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Insurance Terms You Must Know
Health Insurance Policy Glossary
A health insurance policy can be difficult to understand. It seems so simple—the client pays a premium to the insurance company. The insurance policy pays a portion (we hope large portion) of the medical bill. The problem lies in the details, because we all know, “The Devil lies in the details.” This glossary of terms found in your insurance policy will help you understand your policy’s features.
Allowable Expense
The amount the healthcare provider and insurance company have agreed will be paid to the healthcare provider for a given procedure or service. Note that this may not be the same amount billed. The healthcare provider may bill $120 for an X-ray, but if the network contract specifies that only $12 is "allowed" for that service, $12 must be accepted as payment in full. The remaining $108 must be written off, and the patient is not responsible for the $108.
Brand-name drug
Prescription drug with a trade marked name owned by the drug manufacturer. Brand name drugs cost more than generics and usually have a higher copayment (see “generic”).COBRA (Consolidated Omnibus Budget Reconciliation Act)
Federal rules that require companies with 20 or more employees to keep former employees and their dependents on the group health plan for a limited period, provided the ex-employee pays the premiums. COBRA is a law—not an insurance policy. You will have the same insurance policy (and insurance company) on COBRA that you had when you were employed at your former company. Under COBRA, you pay 100% of the insurance premium plus a 2% administrative fee.Coinsurance
The amount you are required to pay for covered medical care in a fee-for-service plan after you have met your deductible. The coinsurance rate is usually expressed as a percentage. For example, if the insurance company pays 75 percent of the claim, you pay 25 percent. This is often referred to as an 75/25 plan.Coordination of Benefits
A system to eliminate duplication of benefits when you are covered under more than one group plan. Benefits under the two plans usually are limited to no more than 100 percent of the claim.Copayment
Another way of sharing medical costs. You pay a flat fee every time you receive a medical service (for example, $30 for every visit to the doctor). The insurance company pays the rest.Covered Expenses
Most insurance plans, whether they are fee-for-service, HMOs, or PPOs, do not pay for all services. Some may not pay for prescription drugs. Others may not pay for mental health care. Covered services are those medical procedures the insurer agrees to pay for. They are listed in the policy.Deductible
The amount of money you must pay each year to cover your medical care expenses before your insurance policy starts paying.Exclusions
Specific conditions or circumstances for which the policy will not provide benefits. Formulary drugs Formulary drugs generally have a lower copayment A formulary drug is one that has been thoroughly reviewed by a team of expert pharmacists and physicians; these drugs have been identified as safe, effective and beneficial to members for treating medical conditions. When deciding between drugs which are equally safe and effective, the formulary team also considers the relative costs of medications. These savings are then passed on to you through lower premiums.Generic drug
Chemically equivalent to a “brand name drug.” Generic drugs normally cost less. When a new drug is put on the market, the pharmaceutical company patents it under a brand name. The company has the exclusive right (usually for 20 years) to sell the drug under this name, but once its patent expires, other companies can sell the same drug under its chemical, or generic, name. Generic drugs are typically cheaper than brand-name drugs, but the Food and Drug Administration requires generic drug manufacturers to show that a generic drug “delivers the same amount of active ingredient in the same time frame as the original product.”Health Savings Account (HSA)
Operating similarly to IRAs, HSAs are tax-advantaged savings accounts for health care services. A person must enroll in a qualified High-Deductible Health Plan (HDHP) before they can establish an HSA.High Deductible Health Plan (HDHP)
A person must be enrolled in a qualified High-Deductible Health Plan (HDHP) before they can establish a Health Savings Account (HSA). Not all high-deductible health plans qualify for purposes of establishing HSA eligibility. A qualified HDHP benefit design must conform to various federally-mandated requirements, such as a minimum $1000 deductible and a lack of first-dollar benefit provisions.HMO (Health Maintenance Organization)
Prepaid health plans. You pay a monthly premium, and the HMO covers your doctors’ visits, hospital stays, emergency care, surgery, checkups, lab tests, x-rays, and therapy. You must use the doctors and hospitals designated by the HMO.In-network
Ahealth care facility or provider that is part of a health plan’s network. Insured individuals usually pay less when using an in-network provider.Legend Drug
A drug which federal law stipulates can only be obtained with a prescription. A drug which has on its label “caution: federal law prohibits dispensing without a prescription.”Load
An additional premium (usually express as a percentage) charged to compensate for the additional medical expenses associated with certain health conditions. Loads range from 10% to 100% of standard premium. For example, if the standard premium were $100, a 25% load would result in a $125 premium.Managed Care
Ways to manage costs, use, and quality of the health care system. All HMOs and PPOs, and many fee-for-service plans, have managed care.Maximum Out-of-Pocket (OOP)
The most money you will be required pay a year for coinsurance and deductibles. It is a stated dollar amount set by the insurance company, in addition to regular premiums.MIB (Medical Information Bureau)
This organization keeps health histories of people who have applied for life and health insurance and shares the information with subscribing insurers. MIB is an association of over 500 U.S. and Canadian life insurance companies providing information and database management services to the financial services industry. Organized in 1902, MIB's core fraud protection services protect insurers, policyholders and applicants from attempts to conceal or omit information material to the sound and equitable underwriting of life, health, disability, and long term care insurance. Fair pricing of insurance products is largely dependent on accurate "risk assessment", "risk classification", and "risk selection". A determination of these factors begins with the assurance of accurate health information supplied on the insurance application concerning the proposed insured.Morbidity
The relative incidence of disease.Morbidity Rate
The ratio of the incidence of sickness to the number of well persons in a given group of people over a given period of time. It may be the incidence of the number of new cases in the given time or the total number of cases of a given disease or disorder.Morbidity Table
A table showing the incidence of sickness at specified ages in the same fashion that a mortality table shows the incidence of death at specified ages.Network
A group of doctors, hospitals and other providers contracted to provide services to insured individuals for less than their usual fees. Provider networks can cover large geographic markets and/or a wide range of health care services. If a health plan uses a preferred provider network, insured individuals typically pay less for using a network provider.
Network Discount
A healthcare provider (doctors, clinics, and hospitals) joins a network to gain access to a large pool of potential patients whose insurance company uses that particular network. In return for access to this large pool of potential patients, the healthcare provider agrees to provide services at the discounted rates specified in the network contract. Depending on the type of service provided, the discounts range from 40% to 90%. A $100 doctor office visit might be discounted 50%. You would pay $50 (without a copayment) instead of $100. A $120 X-ray might be discounted 90% to $12. Network discounts apply only to covered services.
Noncancellable Policy
A policy that guarantees you can receive insurance, as long as you pay the premium. It is also called a guaranteed renewable policy.Non-formulary drugs
Non-formulary drugs are more expensive than formulary drugs, and normally require a higher copayment. Non-formulary drugs are those that have not yet been reviewed or have been denied formulary status. This often is because they offer no extra benefit to justify the higher cost over the drugs already on the formulary list.Open Access
Allows a participant to see another participating provider of services without a referral. Also called open panelOut-of-network
Describes a provider or health care facility which is not part of a health plan's network. Insured individuals usually pay more when using an out-of-network provider, if the plan uses a network.PPO (Preferred Provider Organization)
A combination of traditional fee-for-service and an HMO. When you use the doctors and hospitals that are part of the PPO, you can have a larger part of your medical bills covered. You can use other doctors, but at a higher cost.Pre-certification
An insurance company requirement that an insured obtain pre-approval before being admitted to a hospital or receiving certain kinds of treatment.Pre-existing Condition
A health problem that existed before the date your insurance became effective. This could be an illness or injury and any related complications for which, during the 12 month period immediately prior to your effective date, you received medical treatment, diagnosis, consultation, or prescription drugs; or which produced symptoms that would cause an ordinarily prudent person to seek diagnosis, care, or treatment.Premium
The amount you or your employer pays in exchange for insurance coverage.Primary Care Doctor
Usually your first contact for health care. This is often a family physician or internist, but some women use their gynecologist. A primary care doctor monitors your health and diagnoses and treats minor health problems, and refers you to specialists if another level of care is needed.Provider
Any person (doctor, nurse, dentist) or institution (hospital or clinic) that provides medical care.Rating
Another term for Load. An additional premium (usually express as a percentage) charged to compensate for the additional medical expenses associated with certain health conditions. Ratings range from 10% to 100% of standard premium. For example, if the standard premium were $100, a 25% Rating would result in a $125 premium.Rider
Insurance policies are written in a standard form, most of which is dictated by state insurance law. If you need additional coverage or if there are changes to the standard document, these changes can be made by way of a rider. The information to be conveyed in the rider is typed up on a separate piece of paper, which is attached to the standard policy. An endorsement can accomplish the same goal; the only difference is that an endorsement is actually incorporated into the body of the existing policy.The most common use for a rider is to specify a medical condition that might normally be covered but is not covered because it is a pre-existing condition. Although the particular condition is not covered, use of this rider allows the applicant to obtain insurance for other healthcare needs when this condition might otherwise make the person uninsurable. Riders can be permanent, or temporary (such as for 2, 5, or 10 years).
Stop-loss
The dollar amount of claims filed for eligible expenses at which the insurance company begins to pay at 100% per insured individual. Stop-loss is reached when an insured individual has paid the annual deductible and reached the out-of-pocket maximum amount of coinsurance.Third-Party Payer
Any payer for health care services other than you. This can be an insurance company, an HMO, a PPO, or the federal government.Trend Factor
The factor applied to rates which allows for such changes as increased cost of medical providers, the cost of new and expensive medical technology, etc.
Underwriting
The process of identifying and classifying the risk represented by an individual or group. This is done by reviewing the answers to medical history questions and reviewing medical records when necessary.Usual and Customary Charges
The average cost of a medical procedure in the area where you live. This is the maximum amount insurance companies will pay for this covered expense. Also referred to as allowed expenses, they reflect the provider's retail cost of service. For example, the actual fee for open-heart surgery may be more than your plan's usual and customary charges. In that case, you would be responsible for the difference, and the amount you pay would be applied to your maximum out-of-pocket.
