Resources: Glossary
Acquisition cost. The investment necessary for an insurer to write new business. It includes such charges as underwriting the risk, issuing a new policy, paying commissions and overhead or office expenses.
Actively at work. When an employee is present at work with the intent and ability of working the scheduled hours and doing the normal duties of his or her job that day. An employee is actively at work on each day of regular paid vacation, or on a regular nonworking day on which he or she is not totally disabled, if he or she was actively at work on the last preceding regular working day.
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.
Administrative services only (ASO)
A type of contract with an insurance company or a third-party administrator
that provides an employer solely with administrative support. 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
services are usually entered into by large employers that can afford the risk
of providing insurance protection with their own money.
Administrator
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,
then Employee Retirement Income Security Act of 1974 (ERISA) considers the
plan sponsor to be the plan administrator.
Adverse selection
A tendency for a person to make a decision based on his/her diminished health
condition or frequency of needed treatment and who is, therefore, considered
a poorer claims risk than most others in the group.
Agent
Licensed by the state, performs the functions for sole proprietors and small
businesses that human resource departments do for larger businesses, gathers
census data, prepares proposals, makes presentations to businesses, explains
benefits to employers, does field underwriting when required, delivers policies
and certificates, explains benefits to employees, assists in handling claims,
services the business in any other related tasks required by the employer or
sole proprietor.
Aggregate amount (limit)
Maximum amount a plan sponsor (employer) is liable for any single loss or series
of losses.
Assignment of benefits
Authorization by the insured that allows the insurer or claims payer to submit
benefit payments directly to the medical care provider.
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.
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 or insurance
contract.
Cafeteria plan
A plan that offers a choice between two or more qualified benefits or a choice
between cash and one or more qualified benefits and which complies with Section
125 of the IRS Code (also known as flexible benefit plan, or flex plan).
Capitation
A form of compensation used primarily by health maintenance organizations (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 might
need.
Centers of excellence
Providers who are selected to perform certain specialized procedures because
of their 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 hospital only
when medically needed.
Coalitions
An association of health care plan sponsors that pools its resources to negotiate
with insurers or other health care payers and providers.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
A federal law of 1985 that requires most employers to allow eligible employees
and their beneficiaries to continue to self-pay for their health coverage after
it normally ends, such as upon termination, for up to an additional 18 and
sometimes 36 months.
Coinsurance
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 percent of the first $5,000 and
the insured pays 20 percent. Usually after the $5,000, the insurance company
then pays 100 percent 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 3 and 10 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 health maintenance
organizations (HMO) or an insurance pool. Age, lifestyle, industry, health
factors and gender are not used to determine rates (see adverse selection).
Competing health plan
A health plan that is an insurer, preferred provider organization (PPO), health
maintenance organization (HMO), or other type of managed care arrangement.
Conversion health plans
A contractual provision to prevent an insured from receiving duplicate benefits
from two or more group plans and profiting from overinsurance.
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,
coinsurance and copayments.
Cost shifting
The increased cost of medical care to other patients to make up for losses
incurred in providing care to patients who are underinsured or who have no
coverage.
Coverage
The different types of options selected and the benefits paid under a plan
or insurance contract.
Covered expense
An expense that will be reimbursed by the terms of the plan or insurance contract.
Credible coverage
The period of time
Deductible
The amount that the covered insured must pay before a plan or insurance contract
starts to reimburse for eligible expenses.
Defensive medicine
Testing, treatment or other medical procedures that are not medically necessary
for the treatment of a patient and are performed solely or primarily for the
purpose of limiting a provider's legal liability.
Dual choice
An arrangement where an employer will offer an alternative in addition to its
original health plan.
ERISA (Employee Retirement Income Security Act)
A federal law of 1974 which originally set minimum standards for funding, vesting
and termination of employer-sponsored pension plans. ERISA also contains provisions
to protect the interests of participants and beneficiaries in welfare plans.
Eligible expense
The portion of the medical care provider's services that is covered for payment
under the terms of the health plan or insurance contract.
Evidence of insurability
A procedure used to review factors concerning a person's physical condition
and medical history. From this information, the plan or insurance company evaluates
whether the risk of the individual will be accepted and if it will offer coverage.
Exclusive provider organization (EPO)
A type of preferred provider organization (PPO) that requires the insured to
use only the listed providers or to otherwise forfeit benefit reimbursement
altogether.
Exclusion
Specific conditions or services that are not covered by the terms of the plan
or insurance contract.
Expected claims
A dollar amount representing the expected benefit payouts during any plan or
contract period.
Experience
Refers to the history of actual claims paid for the contract period (see paid
claims) or can refer to the history of claims incurred during a contract period.
Explanation of benefits (EOB)
A document sent to an insured when a claim is handled by the plan or insurance
company. The document explains how reimbursement was made, or why the claim
was not paid, and if any additional information is needed. The appeals procedure
is also outlined.
Extended benefits
Coverage that continues, or becomes payable, after the termination from a plan
or insurance contract, such as a hospitalization that 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 the Employee Retirement Income Security Act (ERISA), any person who exercises
discretionary authority or control over a plan or plan assets.
Fixed costs
Expenses that are payable monthly and which do not relate to actual claims
paid or incurred, such as premium and administration costs.
Flexible spending accounts (FSAs)
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. A Section
125 cafeteria plan is a flexible spending account.
Fraud
Wrongful practices such as offering free tests or services and billing the
insurer or plan, or for charging for services not rendered.
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 (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.
Gatekeeper question
A qualifying question asked by an insurance company at the time of application
to help identify risks. Example: "Have you ever been treated for a heart
attack or heart condition?"
Grace period
Time lapse that follows the premium due date when the coverage and policy
legally remain in force.
Guaranteed issue underwriting
Coverage guaranteed 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 other than nonpayment of premiums (includes health conditions
and-or marital or employment status).
HIPAA (Health Insurance Portability and Accountability Act)
The federal law of 1996 that not only expanded Consolidated Omnibus Budget
Reconciliation Act (COBRA) benefits for workers, but also created medical savings
accounts.
Health alliance/health insurance purchasing cooperative (HIPC)
A group or other entity whose primary purpose is to negotiate with health plans
to provide coverage at competitive prices to its members.
Health maintenance organization (HMO)
An entity that provides a wide range of health services for a fixed, prepaid
premium. The HMO may provide all services or contract with other sources for
additional services.
IBNR
Stands for "incurred but not reported," meaning claims for which
the insured has become liable but has not been submitted to the plan or insurance
company for reimbursement (also known as lagged claims).
Incontestability
Provision in a policy that provides an insurance company cannot contest the
validity a claim after the policy has been in force for a certain period, usually
two or three years.
Insurability
The status of an insurance applicant that makes him or her acceptable to an
insurance company, i.e., health, financial condition or occupation.
Individual practice association (IPA)
A type of health maintenance organization (HMO) that contracts
with a physician-controlled entity, usually on a capitated or disconnected
fee-for-service basis to pay for medical services. IPAs may also serve non-HMO
patients.
Lagged claims
The time between when a service is incurred and costs are submitted and processed
for payment.
Lapse
Termination of insurance coverage for failure to pay premiums.
Lifetime maximum or aggregate
The benefit payment limit provided under a plan or insurance contract.
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
An initiative for proposed changes in the laws regulating health care malpractice
actions, including required arbitration as well as limits to the amount of
attorney's fees.
Managed care
A health care system that imposes controls on the utilization of medical services
and on the providers who render the care. It is provided through managed indemnity
plans, preferred provider organizations (PPOs), exclusive provider organizations
(EPOs), health maintenance organizations (HMOs) or any other cost-management
environment.
Managed competition
Proposed system in which the government restricts the consumer to purchasing
insurance from government-approved carriers.
Mandate
A specific procedure or coverage that a plan or insurance contract must offer,
as dictated by state or federal law.
Medicaid
A medical benefits plan available to low-income persons, paid by federal and
state government but administered by the state.
Medical savings account (MSA)
A high-deductible individual insurance plan funded by the employer or by pre-tax
employee dollars (but not both in the same year) that can be used to pay for
routine medical expenses and even pay premiums should the individual become
unemployed.
Medicare
A federal program of medical care benefits designed for those permanently disabled
or over age 65.
Multiple employer trust (MET)
A plan established by a sponsor that allows small employers in the same or
related industries to provide medical insurance under a trust agreement.
National Association of Insurance Commissioners (NAIC)
A professional organization that assists state insurance departments and helps
draft model laws.
Network
Contracted providers of health care (physicians, hospitals, testing centers,
rehabilitation centers, etc.) that have negotiated discounted fees for their
services in return for higher patient volume. This can apply to HMO, PPO, POS,
and EPO organizations.
Out-of-pocket maximum
The maximum amount that an insured is required to pay under a plan or insurance
contract.
Open panel
A right included in an health maintenance organization (HMO) plan that allows
the covered person to obtain non-emergency services from a specialist without
a referral from the primary care physician or gatekeeper.
Outcomes measurement
A documented program that tracks physician treatment patterns for purposes
of evaluating efficiency.
Paid claims
The total claims payment made by the plan or insurance company. It does not
include any employee cost sharing or provider discounts.
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 (POS) plan
A program whereby 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)
A practice used by insurance companies to combine premiums, claims and expenses
in order to spread the risk of coverage. This process ensures that small employers
will not be singled out and unfairly assessed with a large rate increase due
to unanticipated catastrophic medical claims of its insured employees.
Portability
The practice of providing access to continuous health coverage so the insured
does not lose insurance protection due to any change in health or personal
status (such as employment, marriage or divorce).
Pre-existing condition
A health status or diagnosis that existed (or for which treatment was received)
before coverage began under a current plan or insurance contract, and for which
benefits are not available or are limited.
Pre-existing condition clause
A physical or mental condition, regardless of cause, for which medical advice,
diagnosis, care or treatment was recommended or received in the last six-month
period prior to an individual's effective date of coverage. (The Health Insurance
Portability and Accountability Act (HIPAA) precludes a pre-existing condition
from exceeding 12 months, or 18 months for late entrants. Also, a pre-existing
condition limitation must be reduced by an individual's total credible coverage
as of the enrollment date.)
Preferred provider organization (PPO)
An organization of participating providers that have agreed to provide their
services at negotiated discount fees in exchange for prompt payment and increased
patient volume.
Premium tax
A state tax on insurance premiums.
Prepaid group practice
A type of health maintenance organization (HMO) plan in which participating
providers render specific services to the insured in exchange for an advance
fixed payment.
Primary care
Routine office medical care, usually provided by a family physician.
Provider
A physician, hospital, skilled nursing facility, intensive care facility or
health care professional or other entity providing health care services.
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 something
of value as an inducement to purchase or renew an insurance policy.
Reinsurance
The transfer of part of an insurance risk to another insurer or insurers. Self-funded
plans generally buy coverage to cover losses in excess of certain limits (also
known as stop loss).
Reserves
A specific amount of money 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 the insurer's expenses,
administration, commissions, risk charges and profit.
Rider
Also called an exclusion. 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 to 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.
Staff model health maintenance organization (HMO)
An HMO that employs physicians to provide health care services to its members.
Staff models usually operate their own health facilities.
Third-party administrator (TPA)
An organization that provides specific administrative duties (including premium
accounting, claims review and payment, arranges for utilization review and
stop-loss coverage) for a self-funded plan.
Tort reform
An initiative to eliminate unnecessary practices and testing that are performed
defensively by a physician with little or no value to the person seeking treatment.
It may also include reasonable limits placed on non-economic damages paid to
a patient or beneficiary.
Trend factor
The percentage of increase used by an insurance company or plan to reflect
the projected rise in health care costs. Calculation factors also include inflation,
utilization, technology and geographic area.
Triple option plan
A plan that usually offers an insured an opportunity to choose between an indemnity
plan, a health maintenance organization (HMO) and a preferred provider organization
(PPO).
Unbundling
The practice of billing each medical procedure under a separate code as a separate
item to increase the reimbursement paid by a plan or insurance contract, 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.
Waiting period
The time between an employee's date of hire and eligibility to receive benefits
under a plan or insurance contract.
Waiver of premium
A provision in a plan or insurance contract that relieves the insured of paying
the premiums while totally disabled.
Wellness
Programs or benefits introduced to encourage fitness, preventive care and early
detection of illness to help reduce the costs of future care (also known as
preventive care).
Worker's compensation coverage
Programs mandated by individual states requiring employers to provide insurance
to employees for work-related injuries or disabilities.