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The Medicare Journey: Insurance Terms to Know

Do you ever feel like you're reading a foreign language when you're researching Medicare plan options? PPO, HMO, formularies, premiums… the list of acronyms and terms seems to go on and on.

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Understanding what each term means, though, will help you make an informed decision about your coverage options. We've compiled frequently used terms that you may come across while shopping for Medicare plans.

If you come across a term that isn't included on our list, be sure to visit the Medicare glossary or Health Insurance Marketplace glossary for a more comprehensive list of definitions.

AEP or Open Enrollment

Once a year, if you are already enrolled in a Medicare Advantage (one form of Medicare Part C) or Prescription Drug Plan (Medicare Part D), you can change coverage without a penalty. This time, known as the Annual Enrollment Period (AEP), is between Oct. 15 and Dec. 7, and any coverage changes you make go into effect Jan. 1.

Ambulatory Care

A general term for care that doesn't involve admission to a hospital as an inpatient. Visits to a doctor's office, for example, are a type of ambulatory care.

Balance Billing

When a provider bills you for the difference between the provider's charge and the allowed amount. For example, if the provider's charge is $100 and the allowed amount is $70, the provider may bill you for the remaining $30. Providers who are "in-network" may not balance bill you for covered services.

Benefit Period

The benefit period for a Medicare member starts when you're admitted to a hospital and ends when you have not received services in a skilled nursing facility (SNF) or hospital for 60 days in a row.


The services or procedures covered by your health insurance plan.

Centers for Medicare & Medicaid Services (CMS)

The federal agency that runs the Medicare, Medicaid and Children's Health Insurance Programs (CHIP), as well as the federally facilitated Health Insurance Marketplace ( for people enrolling in non-Medicare health insurance through the Affordable Care Act.

The portion (usually a percentage of health service costs) you pay for health care services out of pocket once you've reached your deductible.

Copayment or Copay

A fixed amount you may have to pay when you fill a prescription, visit your regular doctor and/or see a specialist or physical therapist.

Cost Sharing

The share of costs covered by your insurance for a covered service that you pay out of your own pocket. Remember that a "covered" service does not mean the insurance company pays the entire cost for that service — members often have a portion of "cost sharing." For members, this term generally includes deductibles, coinsurance and copayments, or similar charges. But it doesn't include other costs members pay on their own, such as premiums, balance-billing amounts for out-of-network providers, or the cost of non-covered services.

Coverage Gap or Donut Hole

Most plans with Medicare prescription drug coverage (Part D) have a coverage gap (called a "donut hole"). This means that after you and your drug plan have spent a certain amount of money for covered drugs, you have to pay all costs out of pocket for your prescriptions up to a yearly limit. Once you have spent up to the yearly limit, your coverage gap ends and your drug plan helps pay for covered drugs again.


A dollar amount you owe for health care services before your Medicare (or other health plan) coverage will start. If your deductible is $500, for example, your plan won't pay anything until you meet your $500 deductible for services covered by your Medicare plan. The deductible may not apply to all services.

Drug Formulary or Formulary

A list of drugs your insurance plan covers, including both generic and brand-name medications. A drug's formulary status may impact how much you pay as a copay for each drug.

Explanation of Benefits (EOB)

Statement sent by a health plan that details the charges for the health service(s) received, the covered service(s), the plan's allowable charge(s) for the covered service(s), the amount the health plan pays for the service(s), and the amount(s) you are responsible for paying. An EOB is not a bill. Only providers send bills to Medicare members for health care services, not insurance companies.

Extra Help

A Medicare program to help people with limited income and resources pay Medicare prescription drug program costs, like premiums, deductibles and coinsurance.


Health Maintenance Organizations (HMOs) help Medicare Advantage members to receive integrated, or "managed," health care at a lower cost when they use doctors or hospitals within their own network (except in emergencies or while traveling). If you do not use providers within the network, you are responsible for the costs.

Initial Coverage Limit

Once you've met your yearly deductible, you'll pay a copayment or coinsurance for each covered drug until you reach your plan's out-of-pocket maximum (or initial coverage limit). You'll then enter your plan's coverage gap (also called the "donut hole").


Term that refers to doctors, hospitals, pharmacies and other health care providers that are in your health plan's network — that is, they have agreed to provide members of a certain insurance plan with services and supplies at a discounted price. In some insurance plans, your care is only covered if you get it from in-network doctors, hospitals, pharmacies and other health care providers.


A patient who is admitted to a hospital, extended care facility, nursing home or other similar health care institution that requires at least one overnight stay.


A federal entitlement program that provides health and long-term care coverage to certain categories of low-income Americans. States design their own Medicaid programs within broad federal guidelines. Medicaid fills gaps in the health insurance system, finances long-term care coverage and helps sustain providers who serve the uninsured.

Medicare Advantage (Part C)

Part C combines Parts A (hospital insurance) and B (medical insurance) for even more health coverage benefits. These plans, which are offered by private insurance companies (like Highmark), often include Part D prescription drug coverage and other benefits that Original Medicare does not.

Medicare Part A (Hospital Insurance)

Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care and some home health care.

Medicare Part B (Medical Insurance)

Part B covers certain doctors' services, outpatient care, medical supplies and preventive services.

Medicare Part D (Prescription Coverage)

Optional prescription drug coverage offered by private insurance companies as a stand-alone plan to combine with Original Medicare. It can also be included in your Medicare Advantage plan.

Medicare Summary Notice (MSN)

A notice you receive after a physician or provider files a claim for services covered by Medicare Part A or B. The statement explains the charges that will be paid by Medicare and those that will be paid by you. (An MSN is labeled "This is Not a Bill.")

Medicare-Approved Amount

In Original Medicare, this is the amount that a doctor or supplier can be paid for a given service or product. It may be less than the actual amount a doctor or supplier charges. Medicare pays part of the charge amount and you're responsible for the difference.

Medigap/Medicare Supplement

Supplemental Medicare (Medigap) plans are offered by private insurance companies to fill the benefits not covered by Original Medicare. Medigap plans are different from Medicare Parts A, B, C and D, and they do not include prescription drug coverage.


A health plan network is made up of doctors, hospitals, clinics, labs and other providers that a health insurer has contracted with to provide health care services to its members. You usually pay less when you use health care providers that are "in-network." You may pay extra if you see a health care provider who is "out-of-network" (or "non-network").

Network Provider

A doctor, hospital, clinic, lab or other provider with whom an insurance company has contracted with as a participant in a network to provide health services to its members.

Optional Supplemental Benefits

Services that Medicare doesn't cover, but that a Medicare health plan may choose to offer. If you enroll in a plan with these services, you may choose to buy the services. If you choose to buy these benefits, you'll pay for them directly, usually as a premium, copayment and/or coinsurance. These services may be offered individually or as a group of services, and they may be different for each Medicare health plan.

Original Medicare (Part A and Part B)

Original Medicare is a federal government, fee-for-service health plan that has two parts: Part A (hospital insurance) and Part B (medical insurance). After you pay a deductible, Medicare pays its share of the Medicare-approved amount for a health care service, and you pay your share (coinsurance and deductibles).


A benefit that may be provided by your Medicare Advantage plan. Generally, this benefit gives you the choice to get plan services from outside of the plan's network of health care providers. In some cases, your out-of-pocket costs may be higher for an out-of-network benefit.

Out-of-Network Coinsurance

The percent you pay of the allowed amount for covered health care services to providers who do not contract with your health insurance plan as a network participant. In certain circumstances the plan may have a contract with an out-of-network provider. Out-of-network coinsurance usually costs you more than in-network coinsurance.

Out-of-Network Copayment

A fixed amount you pay for covered health care services from providers who do not contract with your health insurance plan as a network participant. In certain circumstances the plan may have a contract with an out-of-network provider. Out-of-network copayments are usually more than in-network copayments.

Out-of-Network Provider

Highmark contracts with doctors, hospitals, clinics, labs and other providers to provide health services to its members as a network participant. (In certain circumstances, a plan may have a contract with an out-of-network provider.) These providers form a network. Health care providers with whom Highmark does not have a contract, but who have not agreed to participate in a particular network, are considered to be "out of network." You usually pay more when you use "out-of-network" health care providers.

Out-of-Pocket Costs

Health care or prescription costs not covered by a health insurance plan and that are your responsibility, such as copayments, coinsurance, deductibles and fees.

Outpatient Care or Procedure

Any health care service provided to a patient who is not admitted to a hospital. An outpatient procedure can take place in a doctor's office, clinic, the home or a hospital outpatient department.

Palliative Care

Medical care that focuses on providing patients with relief from the symptoms, pain and stress of a serious illness.


An amount added to your monthly premium for Part B or a Medicare drug plan (Part D) if you don't join when you're first eligible. You will pay a higher premium amount as long as you have Medicare. There are some exceptions.

Point-of-Service Option

In an HMO health plan, this option lets you use doctors and hospitals outside the plan's network but at an additional cost.


Preferred Provider Organization (PPO) health plans in Medicare Advantage offer lower copays and coinsurance for using in-network providers and hospitals. You can still choose out-of-network providers, but your coinsurance will be higher.

Preferred Pharmacy

A pharmacy that's part of a Medicare drug plan's network. You pay lower out-of-pocket costs if you get your prescription drugs from a preferred pharmacy instead of a non-preferred pharmacy.


A set fee you pay monthly for health insurance coverage.

Preventive Care

Screenings or routine services that may prevent or detect problems before they advance, and when they may be easier to treat. For example, annual wellness visits are preventive.

Supplemental Security Income (SSI)

A monthly benefit paid by Social Security to people with limited income and resources who are disabled, blind or age 65 or older. SSI benefits aren't the same as Social Security retirement or disability benefits.


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