Glossary of Terms

The Consolidated Omnibus Reconciliation Act (COBRA), an amendment to ERISA, provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates plus a 2% administration fee.  However, COBRA coverage is only available when coverage is lost due to certain specific events.  Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since the employer typically pays a part of the premium for active employees. COBRA participants generally pay the entire premium themselves - but it is usually less expensive than individual health coverage.

Coinsurance is a fixed and pre-determined percentage of covered medical charges that you are responsible for paying. The coinsurance amount can be found in your schedule of benefits. An example of coinsurance - your health plan covers 80% of certain medical charges, and you are responsible for the remaining 20%.

Consumer Driven Health Plan
A consumer driven health plan is a high deductible health plan that is generally combined with one of two tax-advantaged spending accounts: a Health Savings Account or a Health Reimbursement Arrangement. These plans require a great degree more involvement on the participant's level in choosing when and where to seek care. Ideally the intention is to bring medical costs down, over time. If the participant feels monetary discomfort in paying for medical services, less costly care may be sought.

Plan members use money from their spending account to pay for medical care - including prescriptions. When the account money is fully depleted, plan participants must pay for medical care out-of-pocket until the plan's deductible is satisfied.

The high deductible health plan functions much like a traditional major medical plan after the deductible has been met. High deductible health plans that work in conjunction with Health Savings Accounts have very specific deductible minimums and plan requirements as specified in the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

A copayment is a fixed amount that you pay each time you receive a covered service - a doctor's office visit, a prescription, day surgery, or if you are admitted as an inpatient.

Covered Expense
A covered expense is a charge for a service as allowed and authorized by a group health or dental insurance plan. For example: a hospitalization for an appendectomy would be covered as opposed to elective cosmetic surgery, which under the vast majority of plans would not be covered. A covered expense is paid for or reimbursed up to the particular plan's maximum. Often a copayment, deductible or coinsurance is charged.

A deductible is a set amount of money that you pay each year for certain kinds of medical services before your health insurance coverage kicks in to pay for covered services. Insurers may have more than one deductible within a plan design - i.e., a plan may have a prescription drug deductible as well as one for durable medical equipment.

An EOB is an Explanation of Benefits. Health and dental insurers often provide EOBs after they have processed a claim for an insured member. In addition to the basic information on the insured individual, an EOB will have the date of service, type of service, amount the provider charged, amount the insurer paid, and any amount that the insured party is responsible for paying.

The Family Medical Leave Act (FMLA) of 1993 states that covered employers must grant family and temporary medical leave to employees under certain circumstances. An eligible employee may now take up to a total of twelve workweeks of unpaid leave during any twelve-month period for one or more of the reasons listed below:

  • the birth and care of the newborn child of the employee
  • placement with the employee of a son or daughter for adoption or foster care
  • care for an immediate family member (spouse, child, or parent) with a serious health condition
  • medical leave when the employee is unable to work because of a serious health condition

A Flexible Spending Account (FSA) is a tax-advantaged way to pay for health and/or dependent care expenses. Employees participating in an FSA elect to have a specified dollar amount deducted from their gross salary before taxes withheld each pay period. Employees can pay for certain out-of-pocket medical or dependent care costs with pre-tax dollars. Even taxpayers who do not itemize can get a tax break using an FSA. There are two main kinds of FSAs:

A Health FSA can be very useful, as no matter how comprehensive health or dental coverage may be, there are a certain number of expenses that may not be covered or only partially covered. To help with these out-of-pocket costs employers can offer a Health FSA.

A Dependent Care FSA is another type of FSA that employers offer. It allows employees to pay for certain dependent/child care expenses with tax-free dollars. Working parents may have significant day care expenses, and a growing number of working people are responsible for care of an elderly or disabled dependent. In either case, employees will most likely benefit from the tax advantages of a Dependent Care FSA.

Employees may elect to participate in one or both types of FSA accounts. By participating in an FSA, employers and employees can reduce their tax liability.

The Health Insurance Portability and Accountability Act of 1996 is a federal law that protects individuals' rights to the privacy and security of their health information. HIPAA also establishes requirements and limits under which pre-existing conditions exclusions can apply. In other words, if you have a pre-existing condition, HIPAA helps minimize the impact of that exclusion on your access to health coverage.

HIPAA Certificate
A HIPAA certificate provides proof of prior coverage to a new insurer, eliminating or reducing exposure to any pre-existing conditions clauses.

HMO stands for Health Maintenance Organization. With an HMO, you need to choose a PCP that is within your health plan's network. If you need to see a specialist, your PCP will have to give you a referral if health plan is to cover the cost.

When you choose a PCP, it's a good idea to ask about hospitals and specialists with which he or she is affiliated. You can find out more about a particular doctor, including his or her credentials, by contacting your health plan, either directly or via the Web, or by calling the doctor's office.

A Health Reimbursement Arrangement (HRA) is commonly used to pay for qualified medical expenses, but may also be used to reimburse employees for the purchase of health insurance. Generally speaking, the employer does not specifically set money aside for covered individuals - instead, an employee is reimbursed for eligible medical expenses from general operating funds. HRAs are only available through an employer and must be funded solely by the employer. The employer owns the account.

If the employer chooses, money remaining in the account at year's end can be carried over to the next plan year. An employer may cap the carryover amount if the employer elects to allow carryovers. Employees are not allowed to contribute to an HRA.

A Health Savings Account (HSA) is a new way for consumers to pay for medical expenses. Effective January 1, 2004, almost anyone with a qualified high-deductible health plan can also have a Health Savings Account. HSAs can save you a good deal of money on your medical care in the short-term as well as provide a secure, solid way to save for future medical expenses. HSA funds are used to pay for expenses before your deductible is met as well as help to pay for allowable services not covered by your health plan. In addition, HSA funds help pay COBRA coverage during periods of unemployment, medical expenses after retirement, and long-term care expenses.

Indemnity Plan
Indemnity plans allow the insured to use any medical provider - a doctor, a hospital, and so on. These types of plans do not have networks of affiliated doctors or hospitals. Usually, you have a deductible, which is the amount of the covered expenses you must pay each year before the insurer starts to reimburse you.

Once you meet the deductible, most indemnity plans pay a percentage of what they consider the usual and customary (U&C) charge for covered services. The insurer may pay 80% of the U&C costs, meaning you would pay the other 20%, which is known as coinsurance. If a provider charges more than the U&C rates, you will have to pay both the coinsurance and the excess charges. For example: if the U&C fee for a medical service is $100, the insurer will pay $80. If your doctor charged $100, you will pay $20. But if the doctor charged more than the U&C - $105, say - then you will pay $25.

Policies typically have an out-of-pocket maximum. This means that once your expenses reach a certain amount in a given calendar year, the U&C fee for covered benefits will be paid in full by the insurer. You no longer pay the coinsurance. If your doctor charges you more than the U&C charge, however, you may still have to pay a portion of the bill.

Out-of-Pocket Costs
Aside from the premium, there are other kinds of expenses - called out-of-pocket costs - which you may incur. Your out-of-pocket costs will most likely depend on the sort of coverage you have, the kind of medical service you receive, where the service is provided, and by whom.

POS Plan
A Point-of-Service (POS) plan is an HMO with an opt-out provision. How the plan functions - like an HMO or like an indemnity plan - depends on what the individual plan member decides to do at the "point of service." To illustrate: when medical care is needed, the individual plan member essentially has two choices. The plan member can choose to go through his or her primary care physician (PCP), in which case services will be covered under HMO guidelines. Usually a copayment will be required.

If the plan member chooses to obtain services from a provider inside the network but without their PCP's referral, or seeks care outside of the network, then the services will be reimbursed according to out-of-network rules. Usually paying a deductible and coinsurance will be required. As people who belong to POS plans are responsible for deciding where to seek care, it is very important that they understand the financial implications of their choices.

PPO Plan
A Preferred Provider Organization (PPO) plan is a form of managed care that closely resembles an indemnity plan. A PPO negotiates arrangements with doctors, hospitals, and other providers of care who will accept lower fees from the insurer for their services. As a result, your cost sharing will be lower than if you were to seek care outside the network of providers.

If you go to a doctor within the PPO network, you will typically pay a copayment. In addition your coinsurance will be based on the lower charges for PPO members. For example, the insurer may reimburse you for 90% of the cost if you go to a provider within the network. If you choose to go to a provider out of the network, the insurer may only reimburse you for 70% or so of the cost. Also, with an out-of-network provider, you may have to pay the difference between what the provider charges and what the plan will pay.

Primary Care Physician (PCP)
A Primary Care Physician (PCP) is the doctor you visit when you're sick, for routine care, etc. - the "family doctor". Typically, PCPs are family medicine practitioners, pediatricians, internists, or general practitioners. With an HMO, your PCP is the doctor that gives you a referral to a see a specialist.

A referral is an authorization for medical services to be performed by a specialist, given by the individual's primary care physician.

Stored Value Card
A stored value card functions much like a debit card. The card is pre-funded with money from an employee's FSA or HRA. When the employee needs to pay for an allowable service or product - a doctor's office visit or a prescription - the card can be used to pay directly at the point of sale, saving the employee from spending the money out of their pocket and then having to submit forms for reimbursement.

State-Mandated Benefit
States periodically enact legislation that requires insurers to cover certain services. Examples of some of these mandated benefits are well-child care, infertility treatment, alcoholism treatment and hospice care.