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Glossary of Terms

For your convenience, we have assembled the following list of terms and definitions that are commonly used in the insurance and financial services industries.


allowable amount. The maximum amount determined by a third party payor to be eligible for consideration of payment for a particular service, supply, or procedure.

ambulatory care facility (ACF). A medical care center that provides a wide range of health care services, including preventive care, acute care, surgery and outpatient care, in a centralized facility. Also known as a medical clinic or medical center.

ancillary services. Auxiliary or supplemental services, such as diagnostic services, home health services, physical therapy and occupational therapy, used to support diagnosis and treatment of a patient's condition.

annual maximum benefit amount. The maximum dollar amount set by a Managed Care Organization that limits the total amount the plan must pay for all health care services provided to a subscriber in a year.

behavioral health care. The provision of mental health and substance abuse services.

calendar year. For some insurance carriers, calendar year refers to the period commencing on a January 1 and ending on the next succeeding December 31. Other carriers consider calendar year to be your policy effective date through a twelve month period.

claim. An itemized statement of health care services and their costs provided by a hospital, physician's office or other provider facility. Claims are submitted to the insurer or managed care plan by either the plan member or the provider for payment of the costs incurred.

claim form. An application for payment of benefits under a health plan.

claimant. The person or entity submitting a claim.

closed formulary. The provision that only those drugs on a preferred list will be covered by a Managed Care Organization.

coinsurance. A method of cost-sharing in a health insurance policy that requires a group member to pay a stated percentage of all remaining eligible medical expenses after the deductible amount has been paid.

Consolidated Omnibus Budget Reconciliation Act (COBRA). A federal act which requires each group health plan to allow employees and certain dependents to continue their group coverage for a stated period of time following a qualifying event that causes the loss of group health coverage. Qualifying events include reduced work hours, death or divorce of a covered employee, and termination of employment.

copayment. A specified dollar amount that a member must pay out-of-pocket for a specified service at the time the service is rendered.

deductible. The amount of eligible charges a member must pay before the insurer will make any benefit payments.

diagnostic and treatment codes. Special codes that consist of a brief, specific description of each diagnosis or treatment and a number used to identify each diagnosis and treatment.

Employee Retirement Income Security Act (ERISA). A broad-reaching law that establishes the rights of pension plan participants, standards for the investment of pension plan assets and requirements for the disclosure of plan provisions and funding.

fee-for-service (FFS) payment system. A system in which the insurer will either reimburse the group member or pay the provider directly for each covered medical expense after the expense has been incurred.

fee schedule. The fee determined by a Managed Care Organization to be acceptable for a procedure or service, which the physician agrees to accept as payment in full.

formulary. A listing of drugs, classified by therapeutic category or disease class, that are considered preferred therapy for a given managed population and that are to be used by a Managed Care Organization's providers in prescribing medications.

fully funded plan. A health plan under which an insurer or Managed Care Organization bears the financial responsibility of guaranteeing claim payments and paying for all incurred covered benefits and administration costs.

generic substitution. The dispensing of a drug that is the generic equivalent of a drug listed on a Managed Care Organization's formulary. In most cases, generic substitution can be performed without physician approval.

grievances. Formal complaints demanding formal resolution by a managed care plan.

group market. A market segment that includes groups of two or more people that enter into a group contract with a Managed Care Organization under which the MCO provides health care coverage to the members of the group.

guaranteed issue. An insurance policy provision under which all eligible persons who apply for insurance coverage and who meet certain conditions are automatically issued an insurance policy.

Health Insurance Portability and Accountability Act (HIPAA). A federal act that protects people who change jobs, are self-employed, or who have pre-existing medical conditions. HIPAA standardizes an approach to the continuation of health care benefits for individuals and members of small group health plans and establishes parity between the benefits extended to these individuals and those benefits offered to employees in large group plans. The act also contains provisions designed to ensure that prospective or current enrollees in a group health plan are not discriminated against based on health status.

health maintenance organization (HMO). A health care system that assumes or shares both the financial risks and the delivery risks associated with providing comprehensive medical services to a voluntarily enrolled population in a particular geographic area, usually in return for a fixed, prepaid fee.

home health care. The health care services for which benefits are provided by a carrier when such services are provided during a visit by a Home Health Agency to patients confined at home due to a sickness or injury requiring skilled health care services on an intermittent, part-time basis.

individual stop-loss coverage. A type of stop-loss insurance that provides benefits for claims on an individual that exceed a stated amount in a given period. Also known as specific stop-loss coverage.

lifetime maximum benefit amount. The maximum dollar amount set by an Managed Care Organization that limits the total amount the plan must pay for covered health care services provided to a subscriber in the subscriber's lifetime.

managed care. The integration of both the financing and delivery of health care within a system that seeks to manage the accessibility, cost and quality of that care.

Medicaid. A jointly funded federal and state program that provides hospital expense and medical expense coverage to the low-income population and certain aged and disabled individuals.

medical underwriting. The evaluation of health questionnaires submitted by all proposed plan members to determine the insurability of the group.

Medicare. A federal government hospital expense and medical expense insurance plan primarily for elderly and disabled persons. See also Medicare Part A, Medicare Part B and Medicare Part C.

Medicare Part A. The part of Medicare that provides basic hospital insurance coverage automatically for most eligible persons.

Medicare Part B. A voluntary program that is part of Medicare and provides benefits to cover the costs of physicians' services. Persons wanting Part B coverage have to pay a premium.

Medicare Part C. The part of Medicare that expands the list of different types of entities allowed to offer health plans to Medicare beneficiaries.

Medicare supplement. A private medical expense insurance plan that supplements Medicare coverage. Also known as a Medigap policy.

open access. A provision that specifies that plan members may self-refer to a specialist, either in-network or out-of-network, at full benefit or at a reduced benefit, without first obtaining a referral from a primary care physician.

out-of-pocket maximums. Dollar amounts set by MCOs that limit the amount a member has to pay out of his or her own pocket for eligible health care services during a particular time period.

outpatient care. Treatment that is provided to a patient who is able to return home after care without an overnight stay in a hospital or other inpatient facility.

peer review. The analysis of a clinician's care by a group of that clinician's professional colleagues. The provider's care is generally compared to applicable standards of care, and the group's analysis is used as a learning tool for the members of the group.

point-of-service (POS) product. A health care option that allows members to choose at the time medical services are needed whether they will go to a provider within the plan's network or seek medical care outside the network.

preferred provider organization (PPO). A health care benefit arrangement designed to supply services at a discounted cost by providing incentives for members to use designated health care providers (who contract with the PPO at a discount), but which also provides coverage for services rendered by health care providers who are not part of the PPO network.

premium. A prepaid payment or series of payments made to a health plan by purchasers, and often plan members, for medical benefits.

primary care. General medical care that is provided directly to a patient without referral from another physician. It is focused on preventive care and the treatment of routine injuries and illnesses.

primary care physician (PCP). A physician who serves as a group member's first contact with a plan's health care system.

self-funded plan. A health plan under which an employer or other group sponsor, rather than a Managed Care Organization or insurance company, is financially responsible for paying plan expenses, including claims made by group plan members. Also known as a self-insured plan.

skilled nursing facility. A facility, licensed in accordance with state law and which is Medicare eligible as a supplier of skilled inpatient nursing care, that is primarily engaged in providing skilled nursing services and other therapeutic services.

small group. In Texas, a group composed of 2 to 50 members for which health coverage is provided by the group sponsor.

stop-loss insurance. A type of insurance coverage that enables provider organizations or self-funded groups to place a dollar limit on their liability for paying claims and requires the insurer issuing the insurance to reimburse the insured organization for claims paid in excess of a specified yearly maximum.

underwriting. The process of identifying and classifying the risk represented by an individual or group.

workers' compensation. A state-mandated insurance program that provides benefits for health care costs and lost wages to qualified employees and their dependents if an employee suffers a work-related injury or disease.

workers' compensation indemnity benefits. Benefits that replace an employee's wages while the employee is unable to work because of a work-related injury or illness.