Insurance claim letter template (and how to appeal a denied insurance claim)
Running a private practice requires managing many moving parts for therapists who are just starting out. For clinicians, learning all of the various insurance terms and definitions can be arduous. And that’s on top of all the decisions clinicians starting a new private practice need to make.
For example, you’ll need to determine whether to go paperless and use an electronic health record (EHR), which policies and procedures to implement, as well as how to manage payments (including collecting unpaid balances). If you choose to accept insurance, you’ll also need to develop a good understanding of insurance terms and definitions.
This article provides a comprehensive overview of common health insurance terms and definitions therapists use. We’ve also included a free, downloadable glossary, providing health insurance terminology 101, that you can use as a quick-reference guide when billing insurers.
This free downloadable glossary highlights basic health insurance terms and definitions you need to know as a mental health clinician. You can also provide this guide to clients as a handy insurance terminology PDF in their intake packet.
Important events
Open enrollment
Open enrollment refers to the annual period where individuals can choose or make changes to their health plan. Generally, this occurs from November 1st to January 15th, but it varies by state, school, or employer, and if the election is being made through an individual's employment benefits or enrollment in school.
Note: Individuals may qualify for a special enrollment exemption outside of this window if they have a qualifying life event, like leaving an employer or student health plan.
Provider and plan types
In-network
In-network means that the healthcare provider is contracted with the insurance company, agrees to charge the client according to their benefits, and will be reimbursed by the insurance payer for the agreed upon allowance.
Out-of-network
Out-of-network means the provider is not contracted with the insurance companies and can charge their full rate. However, the client’s benefits aren’t guaranteed, and they may end up paying more out of pocket.
Some clients have out-of-network benefits, some may need to pay a deductible before these benefits go into effect, and others may not have out-of-network benefits at all. The provider and client should reach out to the insurance payer to verify whether the services will be covered.
Individual plans
Individual plans are purchased directly from the insurance marketplace or from insurers directly. Payments are made to the insurance company. Individuals going through the marketplace can find out if they are eligible for health insurance subsidies.
Employer-sponsored plans
This refers to being enrolled in a healthcare plan with an employer or a family member’s employer (as a dependent on the plan).
The insurance terms and definitions for involved parties
Policyholder
The policyholder is the employee or individual named on the insurance plan.
Dependent
Dependents are family members of the policyholder (such as a spouse, child, or domestic partner) who is added to the insurance plan.
Payer
Common term used to describe an insurance company—relating to both private and government health plan providers, like Medicare and Medicaid. The payer sets rates, processes claims, collects payments, and pays provider claims.
Payment and other health insurance terminology 101
Allowance
This is how much a payer agrees to cover the total cost of care. This is also referred to as an “allowable charge.”
Authorization
Some plans require prior authorization before providing certain services or prescribing certain medications. A provider may be required to list an authorization number on their bill, in order to get these medications or prescriptions covered by the client’s insurance.
Benefit year
This refers to the 12-month period when healthcare coverage is effective. Some plans begin January 1, but others may start on a different date.
Claim
A claim is a submission by a provider claiming payment from the policyholder’s health insurance company, according to their benefit plan.
COBRA
COBRA is an abbreviation for the term Consolidated Omnibus Budget Reconciliation Act, which provides short-term protection for those who lose coverage. For example, a graduate student may lose coverage mid-month, but cannot sign up for new insurance until the first of the month through the marketplace. The graduate student may be eligible to use COBRA benefits in the interim.
Note: Not all insurance plans provide COBRA plans.
Copay
Copays are fixed amounts paid by the client directly to the healthcare provider. This may vary depending on the client’s plan and the type of service.
For example, an outpatient behavioral health provider may have a $40 copay, whereas specialist services at a hospital may have a higher copay.
Coinsurance
Some services or insurance plans require the client to pay a percentage rather than a fixed rate (copay). The percentage of allowance that the client pays to the healthcare provider. For example, a client may be responsible for 20% of the cost and insurance covers the remaining 80%.
Current Procedural Terminology (CPT®) Codes
CPT codes are a series of numbers reflecting a provider service and are included by providers on insurance claim forms. These codes help insurers to quickly identify the type of service provided, determine coverage, and collect data.
Note: Clients may be asked for a CPT code if they are submitting a superbill claim to their insurance company.
Deductible
The specific amount a client must pay before insurance covers the cost of some services.
Note: Some plans will cover certain services at 100%, while others may specify that, until such time as the client meets their deductible, they are responsible for paying the entire bill out of pocket. For example, outpatient psychiatric evaluations may be covered with a copay, while diagnostic services like blood work may not be covered until the patient meets the deductible.
Out-of-pocket maximum
The out-of-pocket maximum is a predetermined amount of money the client may pay towards healthcare during the year or while they’re on that health plan, before the insurance payer has to pay for 100% of services.
There is usually an out-of-pocket maximum for in-network services and providers, and another out-of-pocket maximum for out-of-network services and providers. For example, if the in-network out-of-pocket maximum is $1,000 annually, then after the client has paid $1,000 on their own, the remainder of their in-network benefits can be accessed without paying a copay or coinsurance. The provider will receive 100% of their contracted rate from the insurance company.
Diagnostic code
Diagnostic codes are used by clinicians to indicate a specific disorder, illness, or injury.
Behavioral healthcare providers in the United States may be asked to use an ICD-10 code to accompany their claim, which the insurance provider can use to determine medical necessity.
Employee Assistance Program (EAP)
Workplaces may provide EAP services, which support employees in a range of situations.
For example, EAPs can provide referrals and cover the cost of substance use disorder treatment. Typically an employee must qualify for this benefit, but not all employers offer EAPs.
Explanation of Benefits (EOB)
A statement sent by an insurer specifying the receipt of a claim from a provider and how it was processed.
Flexible Spending Account (FSA)
Like a health savings account (see below), but owned by the client's employer. Clients can arrange for their employer to deduct a certain amount from their paycheck each pay period.
Health Savings Account (HSA)
An HSA is like a savings account, but it is tax exempt. Individuals can save pre-tax earnings to use toward qualifying care-related expenses.
Health Reimbursement Account (HRA)
HRAs are accounts contributed to by the policyholder’s employer to help offset healthcare expenses. HRAs are generally integrated with the insurer.
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA is a law that protects the privacy, security, and disclosure of personal health information (PHI). PHI includes a client’s name, date of birth, medical information, records, contact information, emergency contact, and any other data recorded by a provider.
Initials and internally designated client identifiers (patient number created by the provider, facility, or EHR) do not count as PHI.
Pre-existing condition
This refers to a physical or mental health condition that existed prior to an individual's current healthcare coverage.
Premium
Premiums refer to the amount paid to an insurance company each month for healthcare coverage. For employees, this may be deducted through payroll, and for others, this may be deducted from their bank account each month.
Superbill
A bill or receipt generated by an out-of-network provider that an individual can submit to their insurer with a claim form for reimbursement.
Note: Some insurers require CPT and diagnostic codes to be included on the claim form.
Write-off
Insurance companies usually set limits that providers can charge, and the write-off indicates on their bill the difference between the total cost of care and the allowance.
If you still need a refresher on health insurance terminology 101, or you’re looking for a comprehensive list of insurance terms and definitions, download the insurance terms and definitions cheat sheet. You can print it out and keep it handy in your office or provide it to clients to help them better understand all of these important insurance terms.
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