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Important Health Insurance Terms

 

Allowed or Approved Charge—The maximum amount, determined in advance by a health insurance plan, to pay health care providers for covered health care services and supplies. The allowed or approved charge is often another term for usual, customary, and reasonable fee, the term that some health plans use. The amount that a plan will pay is based on costs for the same service in the health care provider’s geographic area.

Balance Billing—The amount that a health care provider charges a beneficiary that is more than the health plan’s allowed charge. In most cases, it is illegal for a provider who is part of the health plan’s provider network to charge the beneficiary more than the approved charge.

Behavioral Health Care—Mental health and substance abuse services.

Beneficiary—Person whose covered health care costs are paid partially or totally by a health plan, such as an individual or group insurance plan, or a government-sponsored plan, such as Medicare or Medicaid. A beneficiary is sometimes referred to as the insured or the health plan’s member.

Carrier—The insurance company or health insurance plan; the insurer.

COBRA—The federal Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows persons with group health insurance to continue coverage for a certain time after the loss of coverage due to certain special circumstances. The American Recovery and Reinvestment Act of 2009 (ARRA) amended COBRA to provide additional continuation benefits. (See COBRA and New Jersey Continuation (from the State of New Jersey Recovery and Reinvestment Plan)).

Note: Many states have additional insurance programs for continuation coverage. In New Jersey, see the State of New Jersey's Department of Banking and Insurance Web site.

Co-insurance—The amount, usually a percentage, that the insurer and the beneficiary pay toward the cost of covered health care services under the terms of the health insurance plan after the beneficiary’s deductible has been paid. For example, Medicare Part B beneficiaries must pay the first $135 in costs for covered health care services in 2009. Once this $135 out-of-pocket limit (the deductible) has been met, Medicare Part B will generally cover 80% of the cost of covered care, and the beneficiary is responsible for paying 20%.

Community Rating—All persons insured are charged the same premium or rate, regardless of their health status or any other factor that may affect their health, such as their age or gender. Some states allow modified or adjusted community rating so health insurance plans may charge a higher premium for persons based on such factors as age or gender.

Coordination of Benefits—The rules for which health insurance plan pays first for persons who have more than one health plan. Under coordination of benefits,the primary insurer pays first, the secondary insurer pays second, etc.

For an explanation of Medicare’s coordination of benefits rules, see Medicare and Other Benefits: Your Guide to Who Pays First.

Co-payment—The fee or flat rate that the beneficiary is required to pay a health care provider under the terms of their health insurance plan. Often, a beneficiary must pay a fixed co-pay, such as $10 or $20, for each doctor visit and for some prescription medicines.

Deductible—The set dollar amount that must be paid by the beneficiary before the health plan coverage of costs begins. A deductible amount is usually required to be paid annually.

Dependent Eligibility—Persons who are eligible for coverage based on their relationship to the beneficiary. In New Jersey, these include spouses, domestic and civil union partners, unmarried dependent children to age 23 (age 19 to 23 must be enrolled fulltime at an accredited school), certain dependent children to age 31 under a group health plan and, in some instances, incapacitated adult children and other children in the beneficiary’s household.

Experience Rating—Health insurance plans may charge premiums based on the previous costs of the insured’s health care. As an example, under a plan with experience rating, the insurer’s renewal rate for an employer’s group plan can increase based directly on high medical expenses incurred by the group plan’s members in the previous year.

Explanation of Benefits (EOB)—Insurer’s written summary of the beneficiary’s recent health care claims explaining what has been paid.

Formulary—The list of prescription medications that an insurer covers. In many instances, the insurer categorizes medications into formulary tiers, and the cost to the beneficiary, usually in the form of co-pays, is higher according to the medication’s formulary tier.

Fully-Insured Plan—The employer pays premiums to an outside company (an insurance company) to pay the cost of its employees’ health care claims.

Guaranteed Coverage and Renewability—If a person is eligible to buy an Individual Health Coverage plan in New Jersey and pays the premium(s), the carrier cannot refuse coverage for any reason, including the person’s health; however, the carrier may limit coverage for pre-existing conditions for 12 months. (Note: There is NO period of limited coverage for pre-existing conditions for a person enrolled in a large group health plan in New Jersey or a government plan such as Medicaid and Medicare.)

Guaranteed Issue—A health insurance plan in New Jersey that is available to small employers regardless of their health status or anyone in their group. However, many guaranteed issue health plans will have a pre-existing condition penalty or waiting period for coverage of costs related to the pre-existing condition.

Group Health Plans—Health plans that cover a specific group of individuals, such as some or all employees of the same employer. Federal law governs some aspects of group health plans, such as defining small employers as those with 2 to 50 and large employers as those with more than 50 eligible employees in a calendar year. But each state determines many of its plans’ other requirements. For information about group health plans in New Jersey, see NJ Small Employer Health Benefits Program Buyers' Guide (from the New Jersey Department of Banking and Insurance).

HIPAA-Eligible Individuals/Federally Defined Eligible Individuals—Persons under the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) who cannot be subject to a waiting or penalty period for coverage of pre-existing conditions.

HIPAA-eligible individuals are persons who (1) have been covered by a group plan for at least 18 months without a gap in coverage for 63 days (and who did not lose their group coverage due to fraud or non-payment of premiums); (2) are not eligible for COBRA or other continuation health insurance coverage; and (3) are not eligible for a group or government plan, such as Medicaid or Medicare.

Indemnity Plans (Fee-for-Service)—Health insurance plans that allow beneficiaries to use any health care provider they choose. Indemnity plans are usually more expensive and have a larger annual deductible. The plans pay providers a percentage of the approved charge, such as 70% or 80%, and the beneficiary is responsible for paying the rest of the total charge. Some plans require the beneficiary to pay the provider and submit the claim to the plan for reimbursement. Often, indemnity plans have a cap or a maximum that the beneficiary may pay out of pocket each year. Once the cap or maximum is reached, the indemnity plan will pay all covered charges for the rest of the year.

Individual Health Coverage Plans—Generally, commercial health insurance plans for persons who do not have coverage under a group health plan (such as an employer’s group plan) and who are not eligible for a government-sponsored plan (such as Medicare). An Individual Health Coverage plan in New Jersey will provide coverage for a single person, two adults, a family, or an adult and children.

For important details about who is eligible to purchase an Individual Health Coverage plan in New Jersey, please see the NJ Small Employer Health Benefits Program Buyers' Guide: Group Coverage (from the New Jersey Department of Banking and Insurance).

Managed Care Plans/Organizations—Health care plans that control the delivery of health care to its members by managing costs and access to health care services.

Modified or Adjusted Community Rating—Carriers may charge a different rate for the same health benefits plan to persons based on such factors as age, gender, geographic location, or occupation, but not on health status.

New Jersey allows age as a rating factor for standard Individual Health Coverage plans and age, gender, and/or geographic location for Small Employer Health Benefit plans and for Individual Basic and Essential plans.

Network—A health care plan’s preferred list of health care providers. The plan usually requires its members to seek covered services from its in-network providers or pay substantially higher co-pays or co-insurance for out-of-network providers.

Open Enrollment Period—Time period during a calendar year when individuals may enroll or change enrollment in an insurance or health care plan.

Outpatient Care—Health care provided in a setting, such as a hospital or medical-surgical facility, when the patient does not have to stay overnight. It is also called ambulatory care.

POS (Point of Service)—A managed care type of health care coverage that costs the beneficiary considerably more to see an out-of-network provider if not referred by the beneficiary’s primary care physician who acts as a gatekeeper.

PPO (Preferred Provider Organizations)—A managed type of health care coverage that does not require a referral from a primary care physician or gatekeeper to see other health care providers or specialists. However, the beneficiary’s cost will be higher with an out-of-network provider.

Pre-existing Condition—Generally, an uninsured person’s medical condition that was diagnosed during a set time period before the person obtained insurance. In many states, a health care plan does not have to cover health care costs for a beneficiary’s pre-existing condition for six months to a year.

States define a pre-existing condition and any possible waiting or penalty period differently. For New Jersey’s definition, please see Can I Be Denied Health Insurance Coverage in New Jersey for a Pre-Existing Condition? and The New Jersey Individual Health Coverage Program Buyer's Guide: How to Select a Health Plan (from the New Jersey Department of Banking and Insurance) for coverage with an Individual Health Coverage plan in New Jersey and Restrictions on Pre-Existing Condition Exclusions and Limitations (from the New Jersey Department of Banking and Insurance) for coverage with a Small Employer Health Benefit plan in New Jersey.

Note: There is no pre-existing penalty period with a government-sponsored plan or a large group health plan in New Jersey.

Prior Authorization—A formal approval process where the beneficiary’s physician must provide the health insurance plan with a compelling medical reason as to why a medical procedure is necessary or a particular medication is required instead of a less expensive alternative. The authorization is most often required before the insurer will cover the costs of surgical and diagnostic procedures and some prescription medicines.

Self-Insured (or “self-funded”) Plan—The employer takes full risk for the costs of its health care plan by paying its employees’ claims directly instead of paying premiums to an insurance company to play the claims. Employers with self-insured plans may have an outside company administer its self-insured plan. Some employers with self-insured plans also contract with insurance companies to take responsibility for claims when they reach an agreed-upon maximum amount (“stop-loss” agreements).

Some small employers self-insure their health plans, but most self-insured plans are owned by large employers that can afford to take this financial risk. In addition, although self-funded health insurance plans are subject to many federal insurance-related laws, they are not governed by state laws.

This information last reviewed 10/26/11

 

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