Glossary of Health Insurance Terms

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law.
When making decisions about health coverage, consumers should know the specific meanings of terms used to
discuss health insurance. Below are definitions for some of the more commonly used terms and how PPACA
impacts their use.

-A- COBRA coverage — Congress passed the Consolidated

Actuarial justification — The demonstration by an Omnibus Budget Reconciliation Act (COBRA) health
insurer that the premiums collected are reasonable, given benefit provisions in 1986. COBRA provides certain
the benefits provided under the plan or that the former employees, retirees, spouses, former spouses and
distribution of premiums among policyholders are dependent children the right to temporary continuation of
proportional to the distribution of their expected costs, health coverage at group rates. The law generally covers
subject to limitations of state and federal law. PPACA health plans maintained by private-sector employers with
requires insurers to publicly disclose the actuarial 20 or more employees, employee organizations, or state or
justifications behind unreasonable premium increases. local governments. Many states have “mini-COBRA” laws
that apply to the employees of employers with less than 20
Adjusted community rating — A way of pricing employees.
insurance where premiums are not based upon a
policyholder's health status, but may be based upon other
factors, such as age and geographic location. PPACA Coinsurance — A percentage of a health care provider's
requires the use of adjusted community rating, with charge for which the patient is financially responsible
maximum variation for age of 3:1 and for tobacco use of under the terms of the policy.
1.5:1.
Community rating — A way of pricing insurance, where
Annual limit — Many health insurance plans place dollar
every policyholder pays the same premium, regardless of
limits upon the claims the insurer will pay over the course
health status, age or other factors.
of a plan year. PPACA prohibits annual limits for essential
benefits for plan years beginning after Sept. 23, 2010.
Co-Op Plan — A health insurance plan that will be sold
by member-owned and operated non-profit organizations
-B- through Exchanges when they open in 2014. PPACA
Balance billing — When you receive services from a provides grants and loans to help Co-Op plans enter the
health care provider that does not participate in your marketplace.
insurer's network, the health care provider is not obligated
to accept the insurer's payment as payment in full and may Co-payment — A flat-dollar amount which a patient
bill you for unpaid amount. This is known as “balance must pay when visiting a health care provider.
billing.”
Cost-sharing — Health care provider charges for which a
-C- patient is responsible under the terms of a health plan.
Common forms of cost-sharing include deductibles,
CHIP — The Children's Health Insurance Program coinsurance and co-payments. Balance-billed charges from out-of-
(CHIP) provides coverage to low- and moderate-income network physicians are not considered cost-sharing. PPACA
children. Like Medicaid, it is jointly funded and prohibits total cost-sharing exceed $5,950 for an individual
administered by the states and the federal government. It and $11,900 for a family. These amounts will be adjusted
was originally called the State Children’s Health Insurance annually to reflect the growth of premiums.
Program (SCHIP).
 -D- -G-
Deductible — A dollar amount that a patient must pay Grandfathered plan — A health plan that an individual
for health care services each year before the insurer will was enrolled in prior to March 23, 2010. Grandfathered
begin paying claims under a policy. PPACA limits annual plans are exempted from most changes required by
deductibles for small group policies to $2,000 for policies PPACA. New employees may be added to group plans
that cover an individual, and $4,000 for other policies. that are grandfathered, and new family members may be
These amounts will be adjusted annually to reflect the added to all grandfathered plans.
growth of premiums. Group health plan — An employee welfare benefit plan
Disease management — A broad approach to that is established or maintained by an employer or by an
appropriate coordination of the entire disease treatment employee organization (such as a union), or both, that
process that often involves shifting away from more provides medical care for participants or their dependents
expensive inpatient and acute care to areas such as directly or through insurance, reimbursement or otherwise.
preventive medicine, patient counseling and education, and Guaranteed issue — A requirement that health insurers
outpatient care. The process is intended to reduce health sell a health insurance policy to any person who requests
care costs and improve the quality of life for individuals by coverage. PPACA requires that all health insurance be sold
preventing or minimizing the effects of a disease, usually a on a guaranteed-issue basis beginning in 2014.
chronic condition.
Guaranteed renewability — A requirement that health
insurers renew coverage under a health plan except for
-E- failure to pay premium or fraud. HIPAA requires that all
ERISA — The Employee Retirement Income Security health insurance be guaranteed renewable.
Act of 1974 (ERISA) is a comprehensive and complex
statute that federalizes the law of employee benefits. -H-
ERISA applies to most kinds of employee benefit plans,
including plans covering health care benefits, which are Health Maintenance Organization (HMO) — A type
called employee welfare benefit plans. of managed care organization (health plan) that provides
health care coverage through a network of hospitals,
Essential Benefits — PPACA requires all health doctors and other health care providers. Typically, the
insurance plans sold after 2014 to include a basic package HMO only pays for care that is provided from an in-
of benefits including hospitalization, outpatient services, network provider. Depending on the type of coverage you
maternity care, prescription drugs, emergency care and have, state and federal rules govern disputes between
preventive services among other benefits. It also places enrolled individuals and the plan.
restrictions on the amount of cost-sharing that patients must
pay for these services. Health Savings Account (HSA) — The Medicare bill
signed by President Bush on Dec. 8, 2003 created HSAs.
Exchange — PPACA creates new “American Health Individuals covered by a qualified high deductible health plan
Benefit Exchanges” in each state to assist individuals and (HDHP) (and have no other first dollar coverage) are able
small businesses in comparing and purchasing qualified to open an HSA on a tax preferred basis to save for future
health insurance plans. Exchanges will also determine who qualified medical and retiree health expenses. Additional
qualifies for subsidies and make subsidy payments to information about HSAs can be found on the U.S.
insurers on behalf of individuals receiving them. They will Treasury Web site: http://www.treas.gov/offices/public-
also accept applications for other health coverage affairs/hsa/.
programs such as Medicaid and CHIP.
High Deductible Health Plan (HDHP) — A type of
External review — The review of a health plan’s health insurance plan that, compared to traditional health
determination that a requested or provided health care insurance plans, requires greater out-of-pocket spending,
service or treatment is not or was not medically necessary although premiums may be lower. In 2010, an HSA-
by a person or entity with no affiliation or connection to qualifying HDHP must have a deductible of at least $1,200
the health plan. PPACA requires all health plans to for single coverage and $2,400 for family coverage. The
provide an external review process that meets minimum plan must also limit the total amount of out-of-pocket cost-
standards. sharing for covered benefits each year to $5,950 for single
coverage and $11,900 for families.
-F-
Formulary — The list of drugs covered fully or in part by
a health plan.

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High risk pool — A state-subsidized health plan that -L-
provides coverage for individuals with pre-existing health care Lifetime limit — Many health insurance plans place
conditions who cannot purchase it in the private market. dollar limits upon the claims that the insurer will pay over
PPACA creates a temporary federal high risk pool the course of an individual’s life. PPACA prohibits lifetime
program, which may be administered by the states, to limits on benefits beginning with on Sept. 23, 2010.
provide coverage to individuals with pre-existing
conditions who have been uninsured for at least 6 months. Limited Benefits Plan — A type of health plan that
provides coverage for only certain specified health care
HIPAA (Health Insurance Portability and services or treatments or provides coverage for health care
Accountability Act of 1996) — The federal law enacted services or treatments for a certain amount during a
in 1996 which eased the “job lock” problem by making it specified period.
easier for individuals to move from job to job without the
risk of being unable to obtain health insurance or having
to wait for coverage due to pre-existing medical conditions. -M-
Mandated benefit — A requirement in state or federal
-I- law that all health insurance policies provide coverage for a
specific health care service.
In-Network provider — A health care provider (such as
a hospital or doctor) that is contracted to be part of the Medicaid — A joint state and federal program that
network for a managed care organization (such as an HMO provides health care coverage to eligible categories of low-
or PPO). The provider agrees to the managed care income individuals. Rules for eligible categories (such as
organization’s rules and fee schedules in order to be part children, pregnant women, people with disabilities, etc),
of the network and agrees not to balance bill patients for and for income and asset requirements, vary by state.
amounts beyond the agreed upon fee. Coverage is generally available to all individuals who meet
these state eligibility requirements. Medicaid often pays for
Individual mandate — A requirement that everyone long-term care (such as nursing home care). PPACA
maintain health insurance coverage. PPACA requires that extends eligibility for Medicaid to all individuals earning up
everyone who can purchase health insurance for less than to $29,326 for a family of four.
8% of their household income do so or pay a tax penalty.
Medical loss ratio — The percentage of health insurance
Individual market — The market for health insurance premiums that are spent by the insurance company on
coverage offered to individuals other than in connection health care services. PPACA requires that large group
with a group health plan. PPACA makes numerous changes plans spend 85% of premiums on clinical services and
to the rules governing insurers in the individual market. other activities for the quality of care for enrollees. Small
Internal review — The review of the health plan’s group and individual market plans must devote 80% of
determination that a requested or provided health care premiums to these purposes.
service or treatment health care service is not or was not Medicare — A federal government program that provides
medically necessary by an individual(s) associated with the health care coverage for all eligible individuals age 65 or
health plan. PPACA requires all plans to conduct an older or under age 65 with a disability, regardless of
internal review upon request of the patient or the patient’s income or assets. Eligible individuals can receive coverage
representative. for hospital services (Medicare Part A), medical services
Interstate compact — An agreement between two or (Medicare Part B), and prescription drugs (Medicare Part
more states. PPACA provides guidelines for states to enter D). Together, Medicare Part A and B are known as
into interstate compacts to allow health insurance policies Original Medicare. Benefits can also be provided through a
to be sold in multiple states. Medicare Advantage plan (Medicare Part C).
Medicare Advantage — An option Medicare beneficiaries
-J- can choose to receive most or all of their Medicare
benefits through a private insurance company. Also known
Job Lock — The situation where individuals remain in as Medicare Part C. Plans contract with the federal
their current job because they have an illness or condition government and are required to offer at least the same
that may make them unable to obtain health insurance benefits as original Medicare, but may follow different
coverage if they leave that job. PPACA would eliminate rules and may offer additional benefits. Unlike original
job lock by prohibiting insurers from refusing to cover Medicare, enrollees may not be covered at any health care
individuals due to health status. provider that accepts Medicare, and may be required to
pay higher costs if they choose an out-of-network provider or
one outside of the plan’s service area.

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Medicare Supplement (Medigap) Insurance — Private Preferred Provider Organization (PPO) — A type of
insurance policies that can be purchased to “fill-in the managed care organization (health plan) that provides
gaps” and pay for certain out-of-pocket expenses (like health care coverage through a network of providers.
deductibles and coinsurance) not covered by original Typically the PPO requires the policyholder to pay higher
Medicare (Part A and Part B). costs when they seek care from an out-of-network provider.
Multi-state plan — A plan, created by PPACA and Depending on the type of coverage you have, state and
overseen by the U.S. Office of Personnel Management federal rules govern disputes between enrolled individuals
(OPM), that will be available in every state through and the plan.
Exchanges beginning in 2014. Premium — The periodic payment required to keep a
policy in force.

-O- Preventive benefits — Covered services that are intended

to prevent disease or to identify disease while it is more
Open enrollment period — A specified period during easily treatable. PPACA requires insurers to provide
which individuals may enroll in a health insurance plan coverage for preventive benefits without deductibles, co-
each year. In certain situations, such as if one has had a payments or coinsurance.
birth, death or divorce in their family, individuals may be
allowed to enroll in a plan outside of the open enrollment
period. -Q-
Out-of-network provider — A health care provider (such Qualified health plan — A health insurance policy that is
as a hospital or doctor) that is not contracted to be part of sold through an Exchange. PPACA requires Exchanges to
a managed care organization’s network (such as an HMO certify that qualified health plans meet minimum standards
or PPO). Depending on the managed care organization’s contained in the law.
rules, an individual may not be covered at all or may be
required to pay a higher portion of the total costs when
he/she seeks care from an out-of-network provider. -R-
Out-of-pocket limit — An annual limitation on all cost- Rate review — Review by insurance regulators of
sharing for which patients are responsible under a health proposed premiums and premium increases. During the rate
insurance plan. This limit does not apply to premiums, review process, regulators will examine proposed
balance-billed charges from out of network health care premiums to ensure that they are sufficient to pay all
providers or services that are not covered by the plan. claims, that they are not unreasonably high in relation to
PPACA requires out-of-pocket limits of $5,950 per the benefits being provided, and that they are not unfairly
individual and $11,900 per family, beginning in 2014. discriminatory to any individual or group of individuals.
These amounts will be adjusted annually to account for the Reinsurance — Insurance purchased by insurers from
growth of health insurance premiums. other insurers to limit the total loss an insurer would
experience in case of a disaster or unexpectedly high
claims. PPACA directs states to create temporary
-P- reinsurance programs to stabilize their individual markets
Patient Protection and Affordable Care Act (PPACA) during the implementation of health reform.
— Legislation (Public Law 111-148) signed by President Rescission — The process of voiding a health plan from
Obama on March 23, 2010. Commonly referred to as the its inception usually based on the grounds of material
health reform law. misrepresentation or omission on the application for
Pre-existing condition exclusion — The period of time insurance coverage that would have resulted in a different
that an individual receives no benefits under a health decision by the health insurer with respect to issuing
benefit plan for an illness or medical condition for which coverage. PPACA prohibits rescissions except in cases of
an individual received medical advice, diagnosis, care or fraud or intentional misrepresentation of a relevant fact.
treatment within a specified period of time prior to the Risk adjustment — A process through which insurance
date of enrollment in the health benefit plan. PPACA plans that enroll a disproportionate number of sick
prohibits pre-existing condition exclusions for all plans individuals are reimbursed for that risk by other plans who
beginning January 2014. enroll a disproportionate number of healthy individuals.
PPACA requires states to conduct risk adjustment for all
non-grandfathered health insurance plans.
Risk corridor — A temporary provision in PPACA that
requires plans whose costs are lower than anticipated to
make payments into a fund that reimburses plans whose
costs are higher than expected.

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 -S-
Self-insured — Group health plans may be self-insured or
fully insured. A plan is self-insured (or self-funded), when
the employer assumes the financial risk for providing
health care benefits to its employees. A plan is fully
insured when all benefits are guaranteed under a contract
of insurance that transfers that risk to an insurer.
Small group market — The market for health insurance
coverage offered to small businesses – those with between
2 and 50 employees in most states. PPACA will broaden
the market to those with between 1 and 100 employees.
Solvency — The ability of a health insurance plan to meet
all of its financial obligations. State insurance regulators
carefully monitor the solvency of all health insurance plans
and require corrective action if a plan’s financial situation
becomes hazardous. In extreme circumstances, a state may
seize control of a plan that is in danger of insolvency.

-U-
Usual, Customary and Reasonable charge (UCR) —
The cost associated with a health care service that is
consistent with the going rate for identical or similar
services within a particular geographic area.
Reimbursement for out-of-network providers is often set at a
percentage of the usual, customary and reasonable charge,
which may differ from what the provider actually charges
for a service.

-W-
Waiting period — A period of time that an individual
must wait either after becoming employed or submitting
an application for a health insurance plan before coverage
becomes effective and claims may be paid. Premiums are
not collected during this period.