Understanding Your Health Insurance

Definitions that Explain How Your Benefits Work

Knowledge is power. Knowing the language of health insurance will help you get the most out of your insurance and avoid surprises. 

There are many types of health plans, and your employer may offer several choices during yearly open enrollment. No matter which type of plan you have, you can get a better grasp of how your benefits work with this list of the most frequently used terms in medical and pharmacy insurance. 

You can also download our PDF guide: Understanding Basic Health Insurance Definitions

Common Medical and Pharmacy Insurance Terms

Deductible: Your deductible is the amount of money you must pay each year before your insurance starts covering its part of costs. For some policies, the medical and pharmacy deductibles are combined, while others have two separate deductibles. 

For instance, if your plan has a $200 pharmacy deductible, you pay for your covered medications until you have spent $200. After that, your insurance will pay for all or part of your medication. 

High Deductible Health Plan (HDHP): This type of plan has a higher deductible than a traditional insurance plan. Your monthly premium is usually lower, but you will pay more health care costs yourself before insurance starts paying. 

If you have a high deductible plan, you can combine it with a health savings account (HSA) that allows you to save money, tax-free, to pay for certain medical expenses. A high-deductible health plan is often called an HSA-eligible plan. 

Preferred Provider Organization (PPO): With a PPO Plan, your insurance covers care or medications with providers or pharmacies that are part of a selected network. If you get care out of the network, you’ll pay a higher percentage of the costs. 

Co-payment: This is a fixed amount of money you pay for each prescription or doctor’s visit. Your pharmacy co-pay varies, depending on which category or tier your medication is listed in on your formulary. (See formulary and tier explanations below.) Some preventive medications have a $0 co-pay. 

Co-insurance: Your co-insurance is the percentage of the bill you pay for a medication or medical service. With many plans, you will pay 20% or 30% of the cost after you meet your deductible. If your plan has both a co-payment and co-insurance, you will pay for both. 

Out-of-pocket Maximum: Most plans have a limit on how much you must pay in a 12-month period. This is called an out-of-pocket maximum. Both prescriptions and medical expenses count toward this cap. You may have an individual out-of-pocket maximum and a family out-of-pocket maximum. Once an individual has met their limit, insurance then covers 100% of the member’s claims. Once a family has reached the family maximum, insurance will cover 100% of the claims for all family members on the plan. 

Formulary: This is a list of medications covered by your plan. You can find True Rx formularies here. Each drug on the list includes a tier. 

Tier: Formularies have tiers, which are groups of medications classified by cost. Your co-payment depends on which tier your medication is in. 

  • Tier 1 includes the least expensive prescription drugs in your plan. These are typically generic drugs. Generic drugs are required to be just as effective as brand-name medications. 
  • Tier 2 is more expensive generic drugs and some brand-name drugs. 
  • Tier 3 includes expensive brand-name drugs and some specialty medications. These drugs usually have a higher cost. 

An Example of Your Medication Cost

If your plan has a co-payment, deductible, and co-insurance, here is an example of how those three items work together. 

  • Let’s say your doctor prescribes a medication that costs $75, and you’ve already met your $200 pharmacy deductible. 
  • According to your plan, the medication is listed as Tier 1 on the formulary and has a $10 co-pay. 
  • Your co-insurance is set up for you to pay 20% of the cost in addition to your co-payment. This means your co-insurance will be $15 (20% of $75)
  • When you add the $15 in co-insurance to your $10 co-payment, you will pay $25 for your medication and your insurance will pay the remaining $50.

Use the True Rx Portal or App to Calculate Your Costs

You can use the True Rx member portal or mobile app to calculate the price you will pay for your medication. Videos on our Members Page walk you through instructions. 

If you have questions about your benefits, talk to a member of our Patient Care Team by calling 800−921−4047 from 8 a.m. to 8 p.m. ET, Monday through Friday.