Glossary of Employee Benefit Terms
A | B
| C | D
| E | F
| G | H
| I | J | K | L
| M | N
| O | P
| Q | R | S
| T | U
| V | W | X | Y | Z
A
Actuary - A professional who mathematically analyzes
and determines the price of the risk associated with providing insurance
coverage. An actuary may also determine the anticipated cost of
providing future benefits. Factors considered in the study include
the projection of future claims experience, administrative expenses
and anticipated investment return.
Administrative Services Only (ASO) - A type of
contract with an insurance company or a third party administrator
that provides an employer with administrative services. It does
not provide coverage for risk or insurance protection. The usual
expenses covered include claims processing, plan design advice and
printing benefits booklets. These contracts are usually entered
into by large employers who can afford the risk of providing insurance
protection with their own money.
Administrator - A person who is designated to
be responsible for the proper operation and administration of a
plan. When the plan sponsor does not designate a person for this
duty, then ERISA considers the plan sponsor to be plan administrator.
Adverse Selection - A tendency which occurs when
a person makes a decision based on his/her diminished health condition
or frequency of needed treatment and is, therefore, considered a
poorer claims risk than most others in the group.
Agent - Licensed by the state, performs the functions
for sole proprietors and small businesses that Human Resource Departments
do for large businesses, gathers census data, prepares proposals,
makes presentations to businesses, explains benefits to employers,
does field underwriting when required, delivers policies and certificates,
explains benefits to employees, assists in handling claims, services
the business in any other related tasks required by the employer
or sole proprietor.
Aggregate Amount (limit) - Maximum amount a plan
sponsor (employer) is liable for any single loss or series of losses.
Attachment Point - For aggregate stop-loss insurance,
it is the point at which the stop-loss insurance carrier begins
to reimburse the employer based upon the cumulative total of claims
paid within a policy year.
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B
Balance Billing - For specific stop-loss insurance,
it is the point at which the stop-loss insurance carrier begins
to reimburse the employer based upon the individual’s total
of claims paid within a policy year. The practice of medical care
providers (such as doctor, hospital or other medical practitioner)
billing the insurer for full costs, then billing the insured for
the portion of the bill which was not paid.
Beneficiary - The person entitled to receive benefits
under a plan, including the covered employee and his or her dependents.
Benefit Period - A period of time during which
benefits are payable under a plan or insurance contract.
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C
Cafeteria Plan - A plan which offers a choice between
two or more qualified benefits or a choice between cash and one
or more qualified benefits and which complies with Section 125 of
the Internal Revenue Code (also known as flexible benefit plans
or flex plans).
Capitation - A form of compensation used primarily
by HMOs to pay providers a periodic fee (usually a per member, per
month fee) in return for delivering as many necessary health care
services as the insured may need.
Claim - An insured’s request for reimbursement
from an insurance company or plan for covered medical expenses.
Closed Panel - Refers to a health care program
that requires the insured to use certain providers from a list provided
by the plan. The primary care provider is responsible for all health
care needs and refers to a specialty physician or hospitalization
only when medically needed.
Co-insurance - An agreement between the insured
and the insurance company where payment is shared for all claims
covered by the policy. A typical arrangement is 80%/20% up to $5,000.
The insurance company pays 80% of the first $5,000 and the insured
pays 20%. Usually after 80% of $5,000, the insurance company then
pays 100% of covered expenses during the remainder of the calendar
year up to any limits of the policy.
Community Rating - A rating method that determines
a single average premium based on the characteristics and claims
experience of an entire membership such as an HMO or an insurance
pool. Age, lifestyle, industry, health factors and gender are not
used to determine rates. (See Adverse Selection.)
Conversion Privilege - A contractual right given
to an insured person whose group coverage terminates to be able
to convert to an individual policy without providing evidence of
insurability.
Coordination of Benefits (COB) - A contractual
provision to prevent an insured from receiving duplicate benefits
from two or more group plans and profiting from over-insurance.
Co-payment - A small charge paid at the time a
medical service is received. It does not accumulate toward a plan’s
deductible or out-of-pocket maximum and is designed to discourage
utilization.
Cost Containment - Efforts or activities designed
to reduce or slow down the cost increases of medical care services.
Cost Sharing - The sharing of costs between the
payment of premium costs and medical expenses by the health care
plan and its insured through employee contributions, deductible,
co-insurance and co-payments.
Cost Shifting - The increased cost of medical
care to other patients to make up for losses incurred in providing
care to patients who are under-insured or who have no coverage.
Coverage - The different types of options selected
and the benefits paid under a plan or insurance contract.
Coverage Expense(s) - An expense which will be
reimbursed by the terms of the plan or insurance contract.
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D
Deductible - The amount that the covered insured
must pay before a plan or insurance contract starts to reimburse
for eligible expenses.
DOL - The Department of Labor, a federal executive
department established in 1913 and charged with administering and
enforcing statutes that promote the welfare of U.S. wage earners,
improve their working conditions, and advance their opportunities
for profitable employment.
Dual Choice - An arrangement where an employer
will offer an alternative in addition to its original health plan.
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E
ERISA (Employee Retirement Income Security Act of 1974)
- A federal law which originally set minimum standards for funding,
vesting and termination of employer-sponsored pension plans. ERISA
also contains provisions to protect the interests of participants
and beneficiaries in welfare plans. Welfare plans must be in written
form, describe the benefits and name the persons responsible for
the operation of the plan.
Eligible Expense(s) - The portion of the medical
care provider’s services that is covered for payment under
the terms of the health plan or insurance contract.
Evidence of Insurability - A procedure used to
review factors concerning a person’s physical condition and
medical history. From this information, the plan or insurance company
evaluates whether the risk of the individual will be accepted
and if they will offer coverage.
Exclusive Provider Organization (EPO) - A different
type of Preferred Provider Organization (PPO) which requires the
insured to use only the listed providers or to otherwise forfeit
benefit reimbursement altogether.
Exclusion - Specific conditions or services that
are not covered by the terms of the plan or insurance contract.
Expected Claims - A dollar amount which represents
the expected claims which will be paid during any plan or contract
period.
Experience - Refers to the history of actual claims
paid for the contract period (see Paid Claims) or can refer to the
history of claims incurred during a contract period.
Explanation of Benefits (EOB) - A document sent
to an insured when a claim is handled by the plan or insurance company.
The document explains how reimbursement was made, or why the claim
was not paid, and if any additional information is needed. The appeals
procedure should be outlined to advise the insured of his/her rights
if there is dissatisfaction with the decision.
Extended Benefits - Benefits which continue, or
become payable, after the termination of coverage from a plan or
insurance contract (for example, a hospitalization which continues
after coverage would normally cease).
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F
Fee for Service Reimbursement - The traditional
reimbursement system where the providers of medical care receive
a benefit payment calculated on the basis of their billed charge.
Under this arrangement Plans or insurers have not established contracted
or capitulated rates of payment with providers prior to the insured’s
claim occurrence.
Fiduciary - Under ERISA, any person who exercises
discretionary authority or control over a plan or plan assets.
Fixed Costs - Refers to those costs which are
payable monthly and which do not relate to actual claims paid or
incurred (for example, premium and administration costs).
Flexible Spending Accounts - Special accounts
typically funded by an employee’s salary reduction to help
pay for certain expenses not covered by the employer’s plan
or insurance contract. The advantage of these accounts is that after-tax
dollars are converted to before-tax dollars, thereby reducing the
actual cost of expenses.
Fully Insured Plan - The employer pays all of
the premium and, in return, transfers all of the risk and responsibility
for claims payment to the insurance company.
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G
Gatekeeper Question - A qualifying question asked
by an insurance company at the time of application to help identify
risk(s). Example: “Have you ever been treated for a heart
attack or heart condition?”
Gatekeeper (Primary Care Physician) - A health
professional within a managed-care environment who determines the
patient’s access to treatment. The primary care physician
treats the patient and determines access to further treatment and
specialists.
Grace Period - Time period that follows the premium
due date when the coverage and policy remain in force.
Guaranteed Issue Underwriting - The applicant
is guaranteed coverage up to an agreed amount or level without evidence
of insurability (see Evidence of Insurability).
Guaranteed Renewable - The insured’s right
to continue an in-force policy by the timely payment of premiums.
The insurance company cannot charge the coverage or refuse to renew
the coverage for other than non-payment of premiums (includes health
conditions and/or marital or employment status).
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H
Health Alliances - Health Alliance or Health Insurance
Purchasing Cooperatives (HIPCs) are groups or entities whose primary
purpose is to negotiate with health plans to provide coverage at
competitive prices to members of the alliance.
Health Insurance Purchasing Cooperatives (HIPCS)
- See Health Alliances.
Health Maintenance Organization (HMO) - An organization
that provides a wide range of health services for a fixed, pre-paid
premium. The HMO may provide all services or may contract with other
sources for additional services. HMOs fall into four categories:
- Group Model
- Individual Practice Association (IPA)
- Staff Model
- Network Model
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I
Incontestability - Provision in a policy which
provides that an insurance company cannot contest the validity of
a claim after the policy has been in force for a certain period,
usually two or three years.
IBNR - Incurred But Not Reported claims are those
which have been incurred by the insured but have not been submitted
to the plan or insurance company for reimbursement (also known as
lagged claims).
Insurability - The health status of an insurance
applicant which makes him/her acceptable to an insurance company
(i.e., health, financial conditional, occupation).
Individual Practice Association (IPA) - A type
of HMO which contracts with a physician-controlled entity, usually
on a capitulated or discounted fee for service basis to compensate
physicians for their medical services. IPAs may also serve non-HMO
patients.
IRS -The Internal Revenue Service, a division
of the U.S. Treasury Dept. that is responsible for the assessment
and collection of most federal taxes, except those relating to alcohol,
tobacco, firearms, and explosives. Established in 1862, the IRS
derives most of its revenues from the collection of corporate and
individual income tax.
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L
Lagged Claims - The time between when a service
is incurred and when it is submitted and processed for payment.
Lapse - Termination of insurance coverage for
failure to pay premiums.
Lifetime Aggregate or Maximum - The maximum benefit
payment provided under a plan or insurance contract.
Long-term Care - The services required over a
lengthy period of time due to an insured’s chronic illness
or disability. It may include skilled nursing care and custodial
care, or adult day care or house care servers.
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M
Managed Care - A health care system which imposes
controls on the utilization of medical services and on the providers
who render the care. Managed care is provided through managed indemnity
plans; Preferred Provider Organizations (PPOs), Exclusive Provider
Organizations (EPOs), Health Maintenance Organizations (HMOs), or
any other cost management environment.
Managed Competition - Proposed system in which
the government restricts the consumer to purchasing insurance from
government-approved carriers.
Mandate - A specific procedure or coverage that
a plan or insurance contract must offer, dictated by state or federal
law.
Medicaid - A medical benefits plan available for
low income persons, paid by federal and state government but administered
by the state.
Medicare - A federal program of medical care benefits
designed for those permanently disabled or over age 65.
Multiple Employer Trust (MET) - A trust established
by a sponsor that allows small employers in the same or related
industries to provide medical insurance under a trust arrangement.
Multiple Employer Welfare Arrangement (MEWA) -
An employee welfare arrangement designed to provide benefits to
employees of two or more employers.
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N
National Association of Insurance Commissioners (NAIC)
- An organization that assists state insurance departments and helps
draft model laws.
Network - Contracted providers of health care
(physicians, hospitals, testing centers, rehabilitation centers,
etc.) that have negotiated discount fees for their services in return
for higher patient volume. This can apply to HMO, PPO, POS and EPO
organizations.
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O
Out-of Pocket Maximum - The maximum amount that
an insured is required to pay under a plan or insurance contract.
Open Panel - A right included in an HMO which
allows the covered person to obtain non-emergency covered services
from a specialist without a referral from the primary care physician
or gate keeper.
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P
Paid Claims - The total claims payment made by
the plan or insurance company. It does not include any employee
cost sharing or provider discounts.
Participating Provider - A provider who has agreed
to contract with a managed care program to provide eligible services
to covered persons.
Point of Service Plan (POS) - Each time health
care services are needed, the patient can choose from different
types of provider systems (indemnity plan, PPO or HMO); each choice
may provide different benefit payments.
Pool(ing) - Used by insurance companies to combine
all premiums, claims and expenses in order to spread the risk of
insurance coverage. This process ensures that small employers will
not be singled out and unfairly assessed with a large rate increase
due to unanticipated medical catastrophic claims of its insured
employee(s).
Portability - Provides access to continuous health
coverage so the insured does not lose insurance coverage due to
any change in health or personal status (such as employment, marriage
or divorce).
Pre-existing Condition - A condition or diagnosis
which existed (or for which treatment was received) before coverage
began under a current plan or insurance contract and for which benefits
are not available or are limited.
Pre-existing Condition Clause - A clause in an
insurance contract or plan which specifies if benefits will or will
not be paid for a pre-existing condition. (Example: “The insured
must be covered by the plan for a certain period of time or have
gone a certain amount of time without any treatment.”) Additionally,
the clause may limit the benefit payable for treatment of pre-existing
conditions until a certain time period of coverage has elapsed,
usually six months to a year.
Preferred Provider Organization (PPO) - An organization
of participating providers that have agreed to provide their services
at negotiated discount fees in exchange for prompt payment and increased
patient volume.
Prepaid Group Practice - A type of HMO plan where
participating providers render specific services to the insured
in exchange for an advance fixed payment.
Primary Care - Routine office medical care provided
by a family physician.
Provider - A physician, hospital, skilled nursing
facility, intensive care facility, health care professional or other
entity which provides health care services.
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R
Reasonable and Customary - The maximum amount a
plan or insurance contract will consider eligible for reimbursement,
based upon prevailing fees in a geographic area.
Reinsurance - The transfer of part of the insurance
risk to another insurer or insurers. Self-funded plans generally
buy specific and/or aggregate stop-loss coverage to cover losses
in excess of certain limits (also known as stop loss). (See Attachment
Point.)
Reserves - A specific amount of money pre-funded
and set aside to assure adequate funds to cover future claims. Both
insurance companies and self-insured employers must “reserve”
in order to preserve cash-flow and protect solvency.
Retention - The portion of the insurance premium
which is allocated for expenses, administration, commissions, risk
charges and profit.
(Exclusion) Rider - An amendment to an insurance
contract limiting, or excluding, an existing coverage for certain
conditions (for example, a rider to a policy may exclude coverage
for treatment to an applicant’s knee)
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S
Self-funding - An arrangement under which all or
some of the risk associated with providing coverage is not covered
by an insurance contract.
Service Area - A geographic area of operation
for a managed care entity.
Staff Model HMO - An HMO that employs physicians
to provide health care services to its members. Staff Models usually
operate their own health center or facilities.
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T
Third-party Administrator (TPA) - An organization
that provides specific administrative duties (including premium
accounting, claims review and payment, arranging for utilization
review and stop-loss coverage) for a self-funded plan.
Tort Reform - The purpose of reform is to eliminate
unnecessary practices and testing which are performed defensively
by a physician with little or no value to the person seeking treatment.
It may also include reasonable limits placed on non-economic damages
paid to a patient or beneficiary.
Trend Factor - The percentage of increase used
by an insurance company or plan to reflect the projected rise in
health care costs. Calculation factors also include inflation, utilization,
technology and geographic area.
Triple Option Plan - A plan which usually offers
an insured an opportunity to choose between an indemnity plan, HMO
and PPO.
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U
Unbundling - To increase the reimbursement paid
by a plan or insurance contract, each medical procedure is billed
under a separate code as a separate item, instead of part of one
overall procedure.
Utilization - The number of times a health care
service is obtained by an insured during a specific period of time.
Utilization Review - A program designed to help
reduce unnecessary medical expenses (usually hospital stays) by
using preliminary evaluations and patient discharge practices.
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W
Waiting Period - The time period between an employee’s
date of hire and their eligibility to receive benefits under a plan
or insurance contract.
Waiver of Premium - A provision in a plan or insurance
contract which relieves the insured of paying the premiums while
totally disabled.
Wellness - Programs or benefits which are introduced
to encourage fitness, preventive care and early detection of illness
to help reduce the costs of future health care (also known as Preventive
Care).
Worker’s Compensation Coverage - Programs
mandated by the states which require employers to provide coverage
to compensate employees for work-related injuries or disabilities.
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