Many terms used in the insurance industry are very confusing. Below, you will find several terms and phrases explained in more detail. If you still have questions, please feel free to call or email us about them. Thank you for visiting our site.

Adjusted Community Rating
The process of determining a group's premium rate in which an HMO adjusts the standard or pure community rate premium by adding or subtracting an amount that reflects the group's past claims experience

Adverse Selection
A particular health plan, whether indemnity or managed care, is selected against by the enrollee, and thus an inequitable proportion of enrollees requiring more medical services are found in that plan. Example: Low enrollee out-of-pocket costs might lure those individuals requiring more health services into an HMO rather than an indemnity plan because the former does not have a deductible. Therefore, the HMO would have a greater proportion of less-healthy enrollees, thereby driving up costs and increasing financial risk.

Allowable Costs
Items or elements of an institution's costs that are reimbursable under a payment formula. Allowable costs may exclude, for example, uncovered services, luxury accomodations, costs that are not reasonable and expenditures that are unnecessary.

ASO(Administrative Services Only)
A self-insured plan contracts with an insurance company for services such as claims processing and stop-loss coverage.

Bed Days
A measurement used by managed care plans to indicate the total number of days of hospital care provided to a member of a health plan.

Cafeteria Plan
A corporate benefits plan under which employees are permitted to choose among two or more benefits that consist of cash and certain qualified benefits. Cafeteria plans are also called flexible benefit plans or flex plans.

Calendar Year
The period beginning January 1 of any year through December 31 of the same year.

Case Management
The process by which patients with extensive, complex or serious medical conditions can receive planned treatment that is both cost effective and of high quality. Early intervention and a systematic coordination of care among multiple providers are elements of this approach.

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.

Consumer Driven Health Care
A health benefits model in which employees are directly involved in the purchase and selection of health care services. In this system, the employer allots to employees a defined amount of health care dollars set up through a voucher; spending account; employer-sponsored health reimbursement arrangement (HRA); or an HRA combined with a high deductible traditional plan.

Coordination of Benefits (COB)
A provision in the contract that applies when a person is covered bunder more than one medical plan. It requires that payment of benefits be coordinated by all plans to eliminate over insurance or duplication of benefits.

Copayment
A cost-sharing arrangement in which an insured pays a spedified charge for a specified service, such as $10 for an office visit. The insured is usually responsible for payment at the time the service is rendered. This charge may be in addition to certain coinsurance and deductible payments

Deductible
The amount of eligible expenses a covered person must pay each year from his/her own pocket before the plan will make payment for eligible benefits.

Direct Contracting
Individual, self-insured employers or business coalitions contract directly with providers for health care services with no HMO or PPO intermediary. This enables employers to include, in the plan the specific services preferred by their employees.

Disease Managment
A philosophy toward the treatment of the patient with an illness (usually chronic in nature) that seeks to prevent recurrence of symptoms, maintain high quality of life, and prevent future need for medical resources by using an integrated, comprehensive approach to health care. Pharmaceutical care, continuous quality improvement, practice guidelines and case management all play key roles in this effort, which (in theory) will result in decreased health care costs as well.

Effective Date
The date insurance coverage begins.

HMO (Health Maintenance Organization)
A health care delivery system that provides comprehensive services for subscribing members in a particular geographic area. Most HMO care is provided through a managed network made up of doctors, hospitals, and other medical professionals selected by the HMO. HMO enrollees are required to obtain care from this network of providers in order for their care to be covered, except in cases of emergency. All the care that members may need is paid for by the single monthly fee, plus nominal copayments. Generally, there are five types of HMOs: Staff Model, Group Model, IPA, Network Model, and Mixed Model.

HRA(Health Reimbursement Arrangement)
An employer-owned account used to reimburse an employee for medical expenses incurred by the employee. Reimbursements through an HRA are non-taxable and are provided up to a predetermined maximum amount. At the end of a coverage period, an employee can roll over unused portions of the predetermined amount to increase the maximum reimbursement amount of a subsequent coverage period.

Indemnity Insurance
Also knowna s traditional health insurance, it pays a certain percentage of the charges billed by the provider, and the patient is responsible for the balance.

IPA Model HMO
A type of open-panel HMO that typically includes large numbers of individual private practice physicians. Under this structure, physicians practice in their own offices.

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. Manage care organizations include Perferred Provider Organizations (PPO's) and Health Maintenance Organizations (HMO's)

Medical Loss Ratio
The difference between premiums collected and claims paid out

Network Model HMO
A type of HMO that contracts with a number of IPAs and/or medical groups to form a physician network. This allows an HMO to market its services in a broader geographic area.

Open Access
Open access arrangements allow members to see participating providers, usually specialists, without referral from the health plan's gatekeeper. These types of arrangements are most often found in IPA model HMOs.

PBM (Pharmacy Benefits Manager)
A company that administers and manages prescription drug benefits for employers, health plans and other organizations offering prescription drug benefits.

PCP (Primary Care Physician)
A physician who serves a a group member's personal physician and first contact in a managed care system. PCPs include family/general practitioners, internists, pediatriticians and OB/GYNs.

POS (Point of Service) Plan
A type of managed care plan that allows members to choose whether to seek medical care within the plan's network or seek medical care out of network at the point of service (i.e. at the time services are rendered).

PPO (Preferred Provider Organization)
A select, approved panel of physicians, hospitals and other providers who agree to accept a discounted fee schedule for patients and to follow utilization review and preauthorization protocols for certain treatments.

Reasonable & Cusomary (R&C)
A term used to refer to the commonly charge or prevailing fees for health services within a geographic area. A fee is generally considered to be reasonable if it fall within the parameters of the average or commonly charged fee for the particular service within that specific community.

Self-Funded or Self-Insured Plan
Group health care plan funding arrangement in which the organization sponsoring the plan takes complete financial responsibility for making all claims payments and paying all related expenses.

Stop-Loss Insurance
Insurance coverage that enables sponsors of self-insured group health care plans to place a dollar limit on their liability for paying claims.

TPA (Third Party Administrator)
An administrative organization, other than the employee benefit plan or health care provider, that collects premiums, pays claims and/or provides administrative services.

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