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
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.
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.
A measurement used by managed care plans to indicate the total
number of days of hospital care provided to a member of a health
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.
The period beginning January 1 of any year through December
31 of the same year.
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
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.
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
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.
Individual, self-insured employers or business coalitions contract
directly with providers for health care services with no HMO
PPO intermediary. This enables employers to include, in the plan
the specific services preferred by their employees.
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.
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.
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.
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 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
PBM (Pharmacy Benefits Manager)
A company that administers and manages prescription drug benefits
for employers, health plans and other organizations offering prescription
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
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.
Insurance coverage that enables sponsors of self-insured group
health care plans to place a dollar limit on their liability for
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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