Glossary of Terms

401(k)

A qualified deferred compensation plan which enables you to save money, lower taxes, and invest in your financial future. Under a 401(k) plan, your elective contributions are made on a before-tax basis; that is, the amount deferred will be excluded from your taxable income. This may currently lower your taxes.

ACQUISITION COST

The cost to an insurer to acquire new business. It includes costs such as underwriting the risk, issuing a new policy, paying commissions and overhead or office expenses.

ACTUARY

A professional who mathematically analyzes and determines the price of the risk associated with providing insurance coverage. An actuary may also determine the anticipated cost of providing future benefits. Factors considered in the study include the projection of future claims experience, administrative expenses and anticipated investment return.

ADMINISTRATIVE SERVICES ONLY (ASO)

A type of contract with an insurance company or a third party administrator that provides an employer with administrative services. It does not provide coverage for risk or insurance protection. The usual expenses covered include claims processing, plan design advice and printing benefit booklets. These contracts are usually entered into by large employers who can afford the risk of providing insurance protection with their own money.

A person who is designated to be responsible for the proper operation and administration of a plan. When the plan sponsor does not designate a person for this duty, ERISA considers the plan sponsor to be the plan administrator.

ADVERSE SELECTION

A tendency which occurs when a person makes a decision based on his/her diminished health condition or frequency of needed treatment and is, therefore, considered a poorer claims risk than most others in the group.

AGENT

Licensed by the state and performs the functions for sole proprietors and small businesses that Human Resources Departments handle for larger businesses.  An agent gathers census data, prepares proposals, makes presentations to businesses, explains benefits to employers and employees, does field underwriting when required, delivers policies and certificates, assists in handling claims, and services the business in any other related tasks required by the employer.

AGGREGATE AMOUNT LIMIT

Maximum amount a plan sponsor (employer) is liable for any single loss or series of losses.

ANNUAL DEDUCTIBLE

The amount you pay for covered expenses first, before an insurance plan begins to pay benefits. Some plans require deductibles for all services, some for just certain types of services, and others require no deductible at all.

ASSIGNMENT  OF BENEFITS

Authorization by the insured which allows the insurer or claims payer to pay benefits directly to the medical care provider.

ATTACHMENT POINT

For aggregate stop-loss insurance, it is the point at which the stop-loss insurance carrier begins to reimburse the employer based upon the cumulative total of claims paid within a policy year.

BALANCE BILLING

For specific stop-loss insurance, it is the point at which the stop-loss insurance carrier begins to reimburse the employer based upon the individual's total of claims paid within a policy year.  The practice of medical care providers (such as doctors, hospitals or other medical practitioners) billing the insurer for full costs, then billing the insured for the portion of the bill which was not paid.

BENEFICIARY

The person entitled to receive benefits under a plan, including the covered employee and his or her dependents.

BENEFIT PERIOD

A period of time during which benefits are payable under a plan of insurance contract.

BOARD CERTIFIED

This designates that the provider is Board Certified by the American Board of Medical Specialties (ABMS) in that particular specialty. The intent of the certification of physicians is to provide assurance to the public that a physician specialist certified by a Member Board of the ABMS has successfully completed an approved educational program and evaluation process which includes an examination designed to assess the knowledge, skills, and experience required to provide quality patient care in that specialty.

CAFETERIA PLAN

A plan which offers a choice between two or more qualified benefits or a choice between cash and one or more qualified benefits which complies with Section 125 of the Internal Revenue Code (also known as a flexible benefit plan or flex plan).

CAPITATION

A form of compensation used primarily by HMOs to pay providers a periodic fee (usually a per member/per month fee) in return for delivering as much necessary health care services as the insured may need.

CENTERS OF EXCELLENCE

Providers who are selected to perform certain specialized procedures because of their expertise and willingness to provide discounts.

CLAIM

An insured's request for reimbursement from an insurance company or plan for covered medical expenses.

CLOSED PANEL

Refers to a health care program that requires the insured to use certain providers from a list provided by the plan. The primary care provider is responsible for all health care needs and refers to a specialty physician or hospitalization only when medically needed.

COALITIONS

An association of health care plan sponsors who pool their resources to negotiate with insurers or other health care payers and providers.

COBRA (CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985)

A federal law that requires most employers to allow eligible employees and their beneficiaries to continue to self-pay for their coverage after it normally terminates for up to 18, 24, 29 or 36 months.

CO-INSURANCE

An agreement between the insured and the insurance company where payment is shared for all claims covered by the policy. A typical arrangement is 80% / 20% up to $5,000. The insurance company pays 80% of the first $5,000 and the insured pays 20%. Usually after 80% of $5,000, the insurance company then pays 100% of covered expenses during the remainder of the calendar year up to any limits of the policy.

COMMISSION

Part of an insurance premium which is paid by an insurance company to an agent or broker in payment for procuring and servicing the business for the insurance company / client.  Depending upon the size of the group being insured, these commissions average between three and ten percent of the premium paid by the employer.

COMMUNITY RATING

A rating method that determines a single average premium based on the characteristics and claims experience of an entire membership such as an HMO or an insurance pool. Age, lifestyle, industry, health factors and gender are not used to determine rates (see Adverse Selection).

COMPETING HEALTH PLANS

A health plan is an insurer, PPO, HMO or other type of managed care arrangement.

CONVERSION PRIVILEGE

A contractual right given to an insured person whose group coverage terminates to be able to convert to an individual policy without providing evidence of insurability.

COORDINATION OF BENEFITS

A contractual provision to prevent an insured from receiving duplicate benefits from two or more group plans and profiting from over-insurance.

CO-PAY / CO-INSURANCE

The flat amount or percentage you pay for a covered service after you satisfy the annual deductible, if any.

COST CONTAINMENT

Efforts or activities designed to reduce or slow down the cost increases of medical care services.

COST SHARING

The sharing of costs between the payment of premium costs and  medical expenses by the health care plan and its insured through employee contributions, deductibles, co-insurance and co-payments.

COST SHIFTING

The increased cost of medical care to other patients to make up for losses incurred in providing care to patients who are under-insured or who have no coverage.

COVERAGE

The different types of options selected and the benefits paid under a plan or insurance contract.

COVERED EXPENSES

Charges for services which are medically necessary and eligible for payment under the plan. A covered expense can be no more than the maximum amount stated in the plan.

DEDUCTIBLE

The amount that the covered insured must pay before a plan or insurance contract starts to reimburse for eligible expenses.

DRUGS, FORMULARY

Drugs which the medical literature indicates are clinically effective, safe and of reasonable cost. 

DRUGS, NON-FORMULARY

Prescription drugs not on a formulary list.

EMERGENCY

A sudden, serious or unexpected acute illness, injury or condition which could permanently endanger your health if medical treatment is not received immediately.

EXTENDED BENEFITS

Benefits which continue, or become payable, after the termination of coverage from a plan or insurance contract, such as a hospitalization which continues after coverage would normally cease.

FEE-FOR-SERVICE REIMBURSEMENT

The traditional reimbursement system where the providers of medical care receive a benefit payment calculated on the basis of their billed charge. Under this arrangement, plans or insurers have not established contracted or capitated rates of payment with providers prior to the insured's claim occurrence.

FIDUCIARY

Under ERISA, any person who exercises discretionary authority or control over a plan or plan assets.

FIXED COSTS

Refers to those costs which are payable monthly and which do not relate to actual claims paid or incurred, such as premium and administration costs.

FLEXIBLE SPENDING ACCOUNTS

Special accounts typically funded by an employee's salary reduction to help pay for certain expenses not covered by the employer's plan or insurance contract. The advantage of these accounts is that after-tax dollars are converted to before-tax dollars, thereby reducing the actual cost of expenses.

FULLY INSURED PLAN

The employer pays all of the premium and, in return, transfers all of the risk and responsibility for claims payment to the insurance company.

GATEKEEPER QUESTION

A qualifying question asked by an insurance company at the time of application to help identify risk(s). Example: "Have you ever been treated for a heart attack or heart condition?"

GATEKEEPER (PRIMARY CARE PHYSICIAN)

A health professional within a managed-care environment who determines the patient's access to treatment. The primary care physician treats the patient and determines access to further treatment and specialists.

GUARANTEE ISSUE

The applicant is guaranteed coverage up to an agreed amount or level without evidence of insurability (see Evidence of Insurability).

GUARANTEED RENEWABLE

The insured's right to continue an in-force policy by the timely payment of premiums. The insurance company cannot change the coverage or refuse to renew the coverage for reasons other than non-payment of premiums (includes health conditions and/or marital or employment status).

GROUP INSURANCE

A single policy issued to an employer under which employees and their eligible family members may be covered.  Each employee receives a certificate of coverage outlining his/her health plan benefits.

 HIPAA

The Health Insurance Portability and Accountability Act provides rights and protections for both group health plans and individual coverage during events such as changing or losing jobs, pregnancy, moving, or divorce. It provides rights and protections for employers when getting and renewing health coverage for their employees. 

HEALTH ALLIANCES

Health Alliances or Health Insurance Purchasing Cooperatives (HIPC's) are groups or entities whose primary purpose is to negotiate with health plans to provide coverage at competitive prices to members of the alliance.

HMO (HEALTH MAINTENANCE ORGANIZATION)

An organization that provides a wide range of comprehensive health care services through a designated group, or network of doctors, hospitals, labs and other providers. To receive benefits, you must see the doctor you select as your primary care physician first for care or a referral, except in the case of an emergency. Your choice of doctors is restricted to those in the network.

INCONTESTABILITY

Provision in a policy which provides that an insurance company cannot contest the validity of a claim after the policy has been in force for a certain period, usually two or three years.

INDEPENDENT PHYSICIANS ASSOCIATION

Primary Care Physicians (PCP) who practice in their own office, but are part of a larger network of many physicians.  They will refer you to a specialist, usually nearby, or to a medical lab for special work. 

INDIVIDUAL INSURANCE

Health care coverage for individuals or single family units.

INSURABILITY

The status of an insurance applicant which makes him/her acceptable to an insurance company.  Factors used to determine insurability include health status, financial condition, and occupation.

LAPSE

Termination of insurance coverage for failure to pay premium.

LIFETIME AGGREGATE OR MAXIMUM

The maximum benefit payment provided under a plan or insurance contract.

LIMITED FEE SCHEDULE

A list of maximum amounts a plan will pay for certain services provided by non-network providers. You are responsible for paying your co-insurance and any amount over the limited fee schedule.

LONG TERM CARE

The services required over a lengthy period of time due to an insured's chronic illness or disability. It may include skilled nursing care and custodial care, or adult day care or house care servers.

MALPRACTICE REFORM

Proposed changes may include required arbitration and limits to the amount of attorneys' fees.

MANAGED CARE

A health care system which imposes controls on the utilization of medical services and on the providers who render the care. Managed care is provided through managed indemnity plans, Preferred Provider Organizations (PPOs), Exclusive Provider Organizations (EPOs), Health Maintenance Organizations (HMOs), or any other cost management environment.

MANDATE

A specific procedure or coverage that a plan or insurance contract must offer dictated by state or federal law.

MEDICAID

A medical benefits plan available for low income persons paid by federal and state government, but administered by the state.

NEGOTIATED FEE

The discounted rates that Prudent Buyer network doctors and hospitals agree to charge for covered expenses.

NETWORK / IN-NETWORK

The term used for services received from doctors, hospitals and other providers contracting with an insurance company to provide care at the negotiated fee and to handle the paperwork.

NON-NETWORK / OUT-OF-NETWORK

The term used for services received from doctors, hospitals or providers that are not part of the network. You pay substantially more for out-of-network services.

OUT-OF-POCKET MAXIMUM

The most you pay for covered expenses during the year before the plan begins paying 100% of covered expenses for the rest of the year. Only covered expenses count toward the maximum. For example, any charges above the limited fee schedule for out-of-network providers' services do not count.

PARTICIPATING PROVIDER

A provider who has agreed to contract with a managed care program to provide eligible services to covered persons.

PLAY OR PAY

A concept that would require employers to provide health insurance to their employees and dependents (play) or pay a tax or premium toward a publicly-provided system that covers people without private insurance (pay).

POINT OF SERVICE

Each time health care services are needed, the patient can choose from different types of provider systems (indemnity plan, PPO or HMO); each choice may provide different benefit payments.

POOL(ING)

Used by insurance companies to combine all premiums, claims and expenses in order to spread the risk of insurance coverage. This process ensures that small employers will not be singled out and unfairly assessed with a large rate increase due to unanticipated medical catastrophic claims of its insured employee(s).

PORTABILITY

Provides access to continuous health coverage so the insured does not lose insurance coverage due to any change in health or personal status (such as employment, marriage or divorce).

PCP (PRIMARY CARE PHYSICIAN)

The doctor who serves as your HMO health care manager and coordinates virtually all of the health care services you receive. Your PCP provides you with routine medical care and refers you to a specialist if necessary.

PMG (PARTICIPATING MEDICAL GROUP)

A group of doctors, both primary care physicians and specialists, who are practicing in one location to provide health care services.  Most medical services, including special exams, X-ray and laboratory tests are available in one convenient location.

PPO (PREFERRED PROVIDER ORGANIZATION)

Health care providers who are under contract to provide care at discounted or fixed fees. Unlike HMOs, health plans with a PPO allow you to choose any doctor at any time. However, if you select a non-PPO provider you will pay more out-of-pocket for services than you would if you selected a PPO "network" provider.

PRE-EXISTING CONDITION OR PRE-EXISTING WAITING PERIOD

If you receive medical advice, or treatment was recommended or received for any accident, illness, or other medical condition during the six months prior to your enrollment in a plan, you won't be covered for the care you receive as a result of that condition until you've been enrolled in the plan for six months. If you satisfy the six-month waiting period while enrolled in another medical plan and enroll in the new plan within 30 days of completing that waiting period, you won't need to complete another pre-existing waiting period. You will receive partial credit if you were insured under another plan for less than six months.

PRE-EXISTING CONDITION CLAUSE

A clause in an insurance contract or plan which specifies if benefits will or will not be paid for a pre-existing condition. (Example: "The insured must be covered by the plan for a certain period of time or have gone a certain amount of time without any treatment.") Additionally, the clause may limit the benefit payable for treatment of pre-existing conditions until a certain time period of coverage has elapsed, usually six months to a year.

PREMIUM TAX

A state tax on insurance premiums.

PREPAID GROUP PRACTICE

A type of HMO plan where participating providers render specific services to the insured in exchange for an advance fixed payment.

PRIMARY CARE

Routine office medical care provided by a family physician.

PROVIDER

A physician, hospital, skilled nursing facility, intensive care facility or health care professional or other entity which provides health care services.

QUALIFYING PRIOR COVERAGE

Any individual or group plan that provides medical, hospital, and surgical coverage, including continuation or conversion coverage or coverage under a publicly sponsored program such as Medicare or Medicaid.  It does not include accident only, credit, disability income, Medicare supplement, long term care insurance, dental, vision, workers' compensation insurance, automobile insurance, no-fault insurance, or any medical coverage designed to supplement other private or governmental plans.

REASONABLE AND CUSTOMARY

The maximum amount a plan or insurance contract will consider eligible for reimbursement, based upon prevailing fees in a geographic area.

REBATING

The practice (illegal in most states) of giving an insurance applicant anything of value as an inducement to purchase or renew an insurance policy.

REINSURANCE

The transfer of part of the insurance risk to another insurer or insurers.  Self-funded plans generally buy specific and/or aggregate stop-loss coverage to cover losses in excess of certain limits (also known as stop-loss). (See Attachment Point)

RESERVES

A specific amount of money pre-funded and set aside to assure adequate funds to cover future claims. Both insurance companies and self-insured employers must "reserve" in order to preserve cash-flow and protect solvency.

RETENTION

The portion of the insurance premium which is allocated for expenses, administration, commissions, risk charges and profit.

RIDER (EXCLUSION RIDER)

An amendment to an insurance contract limiting, or excluding, an existing coverage for certain conditions. For example, a rider to a policy may exclude coverage for treatment for an applicant's knee.

SELF-FUNDING

An arrangement under which all or some of the risk associated with providing coverage is not covered by an insurance contract.

SERVICE AREA

A geographic area of operation for a managed care entity.

SPECIALIST

A physician whose practice is limited to a particular branch of medicine or surgery.

STAFF MODEL HMO

An HMO that employs physicians to provide health care services to its members. Staff Models usually operate their own health center or facilities.

THIRD PARTY ADMINISTRATOR (TPA)

An organization that provides specific administrative duties (including premium accounting, claims review and payment, arranging for utilization review and stop-loss coverage) for self-funded plans.

TREND FACTOR

The percentage of increase used by an insurance company or plan to reflect the projected rise in health care costs. Calculation factors include inflation, utilization, technology and geographic area.

TRIPLE OPTION PLAN

A plan which usually offers an insured an opportunity to choose among an indemnity plan, HMO and PPO.

UNBUNDLING

To increase the reimbursement paid by a plan or insurance contract, each medical procedure is billed under a separate code as a separate item, instead of part of one overall procedure.

UTILIZATION

The number of times a health care service is obtained by an insured during a specific period of time.

UTILIZATION REVIEW

A program designed to help reduce unnecessary medical expenses (usually hospital stays) by using preliminary evaluations and patient discharge practices.

 VOLUNTARY PLANS

Voluntary Benefit Payroll Deduction plans have become increasingly popular among employers and employees alike. Employers appreciate the offering because it allows them to offer a complete line of benefits without having to pay for any of the actual costs. In many instances, the employers actually benefit because of the FICA, Medicare, Worker's Compensation and Unemployment payroll tax savings.

WAITING PERIOD

The time period between an employee's date of hire and their eligibility to receive benefits under a plan or insurance contract.

WAIVER OF PREMIUM

A provision in a plan or insurance contract which relieves the insured of paying the premiums while totally disabled.

WELLNESS

Programs or benefits which are introduced to encourage fitness, preventive care and early detection of illness to help reduce the cost of future health care (also known as Preventive Care).

WORKER'S COMPENSATION COVERAGE

Programs mandated by the states which require employers to provide coverage to compensate employees for work-related injuries or disabilities.