As we mentioned in our prior post on this topic, health care is complicated. As you consider health insurance coverage options for your business (and yourself), it might be useful to have a glossary of frequently used insurance- and medical-related terms.
What follows is Part 2 of our glossary of health care and insurance terms. This is not a full list of what you and your employees might encounter; it is, instead, a list of frequently used words and phrases used in health plan literature and health insurance policies. Keep in mind, these are general definitions; your health plan or insurer may have a slightly different definition. When in doubt, always check your policy or ask your health plan for more information.
Elect Open Access; an HMO health plan with the added freedom to self-refer to any of the PPO providers in the insurance company’s network of doctors for exams, evaluations (perhaps for a second opinion), and other professional services for a slightly higher copayment.
Explanation of Benefits; sometimes also referred to an Evidence of Benefits or an Explanation of Coverage (EOC); a booklet or letter from the insurance carrier explaining to the insured person (or his covered dependent) the benefits under an insurance plan.
Evidence of Insurability; proof of a person’s physical condition that impacts their acceptability for health, life, or disability insurance.
Exclusive Provider Organization; similar to an HMO (see below), an EPO provides benefits only if care is rendered by a health care provider within a specific network (this exclusivity provision may be waived for emergency situations); some carriers/plans also use the “EPO” designation for their “Extended Provider Organization” and “Exclusive Panel Option” network participants.
Employee Retirement Income Security Act; this 1974 federal act requires persons involved with pension funds to have fiscal responsibility to ensure that investments are made with care and prudence, and that all investments are diversified to minimize risk. Self-funded medical plans are also covered under ERISA provisions. ERISA has strict rules on reporting and various notification requirements to participants. This act also created an insurance program to protect and guarantee benefits for individuals in the event their employer-sponsored fund fails or is terminated.
Each health insurer and plan has a drug formulary for covered prescription drugs. The formulary includes whether a drug is covered by the plan and the cost sharing for the drug, which may differ for generic and brand-name drugs.
Flexible Spending Account; established under the Internal Revenue Code, Section 105 (see related “Section 105” entry below); employee contributions to an FSA are intended for reimbursement of qualified health care-related expenses.
High deductible health plan; a health insurance plan with a lower premium and higher deductibles; coverage under an HDHP is a requirement for having a health savings account (see “HSA” definition below); some HDHPs also offer added “wellness” benefits, which may be subject to its own co-pay or deductible.
Short-hand reference to a health maintenance organization, a type of managed care organization providing health care through a network of physicians, hospitals, and other health care providers contracted directly with the HMO.
Health Reimbursement Account or Health Reimbursement Arrangement; established under the Internal Revenue Code, Section 105, an HRA is funded by an employer to reimburse employees for qualified medical expenses; it contrasts with a Health Savings Account (see below) and Flexible Spending Account (see above), which are both funded by employee contributions.
Health Savings Account; set up by employee to fund qualified health care-related expenses, HSAs were introduced in 2003 to help employees pay health-related expenses not covered under a high deductible health plan.
Shorthand for Health Care Service Plan, a HMO-like plan offered through select networks (such as Health Net’s PureCare HSP network) for individuals who want to be able to see any participating physician or health care professional without first obtaining a referral (as required with most HMOs).
Your co-insurance amount when you receive care in-network (such as through the HMO or PPO
Independent Practice Association (or Independent Practice Associate); an independent group of physicians and/or other health care providers who are under contract to provide services to members an HMO or PPO as well as other insurance plans, usually at a fixed fee per patient.
Maximum out-of-pocket limit
The amount set by your health plan or by the federal government for ACA plans offered through the federal marketplace, which is the most each insured individual is required to pay in annual cost sharing.
Medical Loss Ratio; mandated by the ACA (see above), this provision requires insurance companies to spend no more than 15% to 20% on administrative expenses such as executive salaries, overhead, and marketing, with the rest spent on patient care and/or quality improvement.
Premium Only Plan; a POP (also referred to a Section 125 plan) allows employers to deduct health plan premium dollars from employee paychecks on a pre-tax basis, thus reducing the employer’s FICA expense and the employee’s tax liability.
Preferred Provider Organization; refers to a participating medical group or other health care provider (e.g., hospital or specialty facility) in a managed care network contracted with an insurer or third-party administrator to provide medical services at a negotiated discount rate.
Pre-Existing Condition Insurance Plan
Also referred to as PCIP, this plan (implemented as part of ACA) is available to children and adults unable to secure group or individual insurance because of ill health, such as cancer, heart disease, diabetes, HIV/ AIDS, asthma, or some other pre-existing medical condition.
Rate Adjustment Factor; formerly used in quoting group insurance; prior to the ACA, insurance companies in California were allowed to increase or decrease a company’s group medical plan rates by up to 10% from the standard rate, based primarily on the health of the group; typically, the larger the group, the better the RAF because the bad health of some employees is expected to offset the better health of other employees; under the ACA, the RAF was eliminated.
State Children’s Health Insurance Program; also referred to as CHIP (for Children’s Health Insurance Program); administered by the Department of Health & Human Services (see “HHS” entry above), this program is designed to cover uninsured children in families with incomes that are modest, but too high to qualify for Medicaid. At the time it was established in 1997, S-CHIP was the largest expansion of taxpayer-funded health insurance coverage since Medicaid began in the 1960s.
Refers to Internal Revenue Code section allowing for the establishment of “cafeteria benefit plans” by employers (where employees can choose from a menu of benefit options); a Section 125/Premium Only Plan is the only means by which an employer can offer employees a choice between taxable and non-taxable benefits without the choice resulting in a benefits tax. A plan offering only a choice between taxable benefits is not
a Section 125 plan.
Small Business Health Options Program (often used as “SHOP Exchange”); refers to one of two exchanges established under the Affordable Care Act, under which small businesses can offer a range of health insurance options to their employees through a multi-employer coverage exchange.
Third Party Administrator; the individual or firm responsible for the administration of a group insurance plan; this may include administration of accounting, sales, underwriting, certificate issue, claims, and marketing – all performed without financial responsibility for any of the risks associated with the insurance.
Insurance claim-related shorthand for Usual and Customary Rate (may also be referred to as “URC” for Usual, Reasonable, and Customary); the maximum amount an insurance company will consider eligible for reimbursement under a health insurance plan. The UCR or URC amount is determined based on a review of prevailing charges for a given service within a specific community or geographic area. Commonly, the UCR/URC is set in the 80th
percentile. The amount is separate and distinct from any applicable co-pay amount or deductible for covered health services.
To learn more about the ABCs of health insurance,
talk with your employee benefits broker. If you don’t already have a broker, we can help you find a CaliforniaChoice broker
to speak with about the options available to you and your employees.