Insurance & Medical Terms
Simple explanations of words you might see in your insurance letters, bills, and coverage documents.
Medical Necessity
This means a treatment is needed to protect your health. Insurance companies use this phrase when deciding if they will pay for something. If they say it's not "medically necessary," they're saying they don't think you need it.
Step Therapy
This is when your insurance company makes you try cheaper treatments first before they'll pay for the one your doctor actually wants. You have to show the cheaper ones didn't work before they'll approve the next one.
Appeal
An appeal is when you ask your insurance company to change their mind after they said no. You write a letter explaining why you need the treatment, and they have to review it again.
External Review
If your insurance company still says no after your appeal, you can ask for an outside doctor (who doesn't work for your insurance) to look at your case. This outside review is required by law.
Formulary
This is the list of drugs your insurance plan will help pay for. If a drug is not on the formulary, your insurance might not cover it at all, or you might have to pay a lot more.
Deductible
This is the amount of money you have to pay out of your own pocket before your insurance starts helping. For example, if your deductible is $1,000, you pay the first $1,000 of medical bills yourself.
Copay
A copay is a fixed amount you pay each time you get a service, like $30 for a doctor visit. Your insurance pays the rest. The amount is set by your plan.
Coinsurance
Coinsurance is the percentage of a bill you pay after you've met your deductible. For example, if your coinsurance is 20%, you pay 20% and your insurance pays 80%.
Out-of-Pocket Maximum
This is the most you'll ever have to pay in one year. Once you hit this number, your insurance pays 100% of covered services for the rest of the year.
PBM (Pharmacy Benefit Manager)
A PBM is a company that manages which drugs your insurance covers and how much they cost. They work behind the scenes between your insurance company, your pharmacy, and the drug makers.
Utilization Management
This is how insurance companies decide if a treatment is needed and if they should pay for it. Prior authorization, step therapy, and reviews are all part of this process.
Peer-to-Peer Review
This is when your doctor talks directly with an insurance company doctor to explain why you need a treatment. It usually happens after insurance says no, and your doctor wants to make the case in person.
Letter of Medical Necessity
This is a letter your doctor writes explaining why you need a specific treatment. It tells the insurance company about your health history and why other treatments won't work for you.
EOB (Explanation of Benefits)
This is a paper or email your insurance sends after you get a service. It shows what was billed, what insurance paid, and what you still owe. It's not a bill — it's a summary.