Health Insurance Glossary

A

Accident - An unforeseen and unintentional act identifiable in time and place. 

Actuary - 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. 

Agent - 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. 

Allowable charge - 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. 

Ancillary Services - 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.

B 

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. 

Benefit Period - In health insurance, the length of time money will be payable by the insurer to the insured under the provisions of an insurance policy. 

Broker - A person who acts as the representative of the applicant for insurance. A broker, like Insurance Shoppers, generally offers options from multiple insurance carriers. Although brokers are compensated with a commission from the 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. Insurance companies cannot charge more for policies purchased through a broker.

C 

Calendar Year - the period beginning January 1 of any year through December 31 of the same year which insurance companies base deductible and coinsurance on. 

Capital Sum - The amount paid to an insured under an accident or disability policy if the insured suffers the loss of limb, sight or hearing. 

Case Management - 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. 

Certificate of Coverage - a document given to an insured that describes the benefits, limitations and exclusions of coverage provided by an insurance company. 

Claim - Information a medical provider or insured submits to an insurance company to request payment for medical services provided to the insured. 

Coinsurance - 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. 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 $1000 (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. 

Common Law - 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. 

Concealment - 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. 

Contract Year - the period of time from the effective date of the contract to the expiration date of the contract. 

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 overinsurance or duplication of benefits. 

Copayment - 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. 

Covered Person- an individual who meets eligibility requirements and for whom premium payments are paid for specified benefits of the contractual agreement.

D 

Deductible - 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. 

Dependent - 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.

E 

Effective Date - the date insurance coverage begins. 

Eligible Dependent - 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. 

Eligible Expenses - 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. 

Exclusion - 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.

F 

Family health insurance - See individual health insurance. 

Formulary - 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 nonformulary prescriptions. Drugs contained on the formulary are generally those that are determined to be cost effective and medically effective. 

Fraud - 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. 

Free look - 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.

G 

Global bill - 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, Texas, Ohio, and California, 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.

H 

Health Insurance Portability and Accountability Act (HIPAA) - A federal health benefits law passed in 1996, effective July 1, 1997, which among other things, restricts pre-existing-condition exclusion 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. 

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 in Colorado and California. 

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.

I 

Incentives - 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). 

Indemnity - 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. 

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. 

Insured - a person who has obtained health insurance coverage under a health insurance plan.

M 

Managed Care - 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 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.

N 

Network - 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)

O 

Out-of-Network Provider - 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. 

Out-of-Pocket Maximum - the total payments that must be paid by a covered person (i.e., deductibles and coinsurance) as defined by the contract. Once this limit is reached, covered health services are paid at 100% for health services received during the rest of that calendar year.

P 

Participating Provider - 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. 

Point-of-Service Plan (POS) - A health insurance plan that offers members options for different delivery systems such as HMO, PPO, etc. 

Pre-existing Condition - A physical or mental condition that existed before issuance of a policy. 

Preferred Provider Organization (PPO) - a health care delivery arrangement which offers insureds 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 in Colorado and Ohio, Humana in Colorado, Ohio, and Texas, PacifiCare, Golden Rule, UniCare in Texas, Blue Cross Blue Shield of Texas and Assurant Health. 

Premium - The amount paid for insurance. 

Provider - 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.

R 

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. 

Risk pool - 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, alzheimers, 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.

U 

Underwriting - the act of reviewing and evaluating prospective insureds for risk assessment and appropriate premium.

Copyright © 2006 Insurance Advisors Agency - The information provided on this website and by Insurance Advisors is for our clients' informational purposes only and does NOT imply insurance coverage or guarantee price.  Information provided may be inaccurate or out of date.