Twelve Essential Health Insurance Terms Every Plan Member Should Know

According to a 2025 survey conducted by The Harris Poll,¹ 84 percent of U.S. adults report experiencing some negative impact from challenges navigating their health care plan, and 35 percent have delayed or avoided necessary care altogether due to confusion about their coverage. The same survey revealed that 29 percent of adults are requesting simple guides that explain health insurance terms. A multifaceted, systemic approach is required to ensure people continue to increase their understanding of health-related issues and information. 

Health plans and employers can help support their populations' health literacy by providing them with easy-to-understand definitions of health insurance terms they're likely to see as health care consumers. 

Health Insurance Glossary: 12 Key Terms 

Consumer-Directed Health Plan (CDHP) 

This type of plan typically consists of high-deductible health coverage, which may be offered in conjunction with a health savings account (HSA) or health reimbursement arrangement (HRA). People covered by CDHPs may pay lower premiums for health coverage because the deductibles are considered high. Using either an HSA or HRA, the health plan member (and/or their employer) can set aside money that can be used to help satisfy the deductible or other out-of-pocket eligible medical expenses. CDHPs are designed to encourage consumers to consider the cost and quality of care when selecting services and providers. 

Cost-Sharing 

Cost-sharing is the portion of covered health care costs than a plan member pays under the terms of the plan, such as deductibles, coinsurance and co-payments. The Affordable Care Act places annual limits on total cost-sharing for covered, in-network essential health benefits, with amounts adjusted each year under federal indexing rules. Coinsurance, one form of cost-sharing, refers to the percentage that the insured must pay once they have paid their deductible. It is for covered services only, and the insured may still have to pay a copay. Example: a plan might cover 80 percent of your medical bill, and the remaining 20 percent coinsurance is the insured’s responsibility to pay. 

Copayment or Co-Pay 

A copayment is a charge that a health insurance plan may require the insured to pay for a specific medical service or supply. Co-pays generally do not apply toward the deductible, but may apply toward the Out-of-Pocket Maximum. Example: a health insurance plan may require a $45 co-payment for an office visit or brand-name prescription drug, after which the insurance company may pay some or all of the remaining covered charges, subject to the plan’s terms. 

Deductible 

The deductible is a specific dollar amount that a health insurance company may require the insured to pay out-of-pocket each year before the health insurance plan begins to make payments for claims. Not all health insurance plans require a deductible. 

Health Flexible Spending Account (FSA) 

A Health FSA is a tax-advantaged savings account that can be used with most employer health insurance plans to pay for qualifying medical expenses. Funds must be used within the plan year and any unused funds at the end of the plan year are forfeited. The IRS sets annual Health FSA contribution limits. If permitted by the employer’s plan, unused funds up to the plan’s carryover limit may be subject to a grace period or roll over provision, both of which enable use of funds into the following plan year based on plan provisions, timeframes and limits. 

High-Deductible Health Plan (HDHP) 

An HDHP is a health insurance plan that generally has a higher deductible than traditional health plans and may have lower premiums. Except for certain permitted benefits, such as preventative care, members generally pay the plan’s negotiated cost for covered services until the deductible is met. An HDHP may use a PPO, HMO, BPO or other provider network structure. 

To qualify as an HDHP, the IRS requires a minimum annual deductible and a maximum out-of-pocket limit for both self-only and family coverage. 

Health Savings Account (HSA) 

An HSA is a tax-advantaged savings account that can be opened and contributed to while a member is enrolled in a qualifying high-deductible health insurance plan. Funds in an HSA can be used tax-free to pay for eligible medical expenses. Members can contribute to the account on a pre-tax basis via payroll deduction, and the funds remain in the account year over year if not used and may typically be invested once the balance reaches a designated threshold. As with any investment there are risks that should be considered. Employers may also contribute to the account but contributions, regardless of who makes them, must together be within the IRS-allowed annual maximum. Once money is deposited, HSA funds generally belong to the account owner and remain available for use for eligible expenses as long as the funds are in the account. 

The IRS sets annual HSA contribution limits for both self-only and family coverage, and account holders age 55 and older can contribute an additional catch-up amount. 

Health Maintenance Organization (HMO) 

HMO plans generally provide health care services through a network of providers that contract with the HMO at negotiated rates. Depending on the plan, HMO enrollees may need to choose a primary care physician (PCP) who provides or coordinates care and can refer patients to specialists as needed. HMO plans require members to satisfy a deductible, copayments or coinsurance, or use a combination of these cost-sharing arrangements. Health care services obtained outside of the HMO are generally not covered, except for emergency care and any other exceptions required by the plan or applicable law. 

Health Reimbursement Account (HRA) 

HRAs are employer-funded, account-based group health plans that reimburse employees for eligible out-of-pocket medical expenses subject to terms of the arrangement. Qualifying reimbursements are generally excluded from an employee’s federal taxable income. The expenses and premiums that may be reimbursed depend on the type of HRA. For example, an Individual Coverage HRA may reimburse individual health insurance premiums when applicable requirements are met. Excepted Benefit HRAs (EBHRAs) may be offered by an employer of any size and the employer also makes traditional group heath pan coverage available to eligible employees. EBHRAs are subject to an annually indexed federal limit and generally do not reimburse premiums for individual major-medical coverage, Medicare, or the employer’s group health plan. 

Maximum Out-Of-Pocket Costs 

The maximum out-of-pocket cost is an annual limitation on all cost-sharing for which patients are responsible under a health insurance plan. This limit does not apply to premiums, balance-billed charges from out-of-network health care providers or services that are not covered by the plan. In the past, Co-Pays would not contribute to the Maximum Out-of-Pocket costs but changes under the Affordable Care Act are causing plans to be rewritten to comply. 

Point of Service (POS) 

Combining elements of both HMO and PPO plans, POS plans allow members to choose a primary care physician who will then make referrals to specialists in the health insurance company’s network of preferred providers. Care rendered by non-network providers will typically cost more out-of-pocket, and may not be covered at all. 

Preferred Provider Organization (PPO) 

PPO plans contract with doctors, hospitals and other health care providers to create a network. Members generally pay less when they use in-network providers subject to the plan’s terms. Unlike many HMOs, PPOs generally do not require members to select a primary care physician, or obtain referrals for specialist care. Services rendered by out-of-network providers may not be covered or may be paid at a lower level depending on the plan and service. 

According to KFF’s 2025 Employer Health Benefits Survey,² PPOs typically carry the highest average premiums of any plan type, reflecting the trade-off of broader network flexibility for a higher cost. 

Tips for Making Informed Benefits Choices 

What These Terms Look Like in Real Life 

On an HDHP, a significant medical event like an ER visit may mean paying the negotiated cost out-of-pocket until the deductible is met, then a percentage of covered charges as coinsurance until the out-of-pocket maximum is reached. After that, the plan generally pays covered in-network costs for the remainder of the plan year, subject to its terms. 

A larger claim, like a surgery, may follow a similar pattern and could cause a family to reach its out-of-pocket maximum sooner, since deductible and coinsurance payments for covered in-network care may accumulate across claims. Once that maximum is reached, the plan generally pays 100% of covered in-network costs for remaining care that plan year, subject to the plan’s terms. This is why the out-of-pocket maximum can be an important measure of potential financial exposure, in addition to the deductible. 

Copay-based plans, including some HMOs, may work differently for routine care: members may pay a flat fee per visit or prescription rather than first meeting a deductible, which can make certain everyday costs more predictable. Depending on the plan, coinsurance and deductible-style cost-sharing may apply to services such as ER visits or hospital stays. 

Making Sense of Open Enrollment 

Open enrollment is typically the one window each year a person can change health plans without a qualifying life event, so it's worth an annual check-in. Here are some tips to consider: 

Review claims history – Start by reviewing last year’s claims history in your insurer’s portal as one indicator of next year’s potential costs, and note any changes, like a new dependent or medication, that could shift which plan makes sense. 

Validate the details – Confirm your providers are in-network, if applicable, for any plan you're considering, and check HSA or FSA contribution limits, if eligible, so you can decide how much to set aside per paycheck. 

Make plan comparisons – Compare plans on total expected cost (premium plus likely deductible and coinsurance spend), not premium alone. 

Submit your elections before the deadline – Once the window closes, changes are generally locked in for the full plan year unless you have a qualifying life event. 

How AI Tools Are Changing Benefits Decisions 

Choosing between plan options used to mean manually comparing PDFs and spreadsheets, but a growing number of employers and carriers now offer AI-powered decision support tools that can help simplify the process. Some platforms have carrier-built assistants that ask about your expected care needs, dependents and budget, then rank available plans by projected total annual cost rather than premium alone. They may also estimate expected spending and suggest an HSA or FSA contribution amount. Actual expenses may differ from projections, so treat the provided guidance as a starting point rather than a final answer, and pair any tool’s suggestion with your own judgment about the year ahead. 

Frequently Asked Questions 

What is the difference between a deductible and a copay? 

A deductible is the amount you pay for covered health care services before your insurance plan starts paying for services. A copay is a fixed amount you pay for a covered service—for example, $45 for an office visit. Depending on the plan and service, a copay may apply before or after the deductible is met. Copays generally don't count toward your deductible, but they typically do count toward your out-of-pocket maximum for covered, in-network services. 

What is the difference between PPO and HMO plans? 

A PPO generally allows members to see in-network providers without a referral and to receive care from out-of-network providers at a higher cost, subject to plan terms. An HMO generally limits coverage to network providers except for emergency care and may require members to select a primary care physician and obtain referrals for specialist care. PPOs typically cost more—2025 average single-coverage PPO premiums were $9,818, per KFF's 2025 Employer Health Benefits Survey.² 

What is the difference between HDHP and PPO plans? 

High-deductible health plans (HDHPs) and preferred provider organization (PPO) plans are common options during open enrollment. HDHPs typically have lower premiums and out-of-pocket maximums but higher deductibles and copays/coinsurance, and are typically paired with a Health Savings Account (HSA). PPO plans offer more predictable copays and maximum provider flexibility with higher premiums and minimum deductible; PPO plans may be paired with a Health Flexible Spending Account (FSA). 

What is the difference between an FSA and an HSA? 

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) both let you set aside pre-tax money via payroll deduction which can then be used for eligible expenses, but they have important differences. While FSA funds must be used within the benefit year or within a plan-allowed grace period or rollover period, unused HSA funds remain in the account from year to year if they are not used and the account stays with the owner if they change jobs or retire. Additionally, HSAs typically offer investment options once the balance reaches a designated threshold. 

There are different types of FSAs with different eligibility requirements and rules. Health FSAs help employees manage eligible out-of-pocket healthcare expenses not covered in full by insurance and is an option with a PPO, HMO or other non-HDHP health plans. A Limited Purpose FSA helps employees manage their eligible dental and vision expenses and may be paired with an HDHP in conjunction with an HSA to help employees allow funds in their HSA to grow, while still using tax-free dollars to pay for eligible dental and vision expenses. 

Do my HSA funds expire? 

HSA funds do not expire. Unused funds remain in the account and can typically be invested once the balance reaches a designated threshold. As with any investment there are risks and members should explore those risks before choosing to invest. After age 65, funds may be withdrawn for any purpose; eligible medical expenses remain tax-free but non-medical withdrawals are also allowed and subject to income tax. Prior to age 65, non-eligible HSA use is subject to taxes and a 20% tax penalty. 

How do I choose the optimal health insurance plan? 

While what is considered the “right” health insurance plan is going to be different for everyone, considerations for making that determination for your needs include: estimating total expected annual cost (not just premium); confirming coverage for your providers and prescriptions; factoring in any employer HSA/HRA contribution if you are eligible for, and considering those accounts; and comparing each plan's out-of-pocket maximum as your potential exposure for the year. 

Choosing the Optimal Health Plan for Your Needs 

Start by comparing each plan’s estimated total annual cost, including premiums and anticipated out-of-pocket expenses. Consider potential costs you may realize for both a typical year and for a year with greater anticipated health care needs. Check your prescriptions and providers against each plan's network and formulary then factor in any employer HSA or HRA contributions when evaluating overall costs. Actual expenses will depend on the services used and the plan’s terms. 

Beyond cost, consider how each plan’s network referral requirements and cost-sharing structure align with your anticipated health care needs. Compare deductibles, copays, coinsurance and out-of-pocket maximums. You can consider the plan type based on how you use care: frequent specialist visits or an ongoing condition may favor a PPO or lower-deductible plan, while infrequent care and a solid emergency fund may favor an HDHP paired with an HSA. Finally, treat the out-of-pocket maximum—not the deductible—as a meaningful number to compare across plans. Keep in mind that the out-of-pocket maximum can help indicate potential cost exposure for covered, in-network services, but may not include premiums, out-of-network care or services the plan does not cover. 

Understanding the language of health insurance can help people make more informed decisions about their care. When employees, HR teams and health plan members can decode terms like deductible, coinsurance and out-of-pocket maximum, they may be better equipped to evaluate coverage options, anticipate potential costs and importantly, understand how to access covered care. 

Ready to help your population make more informed benefits decisions? Explore our Benefitfocus benefits administration solutions to learn how we can support your team’s enrollment experience.