Managing the Cost of Arthritis Care: Terms You Should Know

The Basics 

• Allowed Amount: The maximum amount that a health plan will pay for a covered health care service. Also called “negotiated rate,” “allowed charge,” “eligible expense,” or “payment allowance.” If the provider charges more than the plan’s allowed amount, you will have to pay the difference. Even if your provider charges the allowed amount, you may still need to pay a percentage of the cost depending on your health plan (see coinsurance below). 
• Co-insurance: The percentage of costs of a covered health care service that you pay after you have satisfied your deductible.  Coinsurance levels will vary depending on your type of plan. For example:  Your health plan’s allowed amount for a doctor’s visit is $100 and your coinsurance is 20%. If you’ve paid your deductible (see below), you pay 20% of $100 or $20. The health plan pays the rest. If you haven’t paid your deductible, you will owe the full amount.
• Co-payment: A fixed amount that you pay for a covered health service (for example $20 for a general physical).  Also called a copay.
• Co-pay assistance: These programs help you save money on medical care and prescriptions, regardless of your income or ability to pay. You may get a debit card (also known as a copay card)  the money is deposited in an account that you draw from or the provider is paid directly. Funds are provided by drug manufacturers, non-profits, state health departments or the federal government. The funds from some private programs cannot be used if you have Medicare, Medicaid or other federal- or state-funded insurance. 
• CPT code: A Current Procedural Terminology (CPT) code is a five-number code that providers use to bill for a medical procedure. It’s always included on the bill from the provider or in the explanation of benefits from your insurer.
• Deductible: The deductible is the amount you pay for medical services or products before your health plan starts paying either a percentage (e.g. 70%) or 100% of an expense. A plan may pay for certain services, like an annual checkup, before a person meets the deductible. Some plans have separate deductibles (e.g. a medical care deductible and a drug deductible). Some family plans have an individual deductible and a family deductible. For example: The individual deductible for in-network coverage is $600 and the family deductible is $2800. If the family meets the $2800 deductible, the health plan will cover the expenses of family members who have met their $600 individual deductible. Family members who haven’t met the individual deductible must still pay out-of-pocket until they reach $600.
• Explanation of Benefits (EOB): This is an insurer’s explanation of the charges from a medical procedure and how it will be paid.  It shows what the provider charges, what is the allowed amount, how much the insurer will pay and how much the patient will pay.
• Formulary: A list of prescription drugs covered by your health plan. The list has groups or “tiers.” The higher the tier for the drug the more you will pay for it. While tiers vary among insurers, a typical drug benefit includes three or four tiers:
  • Tier 1 usually includes generic medications.
  • Tier 2 usually includes preferred brand name medications.
  • Tier 3 usually includes non-preferred brand name medications.
  • Tier 4 usually includes specialty medications, such as biologics.
• High Deductible Plans: These plans have lower premiums and higher deductibles. They are combined with a health savings account (HSA) (see below). The funds put into the HSA are tax-free and can be used to pay medical expenses.
• Premium: This is the amount you pay monthly for your health coverage.

Insurance Plan Processes

• Accumulator Programs: These policies prohibit the use of drug manufacturer co-pay cards from being used for a patient’s deductible or out-of-pocket maximum.
• Donut Hole: Also known as a coverage gap. Most Medicare prescription drug plans (Part D) have a limit on what’s covered during a plan year, and you may need to pay some costs out of pocket.  Not everyone will have this issue and some people qualify for financial assistance to cover the gap.
• Prior Authorization: A decision by your health plan that a health care service or product is medically necessary. Also called “preauthorization,” “prior approval” or “precertification. Prior authorization doesn’t mean that the health plan will cover the full costs. It may not be required in an emergency. .
• Step Therapy: A policy by your health plan that requires patients to use a safe lower-cost drug or service before permitting the use of more expensive options. Also known as “fail first.”
• Gag Clauses: These policies prevent some pharmacists from telling consumers about less-expensive price options.  Many states are outlawing these clauses, but be sure to self-advocate and always ask about prices if you use your insurance or not.
• Utilization management (UM) or utilization review is the use of managed care techniques such as prior authorization that allow payers, particularly health insurance companies to manage the cost of health care benefits by assessing its appropriateness before it is provided using evidence-based criteria or guidelines.

Financial Tools

• Flexible Savings Account: This account allows you to set aside a portion of your income before taxes to pay for medical expenses and childcare expenses.  FSAs are offered through employers. If you don’t spend all your FSA in a year, you may lose the funds or carry over to next year, depending on your employer’s policy.
• Health Reimbursement Account: This account is funded by your employer and the money can be used for IRS approved health expenses. It’s only available when your employer manages the health plan instead of an insurance company.  
• Health Savings Account: This savings account that allows you to set aside a partition of your  income before taxes to pay for medical expenses. It is only available with a high-deductible health plan. HSA funds roll over year to year if you don't spend them.
• Medical Tax Deduction: The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income. 

Learn about other health care and insurance terms in the glossary.