by your insurance company according to your insurance policy.


This is the out-of-pocket amount you must meet before your benefits “kick in”. (Just like car insurance!)

For instance, if you have a $1,000 deductible, you have to pay the first $1,000 yourself before the insurance starts paying their share.

Deductibles are based on allowable amounts, not billed charges.

Deductible amounts and how they are applied are determined by your insurance company according to your insurance policy.

Explanation of Benefits (EOB):

This is the detailed report you receive from your insurance company explaining how your benefits have been processed.

It will list the date of service, the name of the physician/facility and the type of service performed, as well as:

• Amount BILLED by the physician/facility to the insurance company.  This is NOT what you have to pay!!

• Amount ALLOWED by the insurance company

• The difference between the BILLED and the ALLOWED which the physician/facility must adjust off due to a contractual agreement to accept what the insurance pays.

• The amount applied to your CO-PAY, CO-INSURANCE, and/or DEDUCTIBLE

• The amount paid to the provider, when applicable

• The combined total of the CO-PAY, CO-INSURANCE, and/or DEDUCTIBLE which is essentially the patient’s financial responsibility for the services rendered, when applicable

• This report will also show you what has been applied to the deductible and the amount that still needs to be met throughout the year.


Flexible Spending Accounts and Health Savings Accounts are similar to personal savings accounts which can only be used to pay for qualifying medical expenses like prescriptions, co-pays, co-insurance, deductibles, etc.

There are several differences between the two with different advantages and disadvantages, but both are funded with pre-tax dollars.

Your ability to sign up with an FSA or HSA is determined by your employer and the group insurance plan chosen.

Posted in: Insurance

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