Glossary of Health Insurance Terms
An unforeseen and unintentional act identifiable in time and place.
A person trained in mathematics whose job is to apply the theory of probability to the business of insurance to develop insurance rates. This is done largely from past experience, though future probable trends are also taken into account.
Adjustments to income
Such as HSA contributions, these are expenses that directly reduce your total income. Adjustments are considered “above the line” tax deductions and you claim them right on page one of form 1040. There is no need to itemize these deductions in order to claim them as expenses. Adjustments reduce your total income in order to calculate your adjusted gross income.
A loan made by an insurance agency to a contracted agent in anticipation of future commissions.
Adverse selection is type of insurance market failure (i.e., where a market does not allocate resources efficiently or effectively). Adverse selection occurs when there is asymmetric information between the insurer and the insured (i.e., one party to a transaction knows more than the other).
In theory, when such asymmetries are present, (i.e., when buyers of insurance have better information about their health risks than does the insurer), insurers will undervalue the risk they are underwriting. In other words, a person adversely selects against an insurer when that person knows that he or she has a high risk of making a claim or anticipates making a claim that is more expensive than the premium that will be paid under the policy the insurer does not have the same information about the person and (3) the person purchases the insurance.
Because health insurance premiums are set by the insurer according to the average risk for a particular pool of insureds, adverse selection, if experienced in significant numbers by an insurer, will result in premiums that are too low to cover the claims that will be made.
An individual appointed by an insurance company to solicit, negotiate, effect or countersign insurance contracts, and to provide policyholder services on its behalf. Unlike brokers, agents are “captive” with the insurance company they represent, meaning that they sign a contract with the company promising not to represent any competing insurance companies in that line of insurance.
The maximum charge for which a third party will reimburse a provider for a given service. An allowable charge is not necessarily the same as either a reasonable, customary, maximum, actual, or prevailing charge.
Ambulatory Care Facility
A healthcare center that typically administers a variety of medical services, such as preventive care, surgery, acute care, and outpatient care.
Services, other than those provided by a physician or hospital, which are related to a patient’s care, such as laboratory work, x-rays and anesthesia.
ASO (Administrative Services Only)
Brief explanation: An arrangement in which an employer hires a third party (a Third Party Administrator, or TPA), often a health insurance company, to deliver administrative services to support a self funded, or self insured, health plan. Under such plans, the employer, rather than an insurance company, bears the risk for paying claims.
ASO support services usually include typical insurance company services, including actuarial services, underwriting, claims processing and access to a provider networks. However, the employer pays no health insurance premium to an insurance company under an ASO arrangement. Instead, the employer only pays an administrative fee for administrative services provided by the TPA. The medical claims costs (i.e., the medical bills covered by employee’s health plan) are actually paid by the employer, but the funds move through the TPA.
What this means Many large employers do not buy health insurance to cover their employees. Instead, because they have enough employees to pool risk like a health insurance company, these employers “self insure.” In other words, rather than pay health insurance premiums to an insurance company, many large employers pay a company—usually an insurance company—to provide the administrative services for a health plan, but the employers pay the claims themselves. Typically, only large employers choose to self insure their employee health plans.
The employees of a self insured employer often do not understand that the employer has a self insured plan. The employees are issued an “insurance” card with the name of a health insurance company on it, such as “Blue Cross & Blue Shield” or “UnitedHealthcare”, but the insurance company is only acting as an administrator, not an insurer.
Avoidance of state insurance regulation is one reason for the increase in self insured plans. Since self insured plans does not involve a traditional insurance arrangement between an employer and an insurance company, self insured plans are exempted from many types of state insurance regulations by the federal ERISA statute. For example, state law coverage mandates (e.g., a state law that requires that certain health benefits be covered by insurance contracts, such as fertility treatments) do not apply to self insured plans. In addition, self insured plans can avoid other costs built into traditional health insurance premiums, such as state premium taxes, contributions to the state high-risk insurance pools (if any), and contributions to a health insurance company’s profits and reserves.
Employers that self insure, however, typically do no bear all the risk of a self insured plan. Instead, self insured employers usually buy traditional insurance to cover the risk of very high losses due to large or unexpected health claims by their employees. This insurance is called “stop loss insurance.” Although this insurance covers the health care claims of the employees, it is not considered health insurance because is does not cover health care claims directly. Instead, it protects the employer against large losses it might suffer as a result of being self insured.
Basic Hospital Expense Insurance
Hospital coverage providing benefits for room and board and miscellaneous hospital expenses for a specified number of days during hospital confinement, typically on an indemnity basis with no network pricing benefits.
In health insurance, the length of time money will be payable by the insurer to the insured under the provisions of an insurance policy.
A person or company that acts as the representative of the applicant for health insurance. A broker, like Insurance Shoppers, generally offers options from multiple health insurance carriers. Although brokers are compensated with a commission from the health insurance company, they do not represent the insurer. Their sole duty is to get the best possible coverage for their clients at the lowest possible cost. Health insurance companies cannot charge more for policies purchased through a broker.
The period beginning January 1 of any year through December 31 of the same year which most health insurance policies base the deductible and coinsurance on.
The amount paid to an insured under an accident or disability policy if the insured suffers the loss of limb, sight or hearing.
A process whereby a covered person with specific health care needs is identified and a plan which efficiently utilizes health care resources is designed and implemented to achieve the optimum patient outcome in the most cost-effective manner.
Catch Up Contributions (HSA)
If you are 55 or older and are just starting an HSA, you are allowed to make “catch up” contributions to your account until you enroll in Medicare. In the year you enroll in Medicare, you are required to pro-rate the catch-up contribution for the number of months you had an HSA qualified high deductible health plan, before the month your Medicare enrollment is effective. Here are the allowable “catch up” contributions:
*2009 and after: $1000
Certificate of Coverage
A document given to an insured that describes the benefits, limitations and exclusions of coverage provided by an insurance company.
Information a medical provider or insured submits to an insurance company to request payment for medical services provided to the insured.
The portion of covered health care costs for which the covered person has a financial responsibility, usually a fixed percentage. Coinsurance usually applies after the insured meets his/her deductible. Insurance companies tend to word this differently from company to company. The same insurance carrier might even use 80% to describe one plan in their portfolio and 20% to describe another plan. Example: If you have a $1,000 deductible with 20% coinsurance and a $10,000 coinsurance limit, this means that after you pay the first $1,000 (deductible) you will then pay 20% of the next $10,000. Meaning you pay twenty cents of every dollar while the insurance company pays the other eighty cents of each dollar ($.20 x 10,000 = $2,000). Once the coinsurance limit is met, the insurance company will pay 100%, giving you an out-of-pocket maximum of $3,000 per calendar year ($1,000 deductible + $2,000 coinsurance). You will also see the coinsurance written as 80%. You will know what they mean because you will never pay more than 50% coinsurance. You will also see the coinsurance limit written as $2,000. You will know what they mean because coinsurance limits are typically $5,000, $10,000, $15,000 or $20,000, but never more than this. This means your portion (20% in this example) is $1,000, $2,000, $3,000 or $4,000 respectively.
Law based upon custom, usage and case law of the courts during the past several hundred years, as distinguished from statute law which is passed by state legislatures or congress.
Withholding material facts concerning a risk or a loss. Concealment usually voids coverage.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
a federal law that, among other things, requires employers to offer continued health insurance coverage to certain employees and their beneficiaries whose group health insurance has been terminated if they undergo a triggering event. (more on COBRA)
The period of time from the effective date of the contract to the expiration date of the contract. The premium for most health insurance policies is based on a contract year, i.e. you’ll usually get your rate increase on the anniversary of your original effective date. The benefits (deductible, coinsurance) of some health insurance policies are based on a contract year schedule.
Coordination of Benefits (COB)
a provision in the contract that applies when a person is covered under more than one medical plan. It requires that payment of benefits be coordinated by all plans to eliminate over-insurance or duplication of benefits.
A cost-sharing arrangement in which an insured pays a specified charge for a specified service, such as $25 for an office visit or $15 for a generic medication. The insured is usually responsible for payment at the time the service is rendered. If a plan has copayments on doctors visits, prescriptions, etc, this charge typically does not count toward coinsurance and deductible payments because the service is covered before the deductible and coinsurance.
An individual who meets eligibility requirements and for whom premium payments are paid for specified benefits of the contractual agreement.
Individual, group, medicare, or medicaid health insurance that was in place within the last 90 days and was in effect for more than one year, or had no gaps between sequential coverages of more than 63 days. Creditable coverage excludes limited scope dental, vision, specified disease, liability, or other supplemental benefits. More information on how creditable coverage applies to HIPAA
the amount of eligible expenses a covered person or family must pay each year from his/her own pocket before the plan will make payment for eligible expenses. On family policies, deductibles are typically per person and usually have a maximum of 2 or 3 family members that will need to meet the deductible. However, deductibles on HSA qualified plans have just one deductible for the whole family to accumulate towards and will usually be higher.
Deductible Carry Over Credit
charges applied to the deductible for services during the last 3 months of a calendar year which may be used to satisfy the following year’s deductible.
a covered person who relies on another person for support or obtains health coverage through a spouse, parent or grandparent who is the covered person under a plan.
the date insurance coverage begins.
a dependent of a covered person (spouse, child, or other dependent) who meets all requirements specified in the contract to qualify for coverage and for who premium payment is made.
The lower of the reasonable and customary charges or the agreed upon health services fee for health services and supplies covered under a health plan.
The Employee Retirement Income Security Act of 1974 (ERISA) (Pub.L. 93-406, 88 Stat. 829, September 2, 1974) is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans.
Something not covered by the policy and specifically so stated in the policy contract. Individual/family health insurance, which is underwritten, will often exclude pre-existing conditions.
Explanation of Benefits (EOB)
the statement sent to an insured by their health insurance company listing services provided, amount billed, eligible expenses and payment made by the health insurance company.
See Out-of-Pocket Maximum
Family health insurance
See individual health insurance.
The potential vulnerability to the loss of money or assets.
Flexible spending account (FSA)
A federally-qualified, tax-exempt individual health account offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pretax dollars to pay to pay for certain non-covered medical expenses with pre-tax income for a plan year. Examples of such non-covered expenses may include physician copays, prescription copays, vision exams, glasses, contacts, and dental exams and treatments. There are two main restrictions on FSAs. First, the employee loses whatever funds are left in the account at the end of the year. Second, the employee cannot withdraw cash from the account.
FSAs can be used to compliment an employee’s group health insurance plan. However, FSAs have been criticized as encouraging wasteful year-end health spending and undermining the cost-containment incentives of a health insurance plan’s copay and coinsurance requirements. See also: HSA FSA HRA Comparison
An approved list of prescription drugs that managed care plans may provide to their enrollees. Some plans restrict prescriptions to those contained on the formulary and others also provide non formulary prescriptions. Drugs contained on the formulary are generally those that are determined to be cost effective and medically effective.
A false representation of a matter of fact (whether by words or conduct, by false or misleading allegations, or by concealment of that which should have been disclosed) which deceives and is intended to deceive another to his/her legal injury.
A period of time during which a policy owner may examine a newly issued policy and, if not satisfied, surrender it in exchange for a full refund of premium. In the Colorado health insurance industry, clients have up to 10 days after they receive the policy in the mail to surrender it for a refund.
A total charge for a specific set of services, such as obstetrical services that encompass prenatal, delivery, and post-natal care.
Group health insurance
Insurance issued, usually without medical examination, on a group of people under a master contract. A group can be underwritten as a whole to adjust price by a small percentage, but the insurance must be guarantee issue to everyone in the group. In states like Colorado, employers who decide to sponsor a health insurance plan may only sponsor a guarantee issue group plan in order to discourage hiring based on health status and spread the risk over the entire group. Thus, in these states, employers may not show any sponsorship of an employee insured under an individual/family health plan.
Guarantee issue health insurance
Coverage issued on a group basis with no underwriting.
The term used to describe many of the new “value” type plans showing up in the recent years. These plans show a reasonable copay, deductible, coinsurance, lifetime maximum, etc (these are the things most people will use to compare plans), but will either completely leave out (or have very low limits on) important services like brand name prescription drugs or outpatient hospital care. Although these plans look fine on the surface, they leave a lot of exposure and some have gone bankrupt while insured with them.
Health Insurance Portability and Accountability Act (HIPAA)
A federal health benefits law passed in 1996, effective July 1, 1997, which among other things (this description will focus on the parts of HIPAA pertaining to health insurance), ensures strict health information privacy, restricts pre-existing-conditionexclusion periods to ensure portability of health-care coverage between plans, group and individual; requires guaranteed issue and renewal of insurance coverage; prohibits plans from charging individuals higher premiums, co-payments, and/or deductibles based on health status. Because HIPAA plans are not subject to underwriting, they usually cost more than individual/family plans that are underwritten. Examples of HIPAA plans are guarantee issue risk pools like Cover Colorado.
What is creditable coverage?
Most health coverage is creditable coverage, such as coverage under a group health plan (including COBRA continuation coverage), HMO, individual health insurance policy, Medicaid or Medicare.
Creditable coverage does not include coverage consisting solely of excepted benefits, such as coverage solely for limited-scope dental or vision benefits.
Days in a waiting period during which you have no other coverage are not creditable coverage under the plan, nor are these days taken into account when determining a significant break in coverage (generally a break of 63 days or more). This 63-day break period may be extended under state law if your coverage is insured through an insurance company or offered through an HMO. Check with your State Insurance Commissioner’s Office to see whether a longer break period applies to you.
How does crediting for prior coverage work under HIPAA?
Most plans use the standard method of crediting coverage.
Under the standard method, you receive credit for your previous coverage that occurred without a break in coverage of 63 days or more. Any coverage occurring prior to a break in coverage of 63 days or more is not credited against a Pre-existing-conditionsexclusion period.
To illustrate, suppose an individual had coverage for 2 years followed by a break in coverage of 70 days and then resumed coverage for 8 months. That individual would only receive credit for 8 months of coverage; no credit would be given for the 2 years of coverage prior to the break in coverage of 70 days.
Health Maintenance Organization (HMO)
An HMO is a prepaid medical service plan which provides services to plan members. Medical providers contract with the HMO to provide medical services to plan members. Members must use contracted providers. The emphasis is on preventive medicine, and it is an alternative to employee benefit plans. Employers of more than 25 persons are required to offer the alternative of HMO to employees, but not if the cost exceeds that of present employee benefit plans. An example of an HMO with individual plans is Kaiser Permanente of Colorado.
Health Reimbursement Account (HRA)
Employer-funded accounts to reimburse employees for personal health insurance premiums (See IRS Publication 969) and other medical expenses not covered by health insurance. Unspent allowances in the account can accrue for future healthcare expenses or retirement. Because the employer funds the plan, distributions are considered as tax deductible (for the employer). Reimbursement amounts received by the employee are also tax free.
Health Savings Account (HSA)
Health Savings Accounts are an option for people wanting a high deductible health insurance plan that has two parts. The first part is a health insurance policy that covers large hospital bills. Note that if you have a family, the deductible on HSA qualified plans is for the entire family. The second part of the Health Savings Account is an investment account or retirement account from which you can withdraw money tax-free for medical care. Otherwise, the money accumulates with tax-free interest until retirement, when you can withdraw for any purpose and pay normal income taxes. View HSA account providers
There is a whole page dedicated to explaining HSAs here, and see the HSA FAQ page here.
Profit sharing arrangements offered by HMOs and managed care plans that permit subcontractors and physicians to share in amounts earned from plan savings through reduced hospital and specialty referral usage. (NOTE: Federal fraud and abuse rules may affect the types of incentive plans that health centers and physicians may enter into).
Term used to describe a benefit that pays a specific dollar amount (typically by reimbursement) rather than actual charges or a percentage of the charges. This type of health insurance coverage can leave the insured with more out-of-pocket exposure because there aren’t any network negotiated rates and the insured is responsible for any charges above the specific dollar amount that the insurance company reimburses. Indemnity coverage is more popular with dental coverage than medical coverage.
Individual (or family) health insurance
Insurance purchased and underwritten on an individual, not group, basis which covers only one person or in some cases members of his or her family as well.
A person who has obtained health insurance coverage under a health insurance plan.
The maximum dollar amount given by a managed care organization that sets a limit on the total dollar amount the policy will pay for all healthcare provided to a member in the members lifetime.
a health care system under which physicians, hospitals, and other health care professionals are organized into a group or “network” in order to manage the cost, quality and access to health care. Managed care organizations include Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs).
Medical Clinic or Medical Center
see Ambulatory Care Facility.
Medical Loss Ratio
The ratio between the cost to deliver medical care and the amount of money that was taken in by a plan. Insurance companies often have a medical loss ratio of 96 percent or more: tightly managed HMOs may have medical loss ratios of 75 percent to 85 percent, although the administrative cost ratio is also higher.
A United States Federal program setup to provide health care to people age 65 and older and also people with certain disabilities specified by congress who are under 65.
A list of physicians, hospitals and other providers who provide health care services to the beneficiaries of a specific managed care organization. (See also: Participating Provider and PPO)
A health care provider with whom a managed care organization does not have a contract to provide health care services. Because the beneficiary must pay either all of the costs of care from an out-of-network provider or their cost-sharing requirements are greatly increased, depending on the particular plan a beneficiary is in.
The total payments that must be paid by a covered person (i.e., deductibles and coinsurance) as defined by the contract – also thought of as exposure. Once this limit is reached, covered health services are paid at 100% for health services received during the rest of that calendar year or contract year. The definition does not include premium payments made to the insurance company, co-pays, or other separate deductibles relating to prescriptions, etc. The Out-of-Pocket Maximum is a possibleexposure, and premium is just payment for the insurance company to take on the risk of what comes after your out of pocket.
a medical provider who has been contracted to render medical services or supplies to insureds at a pre-negotiated fee. Providers include hospitals, physicians, and other medical facilities. Find participating providers for health insurance companies in Colorado
Point-of-Service Plan (POS)
A health insurance plan that offers members options for different delivery systems such as HMO, PPO, etc.
A physical or mental condition that existed before issuance of a policy.
Pre-existing Coverage Period
If there is no prior credible coverage, in addition to any conditions that were imposed a benefit exclusion (individual policies), coverage will not be provided for up to one year for certain conditions that were treated within the 12 months prior to the effective date of the new health insurance policy.
Preferred Provider Organization (PPO)
A health care delivery arrangement which offers access to participating providers at reduced costs. PPOs provide insureds incentives, such as lower deductibles and copayments, to use providers in the network. Network providers agree to negotiated fees in exchange for their preferred provider status. Examples of PPO’s offering individual coverage are Anthem Blue Cross Blue Shield of Colorado, Humana, Golden Rule/United Healthcare, Assurant Health, etc. In fact, nearly all individual health insurance plans in Colorado are PPOs (with the exception of Kaiser Permanente – the only HMO). Some just use different terms – United Healthcare/Golden Rule uses the term “network.”
The amount paid for insurance.
a physician, hospital, health professional and other entity or institutional health care provider that provides a health care service.
Primary Care Physician (PCP)
a physician that is responsible for providing, prescribing, authorizing and coordinating all medical care and treatment.
Prior Credible Coverage
See creditable coverage.
Qualifying Event – child only applications
Enrollment will be permitted for qualifying events consistent with this state law, which includes birth, adoption, marriage, dissolution of marriage, loss of employer-sponsored insurance, loss of eligibility for Medicaid or the Children’s Basic Health Plan, a valid court order mandating the child be covered, or involuntary loss of other existing coverage for any reason other than fraud, misrepresentation or failure to pay premium. Applications for enrollment following a qualifying event must be received within 30 days after the date of the qualifying event.
Reasonable and Customary (R & C)
a term used to refer to the commonly charged or prevailing fees for health services within a geographic area. A fee is generally considered to be reasonable if it falls within the parameters of the average or commonly charged fee for the particular service within that specific community.
When an insurance agent pays or offers to pay all or part of an insurance premium for an individual or family. This practice is illegal in Colorado.
Cancellation of an insurance contract as of the effective date. When a health insurance contract is rescinded, coverage is canceled and all monies are returned – minus any claims paid. This most often occurs when misrepresentations were made to the insurance company at the time of application.
Special state health insurance programs, established by state legislatures, that serve as a safety net guarantee of access to health insurance for people with pre-existing, high-risk, health conditions. Risk pools serve people who are denied coverage in private market due to a pre-existing condition, or who are eligible for portability under HIPAA (most states) or who can only access insurance at rates higher than pool (some states), and other special cases. Risk pools largely serve people who are self-employed, or who work for businesses that don’t offer insurance, unemployed, early retirees, young people leaving their parents’ family coverage, people in the individual market who often have chronic illnesses like cancer, diabetes, heart and lung diseases, AIDS, HIV, alzheimer’s, cerebral palsy, cystic fibrosis, parkinson’s, sickle cell anemia, MS, any of the full range of chronic diseases, and the disabled. Generally middle class, working Americans who want to buy insurance but can’t otherwise. People who were in employer group plans but hit maximum benefit levels of the plan and now come to the risk pool for continued coverage. People likely facing major health care expenses: who have an acute need for insurance, who, without it, could potentially be bankrupted by their illness.
All risk pools inherently lose money and must be subsidized. Premiums are somewhat higher than comparable private insurance, not designed to compete with the private market. But pools all have caps on premiums set by legislation to protect consumers. Most are 125% to 150% of average for comparable individual market coverage. NAIC model legislation calls for 125% initial, not higher than 200% of average. The risk pool for the State of Colorado is CoverColorado.
Insurance companies regularly change the portfolio of products offered. When a new portfolio or group of plans is offered, the old plans stop receiving a new influx of insureds. As the plan experiences rate increases, people will switch to an updated plan with lower rates and benefits – as long as they still meet the underwriting standards.
As the older portfolio of plans loses these healthy people and doesn’t replace them in the pool, only those with pre-existing conditions stuck on the plan remain. Premiums on those plans skyrocket as the ratio of insureds filing claims to total insureds in the pool rises, eventually forcing anyone who can find another plan to do so. Eventually, only those with serious enough medical claims to not qualify for underwriting are left to fund the pool for their benefits.
Reasons insurance carriers give for sunsetting plans include:
* Old plan designs are not popular
* Plans which have had poor experience
* To mitigate rate actions (keeping the benefit plans lean and the rates competitive)
* regulatory issues
* network changes
the act of reviewing and evaluating prospective insureds for risk assessment, appropriate premium, and insurability.
Well Child Visit
The American Academy of Pediatrics recommends well child visits at the following times:
- Before birth (for first-time parents)
- Before your newborn is discharged from the hospital. If your baby is discharged before two full days of life, your baby should be seen again within 48 and 72 hours.
- During the first year of life – a visit at about 2-4 weeks of age and at 2, 4, 6, 9, and 12 months of age
- During the second year of life – visits at 15, 18, and 24 months of age
- In early childhood – yearly visits from 2-5 years of age
- During early school years – visits at 6, 8, and 10 years of age
- In adolescence and early adulthood – yearly visits from 11-21 years of age