This short video explains benefits, deductibles, copays, coinsurance, and out-of-pocket maximums so you can make the right decisions. (Video, 3:15)Open video transcript
Understand what common Medicare terms mean
As you explore your Medicare choices, you may run across unfamiliar words or phrases. This glossary explains what they mean.
For more information, visit Medicare.gov.
- Allowed amount: The most a plan will pay for a specific covered service or supply.
- Annual Election Period: The national enrollment period established by the Center for Medicare & Medicaid Services. During this time, all qualifying Medicare beneficiaries can make changes to their Medicare plans. The Annual Election Period runs from Oct. 15 to Dec. 7.
- Balance billing: The difference between the provider’s actual charge and the amount reimbursed under the patient’s plan. This amount is billed to the patient.
- Benefits: The services your health plan covers, such as doctor office visits, tests, procedures, etc.
- Coinsurance: The percent of the Medicare-approved amount you have to pay after you pay any required deductible. With Original Medicare, for example, the coinsurance is 20 percent of the Medicare-approved amount for doctor or specialist office visits.
- Copay: A set amount you pay for each medical service (like a doctor visit).
- Deductible: The amount you pay for health care or prescription drugs before your Medicare plan begins to pay.
- Disenrollment period: This period offers an opportunity for an individual enrolled in a Medicare Advantage plan to change to Original Medicare. The disenrollment period runs from Jan. 1 through Feb. 14. You cannot drop out of a stand-alone Part D plan or change from one stand-alone Part D plan to another during this time. If you don’t have Part D coverage, you won’t be able to add it at this time.
- Donut hole: Also known as the “coverage gap,” it’s a step in some Part D plans in which you pay a higher copay or coinsurance for eligible drugs until your total out-of-pocket costs reach a designated amount.
- Formulary: A Medicare-approved list of prescription drugs provided by a Medicare prescription drug plan. Formulary drugs are dispensed through participating pharmacies. Formularies also are called drug lists.
- Generic drug: A prescription drug that has the same active-ingredient formula as a brand-name drug. Generic drugs usually cost less than brand-name drugs and are rated by the Food and Drug Administration to be as safe and effective as brand-name drugs
- In-network: Providers who are in-network have a specific contract with a particular plan. HAP Medicare Advantage members typically pay less if they receive services from in-network providers.
- Maximum charge: The maximum dollar amount a third party (usually an insurance company) will reimburse a provider for a specific service.
- Maximum out-of-pocket cost: The limit on the total number of copays, coinsurance or deductibles (if applicable) a Medicare Advantage member might pay during the calendar year for Part A and Part B covered services.
- Medicaid: A joint federal and state program that helps with medical costs for some people who have low incomes and limited resources. Most health care and prescription drug costs are covered if you qualify for both Medicare and Medicaid.
- Medicare Advantage Plan: Medicare Advantage plans are authorized by Part C of the Medicare laws. These plans:
- Are approved by Medicare but run by private companies.
- Provide all Medicare Part A and Part B coverage and must cover medically necessary services.
- May also provide extra benefits, such as eyeglasses, routine hearing exams and prescription drugs.
- Medicare-approved amount: The payment amount Medicare has agreed a doctor or other provider may charge for services or medical supplies provided to a Medicare beneficiary. It may be less than the actual amount normally charged by a doctor or provider. Doctors can choose whether to accept the Medicare-approved amount as payment in full for his or her services. If a doctor agrees to accept the approved amount, he or she is “accepting assignment.”
- If the doctor accepts assignment, the difference between the approved amount and the doctor’s regular fee may not be charged to you.
- If the doctor does not accept assignment, the maximum amount you can be charged is an additional 15 percent.
- Medicare Part A (Original Medicare – hospital insurance): Insurance that helps pay for inpatient hospital stays, care in a skilled nursing facility, hospice care and some home health care. Deductibles and limitations apply.
- Medicare Part B (Original Medicare – medical insurance): Insurance that helps pay for doctors’ services, outpatient hospital care, durable medical equipment and some medical services not covered by Part A. Deductibles and limitations apply.
- Medicare Part C: Medicare Advantage plans are sometimes called “Part C.” These plans:
- Are approved by Medicare but run by private companies
- Provide all Medicare Part A and Part B coverage and must cover medically necessary services
- May also provide extra benefits, such as eyeglasses, routine hearing exams and prescription drugs
- Medicare Part D: Optional Medicare prescription drug coverage available to all people with Medicare through private companies such as insurance companies. Medicare Part D can be purchased with a Medicare Advantage plan, or as a stand-alone prescription drug plan.
- Medicare Supplement Insurance: Also known as Medigap, an insurance policy sold by private insurance companies that helps pay some deductibles or coinsurance that Original Medicare doesn’t pay (the “gaps” in Original Medicare). There are 10 standardized policies, labeled Plan A through Plan N. Medigap policies only work with Original Medicare. Medigap plans sold after 2006 don’t include prescription drug benefits.
- Medigap: See “Medicare Supplement Insurance.”
- Open Enrollment Period: If you enrolled in a Medicare Advantage plan for January 1, 2020, and don’t like your plan choice, you can switch to another Medicare health plan (either with or without Medicare prescription drug coverage) or switch to Original Medicare (either with or without Medicare prescription drug coverage) between January 1 and March 31, 2020. For more information, see Chapter 10, Section 2.2 of the Evidence of Coverage.
- Original Medicare: Refers to Medicare Part A and Medicare Part B benefits combined, with no additional benefits included.
- Out-of-network: Health care providers or pharmacies that don’t have a contract with a particular plan are considered out-of-network. Depending on the plan, services from out-of-network providers may not be covered or may be partially covered.
- Out-of-pocket costs: Health care or prescription drug costs you must pay on your own because they aren’t covered by Medicare or other insurance.
- Primary care physician (PCP): This health care provider (typically a general practitioner or internal medicine specialist) provides services or coordinates the overall care of a patient.
- Prior authorization: To be sure certain drugs or medical services are used correctly and only when truly necessary, your plan may require a “prior authorization.” This means you or your doctor need to get approval from your plan before a particular drug or service will be covered.
- Special Enrollment Period (SEP): A period during which people can make a plan change outside of the Annual Election Period because of a specific event. Examples include, but are not limited to, moving outside of a plan’s service area or loss of employer group coverage.
- Special Needs Plan: A special type of Medicare Advantage Plan that provides more focused health care for specific groups of people, such as those who have both Medicare and Medicaid, who reside in a nursing home, or who have certain chronic medical conditions.
- Step therapy: A type of prior authorization for some prescription medications. With step therapy, in most cases, you must first try using certain less-expensive drugs that have been proven effective for most people with your condition before your plan will cover a similar, more expensive brand-name drug.
- Tiers: A plan places prescription drugs in its drug list (also known as the formulary) into different “tiers.” Your drug copay can vary, depending on the tier. For example, one approach to tiers is the following:
- Tier 1: Preferred Generics – The lowest cost-sharing tier.
- Tier 2: Nonpreferred Generics – Still generic drugs but are not in the Preferred Generic tier.
- Tier 3: Preferred Brand – The lowest cost nongeneric tier.
- Tier 4: Nonpreferred Brand – Brand-name drugs not in the Preferred Brand tier.
- Tier 5: Specialty Tier – These drugs are high cost and unique. They exceed a monthly cost established by CMS. This is the highest cost-sharing tier.
Health plan terminology