Common Insurance Terms
Health insurance has its own language, and the Affordable Care Act has added new terms to its vocabulary and changed the definitions of some old ones:
Annual limit: A yearly cap on the dollar amount or types of benefits. Above the cap, you pay the full cost of care for the rest of the year. The health reform law now prohibits most employer and individual plans from imposing a yearly cap below $750,000. The cap will rise to $1.25 million as of September 23 of this year.
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Catastrophic coverage: Pays for care above a high deductible (below), generally several thousand dollars or more. Most services below the deductible are not covered, but the law requires policies issued after September 23, 2010, to pay for certain preventive services, such as immunizations and screening for high blood pressure and depression.
Coinsurance: How much you have to pay for care after meeting your deductible (below). A plan may pay 75 or 80 percent of the bill for services. The remainder is your coinsurance.
Copay: A set fee you pay each time you receive care—$25 whenever you visit the doctor, for example. Your plan pays the rest.
Deductible: How much you have to pay out of pocket before coverage kicks in.
Doughnut hole: A coverage gap in Medicare Part D, the federal prescription drug program for adults age 65 and older. The program pays 75 percent of drug costs up to the doughnut hole—the point at which the total paid by the enrollee and the program reaches $2,800. The enrollee must pay the next $1,750 out of pocket before program coverage resumes. As of 2011, the cost of brand-name drugs for enrollees in the doughnut hole are discounted by 50 percent.
Exclusions: Conditions and treatments and other services that a health plan or policy will not cover. They must be clearly spelled out in the plan's literature.
Fee for service: Coverage that offers total freedom in choosing healthcare providers. Generally, you or your doctor will submit a claim for services provided and get reimbursed by the insurer.
Flexible spending arrangements: Accounts set up by employees to tap during the year to pay qualified medical expenses. They reduce taxes because the funds are subtracted from earnings before they are taxed. Anything left over at the end of the year is forfeited.
Formulary: A list of the medications a policy or health plan will cover entirely or in part.
Grandfathered plan: Any plan that existed on or before March 23, 2010, when health reform became law. Such policies are exempt from some of its provisions.
Group health insurance: Coverage available through employers or "affinity groups" such as a union or student organization.
Health maintenance organization: A form of managed care in which you receive all of your care from participating providers. You usually must obtain a referral from your primary-care physician before you can see a specialist.
Health reimbursement arrangement: Accounts set up by employers to pay employees' medical expenses. Only the employer can contribute to the account.
Health savings account: A special account established by an employer or an individual to save money toward medical expenses. As with flexible spending arrangements, they reduce taxes because the funds are subtracted from earnings before they are taxed. A key difference is that any remaining balance at the end of the year rolls over to the next year.
High-deductible plan: A health plan that provides comprehensive coverage only for costly care such as expensive surgery. It features a high deductible and an annual limit on the total amount paid out by a covered individual or family. Such a plan is usually coupled with a health savings account or a health spending account.
High-risk pool: A state-run program that offers coverage for those who cannot get health insurance from another source because of serious illness.
Individual health insurance: Coverage purchased by an individual, usually directly from an insurance company.
Lifetime limit: Formerly a cap on the total amount paid out by the health insurer over the entire time you are enrolled. Above the cap, you pay the full cost of care. Lifetime limits on most benefits are now prohibited under health reform.
Managed care: A form of health coverage built around a network of physicians, hospitals, and other participating providers. In some types of plans, covered individuals must see an in-network provider; in other types, covered individuals can go outside of the network, but they will pay a larger share of the cost.
Medicaid: The federal and state program that provides healthcare coverage for low-income individuals and families. It is partially funded by the federal government and is administered by the states. Eligibility and other features vary by state.
Medicare: A federal insurance program that provides healthcare coverage to those age 65 and older (and to those with certain disabilities such as end-stage renal disease).
Medicare Advantage: Also referred to as Medicare Part C, it is an alternative to traditional Medicare coverage that is sold through commercial insurers. Coverage is somewhat more extensive than that provided by Medicare.
Network: Physicians, hospitals, and other providers that participate in a healthcare plan.
Open enrollment: A set period, usually at the end of the year, when you can enroll in a group health plan (including Medicare) or change from one plan to another. Outside the open-enrollment window, marriage, divorce, birth, a spouse's death, and certain other life-changing events may permit joining a plan or changing plans.
Out-of-pocket costs: The deductible, copays, coinsurance, and other expenses not reimbursed by a health plan.
Out-of-pocket maximum: A yearly cap on out-of-pocket costs. Neither premiums nor medical bills from providers outside of a plan's network are included.
Point-of-service plan: A type of managed care in which a primary-care physician coordinates your care. You have more flexibility in choosing specialists and hospitals than you do in an HMO.
Pre-existing condition: An illness like cancer or another serious medical condition, diagnosed before you enroll in a plan or purchase a policy, that could be used as a reason to reject enrollment or to deny coverage for treating the condition or a possibly related problem. Under health reform, insurers are no longer permitted to deny coverage to children because of pre-existing conditions.
Preferred-provider organization: Similar to a point-of-service plan: You can see both participating and nonparticipating providers, but your out-of-pocket expenses will be lower if you see only participating providers.
Premium: The amount you regularly pay to belong to a health plan. If you have employer-sponsored health insurance, your share of premiums usually is deducted from your pay.
Primary-care physician: Usually a family-practice doctor, internist, obstetrician-gynecologist, or pediatrician. This physician is your first point of contact with the healthcare system, particularly in a managed-care plan.
Reasonable and customary charge: The prevailing cost of a medical service in a given geographic area. Most plans will not routinely pay a higher amount.
Rescission: Cancellation of coverage because information supplied by the policyholder is found to be fraudulent or deliberately misleading.
Waiting period: The length of time before coverage takes effect. The cost of treatment and other medical services during this period is not covered.
By Megan Johnson
Posted: January 24, 2011
