Health Insurance Literacy and Why it Matters

Health insurance literacy means having a thorough understanding of health insurance, such as how to choose health plans and understanding your coverage and benefits. Why is health insurance literacy so important? Your family’s health as well as finances strongly depend on it. 

Definition of Health Insurance Literacy: “An individual’s ability to seek, understand, select, and use their health insurance services.”

National Institutes of Health

Why Is Health Insurance Literacy Important

It’s no secret that health insurance companies love using big words and lots of acronyms (for example, PCP is short for primary care provider). Companies say their goal is to make policies easier for ordinary consumers to understand. But, oftentimes, it does the exact opposite. 

If the documents and brochures you get from your health insurance company look like gibberish, you’re not going to read them. If you don’t read your policy, you won’t understand your benefits. In 2018, JAMA published a study linking health insurance literacy and avoiding healthcare services. The authors found that fewer than 14% of participants correctly answered questions measuring their basic understanding of health insurance. Ultimately, the study showed that most consumers don’t understand their health insurance policies, which increases the likelihood they will avoid medical treatment, even for preventive health care services.

Health Insurance Literacy Matters: How You Can Save Hundreds of Dollars a Year (or More)

There is good news: When consumers read patient education materials and then immediately talk about that information with their providers, they’re less likely to go to the emergency department and get admitted to the hospital. This research found that when patients have a better understanding of their insurance plan and benefits, they save about $675 annually and reduce their overall healthcare costs by 11%.

Being Health Insurance Literate Is Easier Than You Think

Health insurance literacy starts with learning how to compare health plans, if you have multiple ones to choose from. It also includes reading your health plan documents, which are available on the health plan website and also often in paper copies mailed to you. If you don’t understand something or can’t find the answers you need, you should take advantage of your health plan’s customer service platform. When you have a question about what your insurance covers or what your out-of-pocket costs are, you can call or email a customer service representative.

Learning How to Use Your Health Insurance

Knowing how to use your health plan and what it does and doesn’t cover is essential for health insurance literacy. You need to know at least the basics like where to get health services and how to find out which providers and facilities are in your network. You also need to know how much you are responsible for paying (like your copayment and deductible) and how to get needed prescriptions.

Health plans publish summaries to help you understand your coverage, but sometimes you will need to dig deeper in the plan documents or contact the health plan (as mentioned above) to get answers about your particular situation.

At your doctor’s office, when you talk to your provider about your health and treatment options, if there’s something you don’t understand, ask for an explanation. You can also talk to the folks in the billing department. No one knows more about the ins and outs of health insurance policies than the billing clerks at medical clinics and hospitals. Billing agents at a medical office or health plan can’t tell you what services you need or what coverage you qualify for, but they can tell you what services insurance companies are more likely to cover. In some cases, you will still need official approval from your insurance company before getting certain procedures, which your doctor can submit.

Health Insurance Abbreviations and Acronyms You Need to Know

An acronym is when you form a new word using the first letters of a phrase or group of words. An abbreviation is a shortened version of a word. Health insurance companies love acronyms and abbreviations, and it’s understandable why. Many common words associated with healthcare are long or difficult to pronounce. Also, terms to describe healthcare services are often several words long. It’s easier to shorten the Affordable Care Act, for example, to ACA. Here are some other popular health insurance abbreviations and acronyms you should know.

• ADA – Americans with Disabilities Act
• ADL – activity of daily living
• ALOS – average length of stay
• Auth – authorization
• CHIP – Children’s Health Insurance Program
• COBRA – Consolidated Omnibus Reconciliation Act
• COI – certificate of insurance
• DOS – date of service
• E&L – exclusions and limitations
• EAP – employee assistance program
• ED – emergency department
• ER – emergency room
• FFS – fee for service
• FMLA – Family and Medical Leave Act
• FSA – flexible spending account
• HDHP – high deductible health plan
• HIPAA – Health Insurance Portability and Accountability Act
• HMO – health maintenance organization
• HSA – health savings account
• OOP – out of pocket
• OTC – over the counter
• OV – office visit
• Remit – remittance
• Retro – retroactive
• Rx – prescription
• Par – participating
• PCP – primary care provider (or physician)
• Pre-auth – pre-authorization
• Pre-X – pre-existing conditions
• POS – point of service
• PPO – preferred provider organization
• WH – withhold
• YTD – year-to-date

Benefits of Being Health Insurance Literate

Yes, health insurance literacy can be time-consuming — and possibly frustrating at times — but learning the basic processes and lingo will lead to a healthier and richer future for you and your family. And following us at Decoding Health Care can help!

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Original article by Riki Markowitz, updated and edited by Lauren R. Jahnke, MPAff, author of Decoding Health Insurance and the Alternatives: Options, Issues, and Tips for Saving Money. This book is a comprehensive consumer guide to understanding health insurance and health coverage options in the U.S. It includes many practical tips to help you decipher the options and save money.

Article last updated: April 1, 2026