Common Terms in Group Insurance
An aggregate deductible includes combined expenses of all covered family members rather than separate deductibles for each person in the family. The deductible must be paid by the insured before benefits are payable for all or part of the remaining covered services.
A Brand-name drug is prescription drug sold with a patented brand name by the company that manufactures it. After patents run out, lower cost generic versions are sold by other companies. Most insurance plans offer lower copays for generic drugs.
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)
COBRA is a federal act applying to employer-sponsored group health plans with 20 or more employees which provides for the continuation of an employee’s health insurance coverage, as well as the coverage for dependents, if the employee terminates his or her employment. (This act applies whether or not the termination is voluntary.) (Note: New York State has “mini COBRA” laws that apply to employers with 2-19 employees.)
A cafeteria plan is an employer-sponsored benefit plan that allows employees to use either taxable or pretax dollars to purchase benefits. (It is also known as a Flexible Benefits Plan or Section 125 plan.)
The type of benefits which may be offered in a Cafeteria Plan:
- Accident and Health Insurance
- Dental Insurance
- Group Term Life Insurance (with limitations)
- Disability Insurance (tax implications on benefits)
- Medical Expense Reimbursement
- Dependent Care Assistance
- Cash-In-Lieu-of-Health Insurance (Opt-Out Plan)
- Group Vision
- 401(k) Salary Deferrals
For health insurance, co-insurance refers to money that an individual is required to pay for services after a deductible has been paid. For a 20% co-insurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of covered services.
With community rating, health insurance premiums are based on actual or anticipated costs in a specific geographic location. All groups in the area pay the same premium for a plan regardless of their claims history. In New York State, community rating applies to groups of up to 50 employees.
A copay is a flat fee that the insured pays in order to receive a covered service.
The deductible is the amount an insured individual pays for health care expenses before health insurance benefits begin. A plan with a higher deductible will have a lower premium than one with a lower or no deductible.
An EPO is an Exclusive Provider Organization. In an EPO health plan, only services provided by doctors and hospitals within the EPO network are covered. There are no out-of-network benefits except in emergencies.
Employee Assistance Program (EAP)
An EAP is offered by employers and includes assessment, referrals, and short term counseling to help employees manage personal problems that can interfere with productivity, health, and morale.
The elimination period is the waiting period between the time you become disabled and the time you become eligible for benefits. A shorter waiting period will increase the premium.
Experience rating is system of determining future insurance premium rates based on past claims experience. In New York State, experience rating applies to groups of 50+ employees.
Family Medical Leave Act (FMLA)
The FMLA applies to employers with 50 or more employees and requires employers to allow 12 weeks of unpaid leave to eligible employees with a serious health condition that makes the employee unable to perform his or her job or to care for a family member with a serious health condition. For more information, click here.
First dollar coverage
First dollar coverage includes insurance benefits that are not subject to a deductible or copayment.
Flexible Spending Account (FSA)
An FSA is a type of employer-sponsored cafeteria plan with pre-tax funds set aside to reimburse employees for health expenses not covered by insurance (such as deductibles, co-payments, vision and dental care) and dependent care expenses.
A formulary is a list of preferred prescription drugs that an insurance company has determined to be safe and cost effective. Non-formulary drugs will be more costly and subject to restrictions. An open formulary may allow a non-formulary drug to be covered but at a higher cost. A closed formulary will generally not cover any part of the cost of a non-formulary drug.
Most health plans are fully insured, meaning that the insurance carrier assumes all of the risk of claims filed by subscribers. Larger companies can assume part or all of the risk (self-funding) as a way of saving on premium costs.
A generic drug is one which is a duplicate of a brand name prescription drug and produced by other manufacturers after the brand name drug’s patent has expired. Generic drugs are usually less expensive than brand name drugs, and most prescription and health plans reward clients for choosing generics.
Group insurance is coverage through an employer or other entity that covers all enrolled individuals in the group. A single contract outlines the benefits and provisions that apply to all members.
Health Insurance Portability and Accountability Act (HIPAA)
Signed into law in 1996, the HIPAA law was passed to protect health coverage after loss or change of employment and to keep personal health information private. Title I of HIPAA limits restrictions that a group health plan can place on benefits for preexisting conditions. Title II creates standards for the use and dissemination of health care information.
Health Maintenance Organization (HMO)
An HMO is an organization which provides health care in a specific geographic area to enrolled groups. Providers of agreed upon services are reimbursed through periodic and predetermined payments without regard to the amounts of actual services provided. Covered individuals have limited out-of-pocket expenses and must choose a primary care physician to coordinate their care.
Health Savings Account (HSA)
An HSA is savings account to be used with certain high-deductible health insurance plans to pay for qualified medical expenses. Contributions may be made to the account on a tax-free basis. Funds remain in the account from year to year and may be invested at the discretion of the individual owning the account. Interest or investment returns accrue tax-free. Click here for more information on HSAs.
High Deductible Health Plan (HDHP)
The HDHP features a higher annual deductible and annual out-of-pocket limit than other insurance plans in exchange for lower premiums. The IRS sets limits on the minimum allowed deductible, maximum out-of-pocket expenses, and maximum contribution. Click here for more information.
Long-term disability insurance (LTD)
LTD insurance is designed to offer income payments for long-term injuries, illnesses or disabilities. Long-term is often considered over 90 days.
Out-of-pocket expenses are costs, such as the deductible and co-pays, which you must pay yourself and for which you will receive no reimbursement from your insurance company.
A predetermined amount that an individual must pay before an insurance company will pay 100% of an individual’s covered health care expenses
Own occupation provision
Some disability insurance policies offer coverage if you are disabled because of sickness or injury and are unable to perform the material and substantial duties of your regular occupation (or “own occupation”) that you perform at the time you become disabled. Other policies offer coverage only if you are unable to perform any duties that are suited to your skills, education, and experience (“any occupation” provision). Carriers may have different definitions of “own occupation.”
Preferred Provider Organization (PPO)
A PPO is group of health care providers who agree to offer services at a lower cost in return for a stable volume of patients. Depending upon the terms of coverage, a doctor or hospital outside the preferred provider list will cost more, and the PPO will pay a range of 60-80% of expenses.
A pre-existing condition is a medical condition that is excluded from coverage by an insurance carrier because it existed before the coverage began. The health care reform bill passed in March of 2010 prohibits insurance plans from excluding coverage related to a pre-existing condition. For children up to the age of 19 this was effective in September of 2010. For persons age 19 and older the prohibition against the imposition of a pre-existing condition exclusion or waiting period is effective upon issuance or renewal on or after January 1, 2014.
For individuals who have coverage under more than one plan, health insurance policies have a clause regarding Coordination of Benefits to determine which plan is primary for claims payment. Coverage under an individual’s own employer plan is considered primary. If there are 2 employer plans, the one with the earliest effective date is primary. Coverage as a dependent under someone else’s health insurance plan is normally considered secondary. It provides reimbursement for medical expenses not covered by the primary plan.
For employed individuals over 65 enrolled in Medicare and still covered under their employer’s group health plan, the employer plan is primary if there are over 20 employees. For further information, click here.
Reasonable and customary
To determine how much it will pay for a covered service, an insurance carrier uses a fee that is consistent with prevailing fees charged by most health providers in a geographic area. If your doctor charges more than what your insurance carrier has defined as reasonable and customary, you may have to pay the difference.
A rider is a modification in an insurance policy allowing for amendments to its terms and/or coverage.
Supplemental insurance can be purchased in addition to major medical insurance. Usually it pays a cash benefit for coverage of accidents, hospital stays, or a specific illness.
The underwriter is the company that assumes responsibility for the risks involved in enrolling applicants for coverage, issues insurance policies and receives premiums.
Underwriting is the process that an insurer uses to evaluate and assume risks to determine whether it will accept an application for insurance.
A waiting period is a period of time when you are not covered by insurance for a particular problem.
Waiver of premium
A waiver of premium clause in an insurance policy allows policy premiums to be waived if the policyholder becomes seriously ill or disabled. A waiver of premium allows people to benefit from a life insurance policy, even when they cannot work.
Wellness programs are activities by employers that are designed to enhance the health of their employees and reduce health risks. Activities may focus on disease prevention, risk screening, medical self-care, and lifestyle modification.