Manufacturer & Business Association

Definition of Insurance Terms

Accidental Death and Dismemberment (AD&D) A provision in a life insurance contract that provides twice the normal benefit (double indemnity) if the insured dies as a result of an accident.

Age Band Range of ages that determines premium amounts for each insurer.

Balance Billing The practice of medical care providers (such as doctors, hospitals or other medical practitioners) billing the insurer for full costs, then billing the insured for the portion of the bill that was not paid.

Cafeteria Plan A plan in which participants may choose among two or more benefits containing nontaxable, and at least one taxable, compensation element. Also referred to as a Section 125 plan.

COBRA The Consolidated Omnibus Budget Reconciliation Act of 1985, which requires employers to offer continuation of group health coverage, at cost, to most employees and dependents who cease to become covered by employer-provided health insurance due to the occurrence of certain qualifying events.

Coinsurance An insurance provision that requires the insured individual to pay a fixed percentage of losses covered by the policy.

Co-payment Beneficiary cost-sharing mechanism usually taking the form of fixed amounts for charges from physicians, hospitals or pharmacy providers.

Deductible Fixed amount for insured medical services that must be paid by the insured prior to any claims reimbursement by the benefit plan.

Disability Physical or mental handicap resulting from sickness or injury.

Exclusive Provider Organization (EPO) A different type of preferred provider organization (PPO) that requires the insured to use only the listed providers or to otherwise forfeit benefit reimbursement altogether.

Explanation of Benefits (EOB) A document sent to an insured when the plan or insurance company handles a claim. The document explains how reimbursement was made, or why the claim was not paid, and if any additional information is needed. The appeals procedure should be outlined to advise the insured of his or her rights if there is dissatisfaction with the decision.

Flexible Spending Account Tax-advantaged program for reimbursement of dependent care and health care expenses that enables employees to pay for these expenses with a nontaxed portion of their salary.

Gatekeeper (Primary Care Physician) A health professional with a managed care environment who determines the patient’s access to treatment. The primary care physician treats the patient and determines access to further treatment and specialists.

Health Maintenance Organization (HMO) A prepaid managed care plan that provides specified services to enrolled members through designated hospitals and doctors for a fixed premium per person.

Health Reimbursement Account (HRA) A type of employer-provided health reimbursement arrangement solely funded by the employer and not provided pursuant to salary reduction election or otherwise under a 125 cafeteria plan. It reimburses the employee for medical care expenses as defined by the 213 IRS code. These expenses can be incurred by the employee, the employee’s spouse and/or dependants. It provides reimbursement to a maximum dollar amount in subsequent coverage periods. Employers have much flexibility with regard to the plan’s design.

Health Savings Account (HSA) The newest account made possible with the Medicare Modernization Act. It refers to a trust created exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if certain specifications are met.

Long-Term Disability (LTD) Insurance Insurance that provides a reasonable replacement of a portion of an employee’s earned income lost through serious and prolonged illness or injury.

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

Out-of-Pocket Maximum The maximum amount that an insured is required to pay under a plan or insurance contract.

Participating Provider A hospital, physician, pharmacy or other provider who participates as a member under an HMO, PPO or other sponsoring network.

Point of Service (POS) A plan that allows members to receive services from a participating or nonparticipating network provider, usually with a financial disincentive for going outside the network.

Preferred Provider Organization (PPO) A managed health care plan in which a network of providers agrees to serve a group of employees in a fee-for-service agreement. A PPO usually offers discounted rates based on volume.

Premium Only Plan (POP) The easiest and simplest type of Section 125 plan. It requires little maintenance once established and works by making one simple adjustment in the payroll process: Employees pay their portion of insurance premiums on a pretax basis rather than a post-tax basis. The employer offers a favorable tax treatment on benefits already offered. To make this benefit available, a qualified plan must be in place.

Primary Care Physician (PCP) A physician responsible for the management of all aspects of care for a health care plan member.

Qualifying Event In order for an employee, who is not a new hire, to enroll into a group insurance plan midyear, he or she would need a qualifying event to take place. Common examples would be a voluntary or involuntary termination of your spouse’s or domestic partner’s employment (for reasons other than gross misconduct) or reduction of your spouse’s or domestic partner’s hours (which causes loss of coverage); the death of your spouse or domestic partner; or divorce, termination of domestic partnership or legal separation from your spouse or domestic partner.

Reasonable and Customary The maximum amount a plan or insurance contract will consider eligible for reimbursement, based upon prevailing fees in a geographic area.

Renewal The issuance of a new policy or the continuation of a current policy that is effective once the old policy’s plan year ends.

Self-Funding or Self-Insured Plan A plan in which the employer carries all or some of the risk by paying claims out of an internally funded pool.

Short-Term Disability (STD) Insurance An insurance policy to provide benefits to a covered disabled person as long as that person is sick or injured and is expected to return to work within a specific amount of time.

Term Life Insurance Provides a death benefit if the insured dies within a specified term of years.

Waiting Period The amount of time between the beginning of a disability and the date benefits begin. Also known as the period of time before an employee becomes eligible to apply for insurance (see also eligibility period and elimination period).