Half of figuring out your health plan strategy involves understanding the ingredients involved. Since health costs are an important and sometimes large part of your personal finance life, knowing the verbiology is important. Get out your flashcards.

Coinsurance – In some types of health plans (such as PPOs), your insurer doesn’t pay the whole medical bill. They pay, like, 80% or 90% of it, sticking you with the rest. This sharing has been given the friendly name of “coinsurance,” to make it sound like you and your insurer are old pals, working together.

COBRA – A wily group of evildoers who fought GI Joe on a regular basis. Also an improbably named government program (Consolidated Omnibus Budget Reconciliation Act) that allows people who leave their job or who get laid off) to continue using their previous employer’s health plan for up to 18 months after they stop working there. There’s a catch, though—you have to pay the full price of your health plan all by yourself; your employer no longer covers the usual 70-80% of the premium. This can lead to huge insurance bills, but it may be better than having no insurance at all or having to change plans while you’re in the middle of intensive medical treatment.

Copay – Short for copayment. Almost every type of insurance requires you to cough up something between $10 and $50 bucks when you go see a doctor. This is the copay. Copays can, in many cases, be applied to your deductible.

Deductible – In many plans your coverage doesn’t kick in until you’ve shelled out a certain amount of dough on health care each year. This could be anywhere from a couple of hundred to a couple of thousand dollars—it depends on the plan.

Once you’ve “met” (paid) your deductible, you get all the coverage, discounts, benefits and other goodies your health plan offers. Until the next calendar year, that is, when you have to start back at zero. Keep in mind that your health-insurance deductible is not like a car-insurance deductible: It’s not negotiable, and your insurer can’t raise your premium if you use it. It’s just the first batch of money in your plan that you’re responsible for—everybody spends all or part of his or her deductible each year.

EOB Form (Explanation of Benefits Form) – This looks like a bill, but it’s not a bill—it’s a price tag. Healthcare is one of those rare industries where you buy things before you know how much they cost. The EOB is supposed to show you how much the doctor charged the insurer, how much the insurer is paying the doctor and how much, if any, is left over that you have to cover yourself. Once you see what the EOB says you might owe, then you wait for the doctor to bill you for it. Sometimes doctors don’t bother at all; other times, they may wait weeks or months after they get payment from the insurer to turn around and bill you.

Here’s the best part—besides being completely confusing, many EOBs are also inaccurate. That’s why it’s best to wait for that doctor bill before sending any money anywhere (sometimes things just sort themselves out in the background). But since health insurance is rife with good ol’ fashioned idiocy, it’s not a bad idea to call your provider and verify the charges on any bill before you pay, especially if you’re confused about something (which is likely, since EOB’s often read like Greek for bilinguals).

FSA (Flexible Spending Account) – This is a supplemental account you can have when you’re enrolled in an HMO/EPO or PPO (HSA enrollees aren’t eligible). Like the HSA, it allows you to set aside pretax dollars (which will help you out come April 15), which you can use to pay for doctor and prescription copays and other qualified medical expenses. The difference is that the money of the use-it-or-lose-it variety: if you haven’t spent it all by the end of the year, you forfeit it, though many plans give you a grace period until March 15 of the following year. You can read more about FSAs here.

Generic Drugs – When a drug company invents a new medicine, it patents it. That gives it the exclusive right to make and sell that drug. But drug patents (unlike diamonds) aren’t forever—they usually expire after several years. Once that happens, that drug can be made by other companies – these replicas are known as generic drugs.

Since these other companies don’t spend the money to actually invent and advertise drugs, they don’t have to charge as much when they sell them. The FDA still oversees their manufacture, and they are identical to the original, brand-name drug.

Insurance companies love generic drugs, as they’re tons cheaper than name brands. And you know what? You should love them too. They’re just as safe as name-brand drugs, and they can save you some scratch at the pharmacy. You should always ask your doctor if what you’re taking is available generically or if there’s a similar generic that’s right for you.

Whether a drug is generic or not will affect your copay, as most health plans charge less for generics than name-brand drugs. Some plans even make distinctions between branded drugs, charging a middle price for name-brand drugs they’ve negotiated a better price for and the highest copay for name-brand drugs where they haven’t cut a deal.

HSA (Health Savings Account) – Ok, so you see how a high-deductible plan works, right? Now imagine that the money you used to meet your deductible came from an account to which you contributed pre-tax dollars. That’s an HSA. In 2007, you could set aside up to $2,850 a year to pay for medical expenses (families get up to $5,650).

Contributions could come out of your paycheck before taxes are taken out or, if you’re self employed, you’ll basically give yourself a nice tax credit come April. If you have a balance in your account at the end of the year, no worries—it carries over into next year. You can only withdraw this money to use for health-related expenses; otherwise you have to pay a penalty. But you can let it sit – and invest it – to use for, say, expenses in retirement decades from now. That’s why it’s an especially good thing for younger workers, who have lots of time to watch the money grow.

Network – Most plans have some sort of a group of doctors, hospitals and other healthcare providers that they call a “network.” The most important thing about a network is that those providers and your insurer have agreed on what prices the insurance companies will pay the providers for various procedures and treatments. (Apparently, this is not price collusion, but whatever.) Since all fees are set, there’s no matter of “reasonable, usual or customary”—what your doc charges is what your insurer will cover.

• In-network – Docs who decide to play by these rules and charge the agreed upon price. See them, and it shouldn’t cost you more than a meager copay or a percentage of the set price in coinsurance.

• Out-of-network – Docs who haven’t gotten freaky with your insurer. They charge whatever they want. Your plan might pay, say, 60% of their costs while paying 80 or 100% of in-network costs.

So why would you go out of network at all? To see the exact doctor you want to see. Don’t worry—if it’s an emergency room visit and you’re admitted, almost every plan will grant coverage whether it’s an in-network hospital or not.

Out-of-pocket maximum – Basically, this is how much you can spend before your plan starts paying for 100% of everything. Even after you’ve met your deductible, you’re still responsible for coinsurance and copays. So, as an example, let’s say that you’ve met your plan’s $500 deductible, and then you get caught in a thresher. The hospital bills add up to $90,000. If you didn’t have an out-of-pocket max, you’d still be on the hook for coinsuring, say, 20% of your hospital costs, or $18,000. But since your plan has an out-of-pocket maximum, you’re only on the hook for $2500 (as you’d already spent the $500 in meeting your deductible). Phew.

You want to make sure that, if something very bad—and very expensive to treat—happened to you (or a member of your family, if you’re all on the same plan) that you’d be able to cover the maximum amount before insurance would pick up the rest.

Premium – The amount you pay out of each paycheck to get your insurance. If you work at a big company, you pay a smallish percentage; your employer picks up the rest. At smaller companies (or just cheap ones) you may have to pay more. And if you’re on your own, you pay the whole thing.

Prescription drug programs – Your health plan may run its own prescription-drug program, or it may contract it out to a third party, such as Medco. If that’s the case, the terms of your drug plan are still set by your health plan—Medco’s just fulfilling the order. If your health plan says generic prescription drugs are $15, then they are $15 no matter where you buy them.

The only time this price changes is when it’s in your favor: Many health plans have a mail-order option for pills you take regularly (such as Lipitor or Prozac). Getting drugs through the mail can cut your prescription costs by a third or more. This can also be more convenient, since refills happen either automatically or you can confirm them online.

Primary Care Physician – This is your main doctor, the person you go to for checkups and when you’re sick and that sort of thing. HMOs and some others types of plans require you to have a PCP (as opposed to taking PCP, which could lead to claims problems), who directs your care and refers you to other doctors. If you’re required to designate a PCP, you often can’t see any other doctors without that referral. Other types of plans don’t require a PCP.

Reasonable, usual and customary – Confusing, annoying and tightfisted, is more like it. When an insurer says, for example, they’re going to cover 70% of hospital costs, that’s not necessarily 70% of the bill—it’s 70% of what they think you should have been charged.

Say you go to Dr. Tickles for a tonsillectomy, and Dr. T. charges you $2,000 for it. Well, your insurance company may have determined that the average price for this procedure in your area costs $1,250, so that’s all they’re going to cover. The remaining $750? Open wide!

Want to Know More?

• Advice on Picking the Right Health Insurance
• The Different Kinds of Health Insurance
• Grilling Guide: Questions to Ask a Potential Provider