15 Common and Most Important Medical Billing and Insurance Terms to Know in 2021

Medical billing and health insurance processes are an integral part of today’s healthcare industry. These areas have a set of common yet most important terms that every health care provider must be aware of. Read on to learn about these terms and their meaning and ensure error-free operations in the area of medical billing and health insurance.


Medical billing and insurance are among the most important yet the most complex processes that all healthcare service providers must carry out for running their practice successfully. However, most fail to understand many of the important medical billing and insurance terms, which ultimately leads to successful claim management and improved reimbursements.

In this article, we will simplify the most important medical billing and insurance terms that you will be needing in streamlining your business operations in the new year 2021.


An appeal is a process through which a healthcare provider can convince an insurance provider company to compensate for more through a claim. Any healthcare provider can process an appeal on a claim only in case of denied claims or claim rejections.


Insurance payers are supposed to receive claims that are error-free and must be processed at regular intervals. Healthcare providers benefit largely from clean claims, as they significantly reduce the turnaround time and expedite the process of reimbursements. Clean claims can also be achieved by sending claims to third parties - often known as clearinghouses, and ultimately eliminating the need for incessant appeals.


Explanation of Benefits (EOB) is an important document that is mandatorily attached for processing claims to identify for patients and providers which services will be covered by the insurance company. Not only this, but EOBs also help in understanding the area of error, which may be the reason why the claim is denied.



The allowed amount is an important medical billing terminology that describes the amount of charges allowed by insurance companies for various healthcare services. Most often, the charges are defined by the Medicare policies, however, they may vary depending on different plans offered by various insurance companies.

The allowed amount is the total paid amount plus patient responsibility. Healthcare service providers often accept the allowed amount and the patient shares with insurance payers the responsibilities from the allowed amount. The responsibilities from the billed amount by the provider cannot be shared with the insurance company.




The term copayment (co-pay) is referred to as the amount defined in the insurance plan that must be paid by the patient every time he or she receives healthcare services. The term co-pay is often used synonymously with the term co-insurance, however, they both have different meanings.



Medical billing is a complex process where the share of healthcare providers’ costs of offering healthcare services is mainly calculated as a percentage of the total permissible amount for that particular service. Along with deductibles, healthcare service providers must pay co-insurance as a percentage of medical expenses.

For instance, if the amount for an office visit that is allowed by health insurance is $100, the healthcare service provider will have the co-insurance payment of 20%, i.e. $20 along with the deductibles. The rest of the allowed amount is paid by the health insurance company.


Capitation is an agreement between an insurance provider and a healthcare provider which states that the insurance company will pay a fixed amount of money for every patient who is offered healthcare services. Capitation reflects arrangements that involve Health Maintenance Organizations (HMOs), who enlist patients to healthcare service providers.

Healthcare providers, then, are paid by the insurance payers a certain amount of money, which is decided based on various factors such as health conditions, risks, age, race, and history of patients.


Any kind of healthcare service provider including a physician who is a D.O. – Doctor of Osteopathic Medicine or M.D. – Medical Doctor, physician assistant, clinical nurse specialist, or nurse practitioner can be considered as a primary care provider. A primary care provider must be certified under state law in order to provide healthcare services or help patients access a wide range of healthcare services.


A premium is a specific amount of money to be paid to your insurance company as a part of having an active insurance plan for your healthcare business. The payment can be done at specific intervals, which can be monthly, quarterly, or yearly, in exchange for insurance coverage.


Health maintenance organization (HMO) is a system of organizations that networks medical insurance providers that offer health insurance plans for a specific fee. The insurance companies associated with the HMO provide insurance coverage only for healthcare services provided by physicians, doctors, and other providers who have a contract with the HMO.



Health savings account (HSA) is like a savings account that allows healthcare service providers to use pre-tax dollars to pay expenses. HSAs are commonly considered as a means to complement a specific type of insurance plan - HSA-qualified High-Deductible Health Plan (HDHP).

HDHPs are highly popular among healthcare service providers mainly because they offer much lower monthly premiums than conventional health insurance plans. Also, the end-users can also invest the money saved from the premiums to invest in the HSA and pay other medical expenses.


This is an important type of insurance plan which allows patients to receive healthcare services from providers that have networked with their insurance payers or insurance companies. Various important organizations such as Independent Practice Association (IPA) and HMOs are prominent examples of managed care systems.


Contractual adjustment is an important medical billing term that denotes the amount of money charged by the healthcare service providers for their services but agreed to write off. Contractual adjustment describes the charges that are not billed by providers as per the contract formed with their insurance company. In simple words, contractual adjustment is the difference between the billed amount and the allowed amount.


Patient responsibility is described, in medical billing and insurance terms, as the amount of money that a patient must pay which is not compensated in the insurance plan. Patient responsibility is the balance percentage of the reimbursement mentioned in the insurance policy, which can be paid by the patient or his/her secondary insurance plans.


The Secretary of the U.S. Department of Health and Human Services (HHS) developed the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to protect the security as well as privacy of patients’ health information. The HHS has published the HIPAA Privacy Rule to set national standards for the protection of personal health information of patients, and the HIPAA Security Rule established a national standard for security personal health information patients saved or transferred in electronic form. HIPAA compliance is necessary for healthcare providers to protect their systems from cyber-attacks and ensure cybersecurity across their operations.


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