Glossary of health insurance terms

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Brand-name drug

A drug that has a trade name and a patent. While the patent is in effect, the company that developed the drug has the exclusive right to sell it. After the patent expires, other manufacturers can apply to make generic versions of the brand-name drug. Generic drugs are typically a fraction of the cost because the makers do not have to spend money on developing and marketing the drugs.

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Capitation

A health care reimbursement model in which a health insurance plan agrees to pay a doctor, hospital, lab or other health care provider a flat amount per enrolled patient, no matter how many services patients require. The payment amount is set in a contract between the health plan and providers or groups of providers. Health maintenance organizations use this kind of contracting method to keep costs down. To get full coverage, patients must seek treatment from the doctors and other providers who have contracted with the HMO.

Certificate of coverage

A legal document between the health insurer and a group to provide benefits to eligible members. The certificate spells out the benefits, limitations and exclusions in the health plan.

Children's Health Insurance Program

A state and federal program that provides health coverage for uninsured children and pregnant women in families with incomes that are too high for most state Medicaid programs but too low to afford private coverage.

COBRA

The Consolidated Omnibus Budget Reconciliation Act gives former employees, their spouses, retirees and dependent children the right to temporarily continue employment-based health insurance coverage at group rates. The continuation is available only when coverage is lost because of a specific qualifying event outlined in the law, such as an employee losing a job.

Co-insurance

The amount of medical costs the patient pays after paying the health insurance plan deductible. Co-insurance is usually a percentage of the cost and is defined in the health plan. It sometimes varies according to the type of service provided.

Co-payment

The amount the patient must pay toward medical services that are covered in the health plan. The co-payment is a usually a flat dollar amount paid at the time of service.

Contract year

The year in which a health plan operates. Under plans that operate on a contract basis, the deductibles are reset on the renewal date, no matter when that falls during the calendar year. Under plans that operate on a calendar-year basis, deductibles are reset Jan. 1.

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Deductible

A flat amount that a patient must pay each year for covered medical services before health insurance pays for services.

Denial of claim

A refusal by the health insurance company to pay for a medical service. An insurer may decline payment if it determines the service is not covered in the health plan.

Dependent

A spouse or child enrolled on an employee's group health plan. Under health care reform, adult children can remain on a parent's health plan up to age 26.

Drug formulary

A list of prescription drugs covered by a health plan. The plan may provide different levels of coverage for different drugs, based on the medications' cost and effectiveness.

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Effective date

The date when health insurance goes into effect. The date is usually listed on the health insurance identification card.

EPO

Exclusive provider organization. A health plan that covers only services provided by practitioners in its provider network (except in emergency situations).

Exclusion

Medical services that are not covered under the health insurance plan. Exclusions are listed in the certificate of coverage.

Explanation of benefits

A form that explains how a health insurance claim was paid. The form, provided to the patient, details how much the insurer paid and includes information about how to appeal a health benefits decision.

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Fee for service

A model in which the health insurer pays doctors, hospitals, labs and other providers a fee for each service provided.

Fee schedule

A schedule of fees a health insurer pays doctors and other providers for services under a fee-for-service plan.

Flexible spending account

An account provided with a benefits plan that employees can use to pay out-of-pocket costs for health care, such as deductibles, co-payments and medical services not covered by the health plan. The account is funded by pre-tax contributions from the employee. The money can't be carried over from one year to the next; any unused money in the account at the end of the year is forfeited.

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Generic drug

A copy of a brand-name drug that goes by its common name. Manufacturers are allowed to make a generic version after the patent expires on a brand-name drug. Although chemically equivalent to their brand-name counterparts, generic drugs are generally much less expensive.

Group health insurance

Health plans offered to groups by employers and professional and alumni associations. Generally it's easier to get coverage for pre-existing conditions under a group health plan than an individual health insurance plan.

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Health insurance exchange

A one-stop shop for comparing and purchasing insurance. Federal health care reform calls for exchanges to be set up in every state by 2014. The exchanges will be open to individuals and small businesses first, but may open to large groups in 2017. Health insurance plans sold through exchanges must meet certain federal quality standards.

Health savings account (HSA)

An account that people can use to pay for health care costs with pre-tax savings. The account is portable - it can move with the employee from one job to another - and the balance carries over from one year to the next, allowing savings to build. An individual must have a high-deductible health insurance plan to be eligible for a health savings account.

HIPPA

Health Insurance Portability and Accountability Act. A federal law enacted to improve efficiency and access to health insurance and ensure patient privacy. The law gives workers and their families the ability to transfer and continue health insurance coverage when they change or lose jobs, requires confidential handling of patient health information, mandates standards for electronic billing and other processes and aims to minimize health care fraud and abuse.

HMO

Health maintenance organization. A health plan that provides coordinated and managed health care services. Members in most HMOs must choose a primary care physician who makes referrals to specialists and hospital care when necessary. In some cases, members must receive nonemergency care from providers in a network. Other HMO plans might offer reduced benefits for out-of-network providers. Most HMOs feature small co-payments and no deductibles.

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Indemnity plan

A health plan that does not include a network of providers. Such plans were dominant before managed care took hold. Enrollees can seek care from any provider. Indemnity plans usually include deductibles and co-insurance and may have caps on benefits.

Individual health insurance

Health insurance for individuals and their families. People who do not have a health benefits plan through work or a professional association purchase health insurance through the individual health insurance market.

Individual mandate

A requirement under federal health care reform that everyone, except those who meet certain low-income requirements, must have health insurance beginning in 2014. Those who don't have health insurance through work or who don't qualify for a government insurance plan must purchase individual coverage or face a stiff federal tax penalty.

In network

Doctors, hospitals, labs and other health care providers who are part of a health plan's provider network. Out-of-pocket patient costs are higher for services provided by medical professionals outside the network.

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Lapse

A discontinuation of health insurance. Under HIPPA, a group health plan can't exclude a new member's pre-existing condition from coverage if the individual had health coverage for the previous 12 months with no lapse in coverage of 63 days or more.

Long-term care

Personal care services that help people with a chronic illness or disability with daily activities, such as bathing, dressing and eating. Substantial long-term care services are not covered under most health plans, disability insurance or Medicare. Coverage can be purchased through long-term care insurance.

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Managed care plan

Refers to an HMO, PPO, EPO, or point-of-service plan. Managed care aims to coordinate and manage care to avoid redundancy, improve quality and lower costs.

Mandated benefits

Health plan benefits that are mandated by states, such as maternity benefits or care for autistic children.

Maximum lifetime benefit

The maximum amount of benefits a health insurance plan will pay over a person's lifetime. Many employer-based health insurance plans have lifetime maximum benefits of $1 million to $2 million.

Medicaid

A federal- and state-funded health insurance program for low-income children, elderly, blind or disabled people. Some states use their own eligibility rules for Medicaid, while others provide Medicaid to people eligible for Supplementary Security Income benefits.

Medical home model

Also called the patient-centered medical home, the model is designed to improve efficiency, reduce costs and improve care. Primary-care physicians serve as the first contact for patients and coordinate their care across specialties. Medical home practices use electronic health records and evidence-based medicine. These practices emphasize wellness care and disease management.

Medical loss ratio

A ratio under federal health care reform that specifies the percentage of premium dollars health insurance plans must spend on patient care and health care quality improvement, as opposed to administration, marketing and profits. Insurers in the individual health insurance market must spend at least 80 percent of premium dollars on health care and quality improvement, and group health plans must spend at least 85 percent of premiums on health care and quality improvement.

Medicare

Federally administered health insurance for people 65 or older. Medicare coverage is also available to people under 65 with certain disabilities and to people of any age who have permanent kidney failure. Legal U.S. residents who have lived here for at least five years are eligible. Medicare Part A provides hospital coverage, and Medicare Part B helps pay for doctors' services and outpatient care. Medicare prescription drug plans are known as Part D. Medicare Advantage Plans (Part C) provide all the benefits of Parts A and B (known as Original Medicare) plus some additional services.

Medicare Advantage

A health plan that provides Medicare coverage for hospital and outpatient care, as defined by Original Medicare (Parts A and B), along with additional services. Medicare Advantage plans can include prescription drug plans as well. Medigap insurance does not work with Medicare Advantage plans.

Medigap

A supplemental health insurance sold by private health insurance companies to pay costs not covered by Original Medicare (Parts A and B). Officially named Medicare Supplement Insurance, the plans are standardized, with different premiums and coverage levels available. Like Medicare Parts A and B, Medigap policies offer nationwide coverage. Medigap is a separate policy from Medicare Advantage plans, which also provide supplementary coverage for Medicare beneficiaries, but are limited to specific coverage regions. Medicare Advantage and Medigap coverage cannot be combined; beneficiaries must choose one or the other if they want supplemental coverage.

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Open enrollment

The period of time each year when employees can change insurance plans offered through their employer.

Out of network

Doctors, hospitals, labs and other medical providers that do not participate in a health insurance plan's network of providers. Health plans provide reduced benefits for care received from out-of-network providers.

Out-of-pocket maximum

The maximum amount of money a patient can pay for covered medical services. Deductibles, co-insurance and co-payments may count toward the limit. Once the maximum has been reached, health plans pay 100 percent of specified covered expenses.

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Participating provider

A provider who is part of a health insurance plan's network. Participating providers enter into a financial contract with the health plan and agree to negotiated payment rates. Health plans provide patients with more comprehensive benefits for services provided by participating providers than for providers who are not part of the network.

The Patient Protection and Affordable Care Act

Sweeping health care reform legislation signed into law by President Obama in March 2010. The controversial law is designed to lower health care and insurance costs and improve accessibility to health care. Major provisions are scheduled to gradually go into effect between now and 2014.

Point of service plan

Similar to an HMO. Patients can see providers within the plan network and pay a small co-payment, but they can also see providers outside the network and pay a percentage of the cost. Some services may not be covered outside the network.

Preauthorization

Authorization by the health plan to provide coverage before a medical service is provided. Preauthorization is required under some plans for certain services, such as specialty care or hospitalization.

Pre-existing condition

A health condition for which a patient received treatment before enrolling in a health insurance plan. Individual insurance policies may exclude certain pre-existing conditions from coverage. Under health care reform, insurers will not be able to exclude coverage for pre-existing conditions starting in 2014.

Pre-existing Condition Insurance Plan (PCIP)

A government-created plan that provides coverage for people who can't qualify for health insurance because of pre-existing conditions. The plans have been created in every state and are run either by the states themselves or the U.S. Department of Health and Human Services. The plans are designed to fill the coverage gap until 2014, when a provision of federal health reform goes into effect that prohibits insurers from denying coverage for pre-existing conditions.

Pregnancy care

Prenatal, delivery and postpartum services. Providers include doctors specializing in obstetrics and gynecology, certified nurse midwives, family medicine physicians, family nurse practitioners, physician assistants and perinatologists (who specialize in treating high-risk pregnancy).

Preventive care

Health care services and programs that help patients stay healthy. These include annual physicals, immunizations and routine screenings.

Primary care provider

A health care practitioner who provides the first point of contact in the health care system. The primary care provider, usually a physician, sees people with common medical problems and coordinates their care when they need specialty or hospital care.

PPO

Preferred provider organization. A type of a health plan that includes a network of preferred providers. The doctors, hospitals, labs and other providers in the network contract with the insurer or health plan administrator to provide care at discounted rates to members. Patients pay higher out-of-pocket costs to receive care outside of the network.

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Reasonable and customary fees

The prevailing cost of a medical service in a region. Insurers calculate this amount and then use it to determine how much to pay for a service. If a provider charges above the specified amount, the patient may have to pay a larger portion of the cost.

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Short-term health insurance

Policies that provide temporary health insurance coverage. The policies, which usually range from one to six months, provide security in case of a health crisis when there would otherwise be a gap in coverage.

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Well baby and well child care

Routine care for infants and children. Wellness care includes regular checkups and immunizations.

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