Adverse Selection: The tendency for people with greater needs to be more likely to sign up for insurance, or to enroll in one plan over another, resulting in a health insurance pool containing a disproportionate share of people with medical conditions. Such a situation leads to higher premiums, which will drive healthier people out of the pool.
Ambulatory Care: Medical services provided on an outpatient (nonhospitalized) basis. Services may include diagnosis, treatment, surgery and rehabilitation.
Ancillary Services: Health care services conducted by providers other than physicians and surgeons. These services can include such services as physical therapy and home health care.
Annual Benefit: Maximum amount paid for specific medical services or total medical services in one year.
Assignment of Benefits: The practice of a beneficiary instructing an insurer to pay benefits directly to the provider of services.
Balance Billing: The practice when medical care providers (such as doctors, hospitals or other medical practitioners) bill the insured for the portion of the bill not paid by the insurer. The practice is prohibited by Medicare and some managed care companies.
Beneficiary: The person entitled to receive benefits under a plan, including the covered employee and his or her dependents.
Benefit: Amount payable by the insurance company to a claimant, assignee or beneficiary when the insured suffers a loss.
Co-insurance: Most policies require the insured to pay some portion of the health care bills. A typical arrangement is that the insurer pay 80% and the insured 20%, up to $5,000 out-of-pocket. After hitting the maximum out of pocket limit, the insurance company pays 100% of covered expenses during the remainder of the calendar year, up to any maximum limits of the policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985): A federal law that requires employers with 20 or more employees who offers health insurance to allow eligible employees leaving the company (and their covered dependents) to continue their coverage, usually for up to 18 months, if the employees pay the premiums (up to 102%) themselves.
Community Rating: The idea that an insurer should charge every insured the same premium regardless of age, gender, geographic location or health status.
Conversion Privilege: A contractual right given to an insured person whose group coverage terminates so that person is able to convert to an individual policy without providing evidence of insurability.
Coordination of Benefits (COB): Method of integrating benefits payable under more than one health insurance plan so that the insured’s benefits from all sources do not exceed 100% of allowable medical expenses or eliminate incentives to contain costs.
Copayment: Usually a fixed-dollar amount an insured is required to pay to receive services, i.e., $10 for a doctor’s visit, $15 for a prescription.
Cost Shifting: The shifting of health care costs from those who are uninsured or whose insurers pay very little (such as Medicare) to other payers, usually those who don’t have the advantage or large managed care or government-negotiated discounts.
Covered Expense(s): An expense that will be reimbursed according to the terms of the plan or insurance contract.
Duplication of Coverage: Coverage under two or more policies for the same potential loss. (see also, Coordination of Benefits)
Employee Retirement Income Security Act of 1974 (ERISA): A federal law that originally set minimum standards for funding, vesting and termination of employer-sponsored pension and health benefits plans. ERISA applies to all employers, except church and government employers. Importantly, ERISA preempts all state laws that “relate to” an employee welfare benefit plan. But it “saves” from preemption those state laws that regulate the business of insurance, and it “deems” that an employer providing benefits is not in the business of insurance. Large employers are advantaged ONLY because they are better able to self-fund and bypass using an insurance company for their benefits.
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 and at what rate the applicant can be offered coverage. (see “Underwriting”)
Exclusionary Medical Waiver (Rider): An amendment to insurance contracts limiting or excluding coverage for certain medical conditions. For example, an insurer might place a rider on the policy of an applicant with hypertension, excluding payment for high blood pressure drugs.
Experience Rating: Process of determining the premium rate for a group based wholly or partially on that group’s claims experience.
Explanation of Benefits (EOB): A document sent to an insured when the plan or insurance company handles a claim. The document explains how reimbursement was made or why the claim was not paid. The appeals procedure should be outlined to advise the insured of his/her rights if there is dissatisfaction with the decision.
Fee-for-Service Reimbursement: Method of payment for each visit or service rendered. Unlike a Fee Schedule, FFS payments may vary according to a provider’s own charges or through a “Usual, Customary and Reasonable” standard of payment.
Flexible Spending Accounts: Special accounts authorized under Section 125 of the Internal Revenue Code and typically funded by an employee’s salary reduction to help pay certain expenses not covered by the employer’s plan or insurance contract. Because FSA deposits escape federal income taxes, participants can pay for medical care with pretax dollars, but they forfeit any unused funds at the end of each calendar year.
Group Insurance: Policies sold to more than one person, usually at the place of employment.
Guaranteed Issue: The requirement that insurers accept all applicants regardless of their health status.
Guaranteed Renewable: The requirement that insurers renew a policy at the end of a specified time if the insured chooses to do so.
Health Alliances: Health Alliances, or Health Insurance Purchasing Cooperatives (HIPCs), are state-sanctioned entities whose primary purpose is to negotiate with health plans to provide coverage at competitive prices to members of the alliance.
Health Insurance Portability and Accountability Act (HIPAA): A 1996 law intended to make employer-provided health insurance more “portable” by allowing continuously covered employees leaving a company to get coverage from a new employer or in the individual market without having to wait through an exclusion period. HIPAA also established guaranteed issue in the small group market and included a Medical Savings Account demonstration project.
Health Insurance Purchasing Cooperatives (HIPCs): See Health Alliances.
Health Maintenance Organization (HMO): An organization that provides a wide range of comprehensive health care services for a specified group of enrollees for a fixed, prepaid premium. There are several models of HMOs: Group Model, Individual Practice Association (IPA), Staff Model and Network Model.
Hospital Indemnity Insurance: Health insurance that provides a stipulated daily, weekly or monthly payment to an insured person during hospital confinement, without regard to the actual accrued expenses.
Hospital Medical Insurance: Coverage that provides benefits for the cost of any or all hospital services normally covered under various health care plans.
Indemnity Insurance: Health insurance policy that pays predetermined benefits to the insured for covered services. In essence, the insured is “indemnified” for a loss. Traditionally, the insurer pays on a fee-for-service basis and plays no role in the actual delivery of health care services.
Individual Insurance: A policy purchased by the insured which provides protection to the policyholder and/or family members. Also referred to as the “individual market.”
Induced Demand: Similar to “moral hazard,” this is the idea that once someone is insured, he will be more likely to consume possibly unneeded medical services or products because the insured pays little or nothing for the services.
Insurance: Risk management plan that, for a price, assumes some or all of the insured’s risk of serious financial loss if a covered event occurs.
Lifetime Aggregate or Maximum: The maximum benefit payment provided under an insurance contract. Health insurance policies often carry a $1 million to $2 million lifetime aggregate.
List Billing: The practice of an employer enabling employees to purchase individual insurance coverage and paying for it themselves through payroll withholding, with the employer simply acting as a conduit for those premium payments.
Loss Ratio: The ratio of claims to premiums (claims divided by premiums).
Major Medical Expense Insurance: Insurance that provides benefits for most types of medical expenses up to a high maximum benefit. Such contracts often contain internal limits and usually are subject to deductibles and coinsurance.
Malpractice: Unprofessional, incompetent or inappropriate medical care.
Managed Care: Health care delivery arrangements that are designed to control health care costs and improve utilization of services.
Medicaid: State programs, supported by federal matching funds, that provide health insurance and other public health assistance to qualified low-income persons.
Medical Necessity: Term used by insurers to describe medical treatment that is appropriate and in accordance with generally accepted standards of medical practice.
Medicare: Federally sponsored program under the Social Security Act that provides hospital benefits and medical care to persons 65 years of age and older and to some younger persons (usually disabled or who have kidney failure) who are covered under Social Security benefits.
Medicare Part A (Hospital Insurance): Federal health insurance program primarily for seniors age 65 and over that covers medically necessary inpatient care in a hospital, skilled nursing facility or psychiatric hospital, and for hospice and home health care. The program is funded by a 2.9 percent payroll tax.
Medicare Part B ( Supplemental Medical Insurance): Federal health insurance program primarily for seniors age 65 and over that covers medically necessary physician services and many other outpatient medical services and supplies not covered by Part A. The program is funded by charging participants a monthly premium and by general tax revenues.
Medigap (Medicare Supplemental Insurance): Medigap insurance is specifically designed to supplement Medicare’s benefits and is regulated by federal and state law. It must be clearly identified as Medicare supplemental insurance and it must provide specific benefits that help fill the gaps in Medicare coverage.
Mental Health Services: Behavioral health care services that may be provided on an inpatient, outpatient or partial hospitalization basis.
Moral Hazard: The idea that insured persons are more likely to engage in risky behavior or use covered services because they are insured and therefore insulated from bearing the full cost of their actions.
Multiple Employer Welfare Arrangement (MEWA): An employee welfare arrangement designed to provide benefits to employees of two or more employers.
National Association of Insurance Commissioners (NAIC): National organization of state officials charged with regulating insurance. NAIC was formed to provide national uniformity to insurance regulations.
Network Providers: Limited panels of providers in a managed care arrangement. Health plan enrollees may be required to use only network providers or, if allowed to go outside the network, must bear a larger portion of the cost for medical services.
Non-Network Providers: Noncontracted or unapproved health providers who are outside a managed care arrangement.
Noncancelable Policy: A policy that can be maintained through timely payment of the premiums until the policyholder decides to change. The insurer may not unilaterally change any provision of the in-force policy, including premium rates.
Out-of-Pocket Maximum: The maximum amount that an insured is required to pay under a plan or insurance contract.
Over-Utilization: Inappropriate or excessive use of medical services.
Peer Review: Traditional quality assurance program composed of medical professionals who monitor care and investigate adverse outcomes. The goal of peer review is to find and correct medical practices that do not conform to the standard of care.
Per Diem: Literally, per day. Term that is applied to determining costs for one day of care. It is an average cost and does not reflect true cost for each patient.
Point of Service Plans (POS): An HMO that includes the ability to go out-of-plan to receive services on a case-by-case basis, like a PPO.
Policy: Legal document or contract issued by the insurer to the insured person that contains all the conditions and terms of insurance.
Pool (ing): Used by insurance companies to combine all premiums, claims and expenses in order to spread the risk of insurance coverage.
Portability: The ability of an insured employee to retain his policy after leaving an employer. COBRA also provides a type of portability in that qualified former employees can continue to pay premiums themselves and maintain their insurance for a limited period of time.
Pre-authorization: Previous approval required for a referral to a specialist or non-emergency health care services.
Pre-certification: Utilization management program that requires the individual or provider to notify the insurer before hospitalization or surgical procedure. Notification allows the insurer to authorize and to recommend alternate courses of action.
Pre-existing condition: A medical condition or diagnosis which existed (or for which treatment was received) before health insurance coverage began. Serious pre-existing conditions often lead to limited coverage (i.e., medical riders) or denial of coverage.
Pre-existing Condition Clause: A clause in an insurance contract that specifies if benefits will or will not be paid for a pre-existing condition. 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.
Preferred Provider Organization (PPO): Managed care arrangement consisting of a group of hospitals, physicians and other providers who have contracts with an insurer, employer, third-party administrator or other sponsoring group to provide health care services to covered persons.
Premium Tax: A state sales tax on insurance premiums.
Premiums: Periodic payment to keep an insurance policy in force.
Reinsurance: The transfer of part of the insurance risk – along with part of the premium – to another insurer or insurers.
Reserves: A specific amount of money prefunded 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.
Risk: Chance of incurring financial loss by an insurer or provider.
Risk Adjustment: Correction of capitation or fee rates based upon factors that can cause an increase in medical costs such as age or sex. In a broader context, it is the attempt to compensate insurers that take on a disproportionate share of those with medical conditions.
Specified Disease Insurance: Specified disease insurance, which is not available in some states, provides benefits for only a single disease, such as cancer, or for a group of specified diseases. Benefits are usually limited to payment of a fixed amount for each type of treatment.
Standard Risk: Person who, according to an insurer’s underwriting standards, is entitled to purchase insurance without paying an extra premium or accept special restrictions.
Stop-Loss Insurance: Protection purchased by self-insured and some managed care arrangements against the risk of large losses or severe adverse claims experience.
Stop-Loss limit: Also known as an “out-of-pocket limit.” A dollar amount the insured must pay before the health plan starts paying 100% of covered expenses.
Subrogation: The practice of a secondary insurer collecting from a primary insurer for claims paid. A health insurer may pay the claims of an insured who is hurt in an auto accident and then “subrogate” against the auto insurance carrier to recover the cost of those paid claims.
Substandard Insurance: Insurance issued with an extra premium or special restriction to persons who do not qualify for insurance at standard rates.
Substandard Risk: Persons who cannot meet the health requirements of a standard health insurance policy.
Third-Party Administrator (TPA): An outside person or firm which provides specific administrative duties (including premium accounting, claims review and payment, arranges for utilization review and stop-loss coverage) for a self-funded plan.
Third-Party Payment: The practice of an insurer paying providers directly for services rendered to an insured, as opposed to an indemnity contract which pays the insured person for the losses incurred.
Trend Factors: The percentage of increase used by an actuary to reflect the projected rise in health care costs overall. Calculation factors also include inflation, utilization, technology and geographic area.
Uninsurables: High-risk uninsured persons whose medical condition(s) precludes them from buying health insurance.