As with any industry, the first step for comprehending it is to understand and speak the language. Knowledge of the basic health insurance terminology is critical in comparing plans and choosing the right one. It is also a key to grasping the business aspect of the relationship between patients and providers of health care. Below are some basic terms and definitions pertinent to this end.
Affordable Care Act (ACA) – Legislation signed into law by Pres. Obama on March 23, 2010. It requires that all Americans maintain minimal essential health insurance coverage starting in 2014. Since that time health insurance companies have had to cease denying coverage to individuals based on pre-existing conditions. The full name for the law is the Patient Protection and Affordable Care Act (PPACA)
Allowable Charge – A discounted dollar amount that a health insurance company considers payment in full for services provided a member. Specific allowable charges for a number of different services or items are a part of a contract between an insurance company and a network provider. The provider must adjust any actual charge in excess of the allowable charge as a write off. Allowed amount, approved charge and maximum allowable are synonyms.
The allowable charge for a nonparticipating provider who takes Medicare assignment is 5% lower than a participating provider. He or she can charge a patient more for non-assigned claims though. The reason is the Medicare limiting charge that applies in such cases.
Capitation – A payment arrangement between a health insurance company and a health care provider not based on the amount of service provided. Rather, the insurance company pays the provider a set monthly dollar amount based on the number of patients he or she is responsible for treating. It is most common with HMO plans. For example, a plan agrees to pay a PCP five dollars per month for every assigned patient. If that provider is a PCP for 500 patients in a given month the payment would be $2500. The payment would be the same whether there were a hundred office visits or 10 office visits pertaining to those patients in one month. The reimbursement arrangement is the opposite of a fee-for-service one.
Coinsurance – Is a percentage of an allowable charge for medical service which the covered member is responsible for paying. The member generally pays it after satisfying any copayment or deductible. For example, if an insurance company covers 80% of allowable charges the coinsurance is 20%.
Copayment – Is a specific charge which a health insurance plan requires a patient to make for a specific medical service, after which the insurance company pays for the remainder of the charges. Copayments commonly applied to doctor office visits and brand-name prescription medications. A $15 copayment for an office visit is an example.
Coordination of Benefits (COB) – Is the process by which a health insurance company determines if it should be the primary or secondary payer of a medical claim for a patient who has coverage through two or more health insurance policies.
COBRA (Consolidated Omnibus Reconciliation Act) – Is a federal law which allows an employee or an employee’s dependents to retain group health insurance coverage through an employer’s health plan at the employee’s expense for up to 18 months following the loss of employment. It is not applicable though if the reason for the employment termination was gross misconduct.
Cost-Sharing – Is the contribution that health insurance plan members make to their health care, as defined by their insurance policies. It is primarily the payment of deductibles, copayments and coinsurance.
Deductible – Is a specific dollar amount that a health insurance company requires its plan members to pay out-of-pocket during a benefit period before it begins to pay on claims. In some but not all cases the benefit period might be a year. In the case of Medicare Part A it applies to a hospital benefit period. Thus, it might be payable more than once per year.
Drug Formulary (Formulary) – Is a list of prescription medications which an insurance plan agrees to cover as a benefit.
Enrollment Period – Is the period of time following hiring that an employee can enroll in a group health insurance plan. It might be at any time or at a set time, depending upon the employer providing the coverage.
Exclusive Provider Organization (EPO) – A type of managed care insurance plan similar to an HMO inasmuch as plan members must stay in a network to obtain services. The network of providers is usually more restrictive than an HMO. It differs from an HMO though in that a PCP and referrals might not be required, depending on the plan.
Explanation of Benefits (EBO) – Is a statement which a health insurance company sends to a member listing the services and charges billed by the healthcare provider. The statement shows how the charges were processed and the total amount of the claim which the patient is responsible for paying.
Fee-for-service – When describing an insurance type the term refers to an indemnity plan. In relationship to a method of reimbursement, it refers to the conventional payment of a health care provider for services according to the service(s) performed. This conventional form of payment is in contrast to capitation.
Grandfathered Plan – Is a health insurance plan that existed prior to the Affordable Care Act on March 23, 2010, making it exempt from some, but not all, of the provisions of the act. Employers can add new employees to such a group health insurance plan. Family members are eligible for addition to all grandfathered plans.
Group Health Insurance – Is a health insurance plan that provides benefits for the employees of a business or members of an organization. It contrasts with an individual and family insurance plan in that the employer or organization pays a portion of or the entire premium.
Health Maintenance Organization (HMO) – Is a managed care plan which requires members to stay in the network to obtain treatment. It also requires plan members to have a PCP. In order to see specialists plan members must obtain a referral from that PCP … [Read More…]
Health Savings Account (HSA) – Is a savings account used in conjunction with a high deductible, low premium health insurance plan for paying medical expenses. Contributions to the account are tax-free. The individual who owns the account is free to invest the funds which remain in it from year-to-year or earn interest within the account. Either way, the earnings are tax-free as long as the account owner uses any funds withdrawn only to pay qualifying medical expenses. In order for a health plan to qualify it must be one with a high deductible. The owner can withdraw the funds tax-free at age 65.
Indemnity Plan – A non-managed care health plan which allows patients to direct their own care without restrictions on doctors or other providers they can use. The insurance company generally requires the members to pay for some of the services upfront, and then file with the company for reimbursement. They typically require the fulfillment of a deductible and coinsurance payments by the members. Fee-For-Service Plan is a synonym.
Individual and Family Health Insurance – Health insurance purchased by an individual or family. It contrasts with that provided by an employer or organization.
Managed Care – Is a general term for the various types of health care and health insurance systems that regulate a member’s use of benefits by requiring coordination of care through a PCP or by encouraging the use of network providers. The typical types of managed care are HMO, PPO and POS plans.
Medicaid is a federal & state funded program that pays for medical care for individuals who can’t afford it. It helps low income individuals and families, as well as people with disabilities. Qualifications for it vary from state to state.
Medicare Approved Amount – Is the amount that Original Medicare decides to pay for a given service or item.
Medicare Assignment – Is a billing and payment agreement between Medicare and a doctor or other provider for Part B services rendered. The agreement consists of the following:
- The provider bills Medicare for the service(s) provided to a patient.
- In billing Medicare the provider agrees to the Medicare-approved payment amount for the service(s).
- The provider will only bill the patient for deductibles or coinsurance that might apply.
Medicare Limiting Charge – Is the maximum amount that a non-participating provider can charge you for service(s) if you have Medicare coverage when he or she does not take assignment. It is 115% of the allowable charge. The allowable charge for a nonparticipating provider is 95% of that of a participating one who takes assignment. Thus, the limiting charge is 115% × 95% × the allowable charge for a given service.
Network – Is a group of physicians, hospitals and other health care providers contracted with a health insurance company to provide services to its plan members for less than their usual fees. Typically, policyholders pay less for services if they use a network provider.
Network Provider – See preferred provider.
Nonparticipating Provider – Is a provider who is not under a signed contract with your health plan, including Medicare. In the case of Medicare, you pay the provider directly. But the provider must still bill Medicare to ensure your reimbursement. The approved amount he or she can bill is 5% less than a participating provider. The Medicare limiting charge limits how much he or she can collect from you for care for which he or she does not take assignment.
Open Enrollment Period – Is the time period during which eligible persons or employees may opt to sign up for health insurance coverage. Companies and organizations providing group coverage decide the dates their employees can enroll. The Affordable Care Act sets the dates between which eligible individuals can sign up for marketplace plans. The dates for obtaining marketplace insurance for 2017 are from November 1, 2016 through January 31, 2017 .
Out-Of-Network Care – Is health care rendered to a plan member outside of a health insurance company’s network of preferred providers.
Out-Of-Pocket Costs – Are the expenses for medical care not covered by insurance. They include cost-sharing and the cost of services that are not covered. The latter includes benefits a plan does not cover (such as cosmetic surgery) and out-of-network services.
Out-of-Pocket Maximum – The maximum dollar amount of cost-sharing that a health insurance plan can require an individual or family to pay for covered health care services received during a policy period of one year. The annual limits set by the Affordable Care Act for 2017 are $7,150 for an individual and $14,300 for a family. The limit does not apply to charges for services not covered by an insurance plan or services obtained outside of the network. An alternate term is maximum out-of-pocket costs.
Participating Provider – Is a doctor or other healthcare provider who has a contractual agreement with your insurance company. The company might be Medicare or a private carrier. The provider agrees to accept the carrier’s discounted fee less any deductible, copayment, or coinsurance that may apply as payment in full. In other words, the provider agrees to take assignment. In turn, the insurance company directs patient’s to that provider as part of the agreement. Some apply the term to a provider in a managed care network. It is not always synonymous with a preferred provider in that context though, depending upon the existence of a contractual relationship and its level.
Point of Service (POS) – Is a managed care health plan which has features of both an HMO and a PPO. It might require a member to choose a primary care physician to obtain referrals from to see specialists in the network. Members can also obtain care from providers outside of the network at a higher cost.
Precertification (Prior Authorization) – The process of obtaining official approval of coverage of a medical service or other benefit prior to it being received by a patient. Contracts and policies usually state those benefits that require it. They include things such as certain procedures, non-emergency admission to a hospital, elective surgery, etc.
Preferred Provider Organization (PPO) – Is a type of managed care health plan which provides policyholder’s with the flexibility of network and out-of-network benefits. Benefits outside of the network are at a greater expense though. It does not have PCPs and does not require a referral to see a specialist … [Read More…]
Preferred Provider – Is a healthcare provider who has a legal relationship with a particular health plan through a contract with the company offering the plan. The legal relationship establishes standards of care, allowable charges for specific services and clinical protocols. In return, the provider typically gains a number of patients through the plan. Depending on the relationship, a primary care physician might be reimbursed based on a fee-for-service or capitation arrangement. The formal term for this reimbursement agreement if it is a fee-for-service one, is a negotiated fee schedule. A preferred provider might be a physician, hospital or other provider. Network provider is another name for a preferred provider.
Primary Care – Is the basic health care services generally rendered by internists, family practitioners and/or pediatricians.
Primary Care Physician (PCP) – Is the main healthcare provider of a patient in a managed care plan, particularly an HMO. The PCP serves as the first point of contact and the source of referrals to specialists. Gatekeeper is a synonymous term for PCP.
Premium – The total amount paid to an insurance company for health care benefits for a covered member(s) during a policy period. It usually consists of monthly payments. An employer or organization pays the premium if it is a group plan. An individual pays the premium if it is an individual and family plan.
Provider Write-Off (Provider Discount) – Is the amount that a network provider has to discount if his or her actual charge for service provided to a plan member exceeds the allowable charge. It is the difference between the two.
Usual, Customary and Reasonable (UCR) Charge – Is the standard or most common charge for a particular service or item in a particular geographic region. Medicare and other third-party payers use it to decide the amount they will pay providers for services under their health plans. Stated differently, they use it in determining their allowable charges.
It is important to understand the implications of the UCR charge with respect to out-of-network-care. Even though the amount that your insurance carrier will pay a provider for out of network care is more than the allowable charge, the provider is not required to write off the difference between it and the actual charge. Consequently, the balance billing and the amount you end up owing can be shocking and in some cases devastating.
Utilization Management – Is the set of activities, procedures and rules of a health care plan, designed to contain the cost of benefits it provides for its members. It includes but is not limited to prior authorization, networks, referrals, gatekeepers, drug formularies, etc. Some think it is synonymous with utilization review.
Utilization Review – It is the retroactive analysis of the use of services and other resources provided to members by a health care plan. A team including doctors and nurses performs the work. The purpose is to determine if the use of the resources is medically necessary, appropriate, and within the guidelines of standard medical practice. Some use the term interchangeably with utilization management but in a stricter sense the latter is more of a proactive process for cost containment.