Dictionary of Insurance Terms

If you have any questions on any of these insurance definitions or any questions on your insurance benefits, please do not hesitate to contact Your Watch Group at 410-931-6700 or toll free at 1-866-712-6294. Please feel free to e-mail questions to beckys@benefitwatch.com as well.

Allowed Benefit: The dollar amount allowed by your insurance carrier for a specific covered service (on the date the service is rendered). If the actual charge is less than the allowed amount, the provider should bill the actual charge.

Ancillary Insurance: Non-medical insurance products that enhance and fill in the gaps of medical insurance. Examples include: Dental, Life and Disability Insurance.

Appeal: A protest filed by a member or a health care provider under your insurance carrier’s internal appeal process regarding a coverage decision on benefits or a claim.

Assignment of Benefits: The transfer of benefits to another. This could be used to pay a physician directly, instead of having the insurance company pay the policyholder, who will then pay the physician.

Authorization: The contractual requirements that the provider or member must notify and obtain approval from the insurance carrier before certain services are covered for a member. Authorization is required for services such as, but not limited to, non-emergency hospitalizations, certain hospital services, skilled nursing care, home health care, outpatient surgical services, and durable medical equipment. Certain prescription drugs may need prior authorization as well. An authorization is obtained directly from the insurance company usually at the request of a member’s physician. This is also known as pre-authorization, prior authorization or pre-approval.

Billing for Unpaid Balance: The process of requesting payment from somebody for a shortfall in payment made by a third party such as a medical insurance carrier. This usually occurs when members to an out-of-network provider who is not participating with the member’s insurance network.

Beneficiary: The individual or party designated to receive policy proceeds.

Business Owner’s Policy (BOP): Insurance policies that combine protection from all major property and liability risks in one package. A Business Owner Policy or BOP is an insurance package that assembles the basic coverages required by a business owner in one bundle. It is usually sold at a premium that is less than the total cost of the individual coverages. Business Owners Policies usually target small and medium-sized businesses and typically contain business interruption insurance, which provides reimbursement for up to a year of lost revenue resulting from an insured property loss.

Business Automobile Policy: Similar to personal auto coverage but it is intended for vehicles used in the course of business. This coverage would pay for personal and property damage caused by an auto accident.

Certificate of Creditable Coverage: A document provided by the health plan that proves that an individual had coverage under that plan. Certificates of creditable coverage will usually be provided automatically when an individual leaves a health plan, but they can be obtained at other times as well.

COBRA: The federal Consolidated Omnibus Budget Reconciliation Act of 1985, which established, among other things, the Group Health Plan continuation coverage rules.

Co-Insurance: A percentage of the plan allowance that the member pays for a covered service (e.g., 20 percent for lab services or x-rays).

Commercial Property: A policy that covers the building(s) and contents of the business. Additional options can be added, such as coverage for the property of others, glass and outdoor signs based on the specific needs of your business.

Commercial General Liability: covers potential obligations due to bodily injury or property damage to others. Even if you do not own your property, you can obtain coverage for the contents of your business through this type of coverage. This coverage is for the premises and operations of the insured, including all products and operational costs.

Coordination of Benefits: A provision which determines the order of what insurance carrier pays first when a member has coverage under more than one plan.

Co-Payment: A specified dollar amount that the member pays for a covered benefit (e.g., $10 per office visit to a Primary Care Physician).

Deductible: The dollar amount of incurred covered expenses that the member must pay before the insurance company will make payment.
Aggregate Deductible: Essentially for employees covering dependents, the entire family deductible must be satisfied by one family member or the combined (aggregate) of the entire family before any one family member can receive benefits. (I.E. If a family deductible is $5,000, there must be $5,000 in claims paid out of the client’s pocket before any family member is covered.)

Embedded Deductible: With an embedded deductible each covered family member only needs to satisfy his/her individual deductible, not the entire family deductible, prior to receiving plan benefits.

Integrated Deductible: With an integrated deductible, the insurance carrier combines both medical and prescription claims together toward meeting one deductible. This integrated deductible must be met before members receive benefits from the insurance carrier.

Dental Benefits (Dental Insurance): is a type of health insurance designed to pay a portion of the costs associated with dental care.
Employee Assistance Program (EAP): Programs offered by many employers, typically in conjunction with a health insurance or life insurance plan. EAPs are intended to help employees deal with personal problems that might adversely impact their work performance, health, and well-being. EAPs generally include assessment, short-term counseling and referral services for employees and their household members.
Election Period: The period following notification of an individual’s eligibility for COBRA continuation coverage, during which the individual can accept or decline the coverage.

Eligibility Period: For group health insurance, the period of time in which a new employee may enroll in the group coverage.

Evidence of Insurability: Statement of medical history to determine if an employee is approved for coverage when amount of life insurance is in excess of the guaranted issue amount for group or late enrollees under a contributory plan or enrollees under a supplemental life program which does not meet minimum participation requirements.

Exclusions: Specific conditions, treatments, services or circumstances listed in the contract for which your insurance carrier will not provide benefits.

Explanation (or Summary) of Benefits: A document provided by your insurance carrier showing the processing of a claim, the charged amount, allowed amount and member responsibility. This form is used frequently for submission to HRA, HSA and/or FSA accounts for substantiation purposes. Also referred to as an “EOB”.

Fidelity and Crime Coverage: This insurance protects organizations from loss of money, securities, or inventory resulting from crime. Common Fidelity/Crime insurance claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.
Flexible Spending Account: also known as a flexible spending arrangement, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings. One significant disadvantage to using an FSA is that funds not used by the end of the plan year are lost to the employee.
Grace Period: The period of time after a premium due date has passed during which the policy remains active even though payment has yet to be made. For Flexible Spending Accounts, this is the time frame when members can incur and submit new claims for reimbursements.

Group Voluntary Benefits: Health and welfare benefits offered through a group (but paid by the employee) that do not require all employees to come onto the coverage but may have participation requirements. It is a way to enhance your benefit portfolio without putting the expense onto the employer.

Health Reimbursement Arrangement (HRA): An employer funded medical savings account that provides you with first dollar coverage for all of your eligible health care expenses.

Health Savings Account – HSA: A tax-free savings account that allows you to put aside pre-tax income, earn interest on your savings, and use your tax free savings for eligible medical expenses.

HIPAA: The Health Insurance Portability and Accountability Act is federal legislation that offers protections for American workers to improve the privacy, portability and continuity of health insurance coverage.

Life Insurance A contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment.

Long-Term Care (LTC) Insurance: Coverage available on an individual or group basis to provide medical and other services to patients who need constant care in their own homes or in nursing homes.
Long-Term Disability (LTD) Insurance: (1) A disability having a duration longer than a short-term disability, the exact duration being variable and a matter of reference; commonly 90 or 180 days. (2) A form of group disability insurance paying benefits for more than the customary 13 to 26 weeks; more commonly, benefits of five years duration or more, but again depending on terms of reference.

Medical Benefits (Medical Insurance): insurance against the risk of incurring medical expenses among individuals.

Network: A group of multi-specialty medical groups and individual practice doctors who are contracted to provide services to members of a health plan. These are “In-Network” doctors/providers. “Out-of-Network” providers are those providers who do not participate and/or accept the member’s insurance.

Officers and Directors Coverage: liability insurance payable to the directors and officers of a company, or to the organization(s) itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of criminal and regulatory investigations/trials as well; in fact, often civil and criminal actions are brought against directors/officers simultaneously

Out-of-Pocket Maximum: A maximum amount of claims cost a member has to pay out prior to the plan picking up certain costs at 100%. This definition changes based upon the type of plan the member is enrolled in. It usually is calculated by adding the amount of deductible and co-insurance paid but other factors can be included depending upon the plan.

Outpatient Services: Non-inpatient services, i.e., no overnight stay, provided by a hospital or other qualified facility, such as a mental health clinic, rural health clinic, mobile x-ray unit or free-standing dialysis unit. Those services include physical therapy, diagnostic x-ray and laboratory tests. Also included are doctor visits.

Portability: The ability of an individual to transfer out of a insurance plan without regard to pre-existing conditions or other risk factors. This may transfer to an individual or a group policy.

Pre-Existing Condition Provision: A provision in an insurance plan that states that medical expenses relating to pre-existing conditions will not be covered until the insured has been enrolled in the plan for a certain length of time or possibly not at all.

Prescription Formulary: A pre-approved list of preferred generic or brand name prescriptions that is covered under a healthcare plan. The list is determined by the insurance company and may be subject to change at any time.

Primary Care Physician: The plan physician selected by or on behalf of, the member to provide primary care to the member and to coordinate and arrange other required services – also known as a “PCP”.

Quantity Limit: Usually referring to prescription drug benefits, this indicates that the particular prescription has a limit on the amount of pills per day covered by the insurance carrier. If greater amounts are needed, the member’s physician usually has to try to obtain an override through the insurance company.

Reasonable and Customary Fees: The standard fees charged by physicians, hospitals, or other healthcare providers. These are often used as a base for what an insurance plan will or will not cover.

Referral: A written authorization by the Primary Care Physician (PCP) for the member to see a specialty provider. A referral is obtained directly from a member’s primary care physician.

Short-Term Disability (STD) Insurance: Provides non-occupational disability benefits payable when an employee becomes disabled due to accident, sickness or pregnancy and is under the regular care of a medical provider. The benefit amount, the day benefits begin, and the maximum period for which benefits are payable are chosen by the employer.

Step Therapy: Usually referring to prescription drug benefits, this is the requirement of a prescription drug formulary that other types of prescriptions need to have been tried prior to the member being covered for a particular prescription.

Surety Bonds: A promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal’s failure to meet the obligation.

Tax Equity and Fiscal Responsibility Act (TEFRA): The federal Tax Equity and Fiscal Responsibility Act provides Medicare Secondary Payer provisions for a group’s 65 year-old, actively working, full-time employees.

Third Party Administrators (TPA): A company contracting with employers who want to pay the cost of providing healthcare for their employees. TPAs develop and coordinate self-insurance programs, process and pay claims, and may help locate stop loss insurance for the employer. They can also analyze the effectiveness of the plan and utilization of its benefits.

Tiered Prescriptions: Prescriptions grouped together on a prescription formulary list as determined by a medical insurance carrier. Most prescriptions are grouped in three or four “tiers”. Tier 1 has the lowest co-payment and usually contains generic medications only, but some insurance carriers have other “preferred” brand-name medications in this category as well. Tier 2 has the next higher co-payment and usually includes brand-name “preferred” medications. Tier 3 has the next higher co-payment and usually includes “non-preferred” or “non-formulary” medications. Tier 4 usually refers to self-injectible prescriptions and can be covered at a co-insurance percentage.

Travel Accident: group or individual insurance against the perils of travel and unexpected accidents.

Underwriting: (1) The process of assessing and classifying the potential degree of risk that a proposed insured represents. Also called selection of risks. (2) Providing guarantees that money will be available to pay for losses that are insured against.

Usual, Customary, and Reasonable Expense (UCR): Regular charges for a particular medical service.

Utilization Review: A form of claims review in which the insurance company analyzes a case to determine if the treatment given is appropriate or necessary.

Vision Benefits (Vision Insurance): is a type of health insurance designed to pay a portion of the costs associated with vision care.

Waiting Period: The time an individual may be required to work for an employer before becoming eligible for health benefits. Not all employers require waiting periods. Waiting periods do not count as gaps in health insurance for purposes of determining whether coverage is continuous.

Workers Compensation: Government-mandated insurance for employees and their dependents if the employee suffers a job-related injury, disease, or death.