Commonly Used Terms in Insurance

Activities of Daily Living (ADLs): Activities that people do independently everyday - eating, bathing, dressing, moving about (mobility), transferring (for instance, from a bed to a chair), using the toilet, and maintaining bladder and bowel continence - used to measure the ability to function.

Acute Care: Care for illness or injury that develops rapidly, has pronounced symptoms and is finite in length. Medical care that is required for a short period of time to cure a certain illness and/or condition.

Adult Day Care: Social, recreational and/or rehabilitative services provided for persons who benefit from daytime supervision. An alternative between care in the home and in an institution. Refers to health support and rehabilitation services provided in the community to people who are unable to care for themselves independently during the day but are able to live at home at night.

Adult Foster Care: A live-in arrangement where one adult lives with and is provided care and/or services by an unrelated individual or family. Such arrangements may be certified by the state or managed independently.

Aging in Place: When an older individual continues to live at home or within the community, outside of an institutional environment.

Alternate Facility: A licensed residence other than a skilled nursing facility where care services are delivered (i.e. hospice, assisted living, Alzheimer's or Christian Science setting).

Alternate Plan of Care Benefit: Payment for a special arrangement of services specifically designed to allow the person to reside in a setting other than a nursing facility (i.e. services to provide assistance and capital improvements such as ramps, grab bars and/or durable medical equipment).

Assisted Living Facility ( ALF): A non-medical institution providing room, board, laundry, some forms of personal care, and usually recreational services. Licensed by state departments of social services, these facilities exist under several names including domiciliary care facility, sheltered house, board and care home, community-based care facility, residential care facility, etc.

Bed Reservation Benefit: Pays the cost of reserving you place in a care facility should you need to be hospitalized during a covered stay.

Capitation:      An agreement between a payer and a health delivery network to deliver a set of services to enrollees for a fixed amount.  The scope of services can range from preventive care and laboratory tests to hospital care to comprehensive health care.  The payment is fixed regardless of the number of services rendered.  May also be the basis for payment to individual providers.  This is used, for example, in Health Maintenance Organizations.

Catastrophic health insurance plan:  A health insurance plan with a low premium that will pay for specified medical benefits only after a high annual deductible has been met. (Also known as “excess health insurance.”)

Coinsurance:  The portion of a medical bill a patient must pay after a deductible is met.

Community Rating:  A methodology of setting insurance premiums on the average cost of an entire community’s health experience rather than that of a specific group that may be either healthier or more at risk than the community as a whole.

Co-payment:  The portion of health care costs a patient is expected to pay. 

Custodial Care:  Services that can be given safely and reasonably by a non-medical person, designed mainly to assist with ADLs, including bathing, eating, dressing and other routine activities.

Daily Benefit Amount: A specified, maximum, daily, dollar amount payable on a covered period of care. Policies offer a range of choices in ten-dollar increments.  Your choice should take into account the local costs of care, how much you could pay for care out of your own resources (without dipping into savings), and how much money or care you could count on from your family.

Deductible:  The amount a patient pays before a third-party payer begins to pay toward the cost of health services otherwise covered under the plan.

Elimination Period: A deductible. A specified time period of covered care where no benefits are payable. Ideally, should be selected as the longest period that you could sustain costs using your available, expendable assets.

Employee Retirement Income Security Act (ERISA):  A 1974 federal law designed to protect employee benefits.  It exempts companies that self-insure their enrollees’ health benefit programs from complying with state insurance laws and regulations; through federal preemption, it also prevents enrollees from utilizing state insurance legal remedies to challenge employer-sponsored plan decisions regarding care.

Endowment Life Insurance:   A life insurance policy that pays a sum or income to the policyholder if the policyholder lives to a certain age.  If the policyholder dies before that age, the policy pays a death benefit to the beneficiary.  This insurance develops cash values over time.

Experience Rating: The process of determining insurance premium rates based on the experience of a specific group, such as a company or union, rather than a community as a whole.

Fee-for-service:  The traditional financing arrangement between providers and payers under which payment is based on what the provider charges for individual health care services.   These plans allow you to select your own physicians, hospitals and other health care providers.  You will generally have a deductible to meet and then eligible services are covered at a percentage of costs.  This type of plan allows you significant flexibility but requires that you pay certain out of pocket expenses.  Generally, the health care provider is reimbursed directly by the insurance company after services have been rendered.   See also traditional indemnity carriers.

Formulary:  A list of prescription drugs approved for payment.  A restrictive list limits payment for certain drug therapies unless physicians are able to obtain additional approval.

Freedom of choice:  The ability of consumers to select or change their own doctors.  Also the ability of a consumer to go directly to a specialist without seeking referral from primary care physicians.

Gatekeeper:  A primary care physician responsible for coordinating all services for a patient in a managed care plan.  Generally, in order for specialty and hospital care to be covered, the gatekeeper must first approve the referral.

Group coverage:  Groups of individuals, such as employees of corporations, union members, and members of professional or fraternal associations, who are insured as a unit.  The sponsoring organization can usually negotiate discounts on the groups’ premiums.

Guaranteed cost:  A life insurance policy in which every  feature is fixed so that the futures cost can be ascertained with certainty in advance.  Like nonparticipating policies, guaranteed cost policies do not accrue dividends.  See Nonparticipating policy.

Guaranteed issue:  An insurance plan that a sponsoring organization guarantees will be issued upon application by a qualified organization member, with premiums charged at the ordinary group rates, regardless of the health status of the applicant.

Guaranteed renewability:  The assurance that an insurance company will continue to offer a policy to an individual or group that has made premium payments on a timely basis.  An insurance company could not drop coverage due to specific circumstances, including high medical claims or illness.  However, the insurer can raise premium rates if it does so for all policies in a certain class, after approval by the state insurance department.  In other words, a policy that is guaranteed renewable cannot be cancelled for any reason other than non-payment of premium.  The insurance company cannot change premium rates for reasons of age or health; however, this does not mean that rates can never change; rates cannot be raised on an individual basis for a group guaranteed renewable policy unless they are raised for the group as a whole.

Health Maintenance Organization (HMO): Health plan that combines an insurance system with a delivery system to finance and provide care to individual members.  Payment is capitated and benefits for members are defined.  These plans provide comprehensive health care services to their subscribers through the utilization of pre-determined and pre-approved facilities and health care providers.  Unlike traditional indemnity plans, when you enroll in an HMO plan you a responsible for a very small out of pocket amount, and you have no deductible unless you go outside the plan's approved provider network.  This type of plan provides less flexibility and freedom to choose your health care provider, unless you are willing to pay more.  Except in very limited circumstances, HMOs do not cover services delivered by providers who are not participating in the plan.  Members typically choose a primary care physician, known as a gatekeeper, responsible for all referrals regarding the patient’s care.

Home Health Care: Refers to a wide range of services, from skilled care and physical therapy to personal care delivered at home or in a residential setting.

Individual coverage:  Insurance purchased by a single person rather than a group.  Individual coverage may be difficult and costly to obtain for individuals with pre-existing conditions.  See pre-existing condition exclusion.

 Intermediate Care:  Assistance needed for stable conditions that require daily, but not 24-hour, nursing supervision. Such care is ordered by a physician and supervised by registered nurses. It is less specialized than skilled nursing care, often involves more personal care, and is generally needed for a long period of time.

 Job lock:  The inability of an individual to change employers for fear of losing health coverage, particularly if the employee or a dependent has a pre-existing condition.  See pre-existing condition exclusion.

 Long-term care:  A comprehensive range of health, social and support services to meet the needs of people who have a condition or disability that is expected to be of long duration.  Can be provided in the home, a retirement community, a nursing home or other facility.

 Managed care:  A broad term used to describe (1) organizations that combine financing and delivery of health care services, such as an HMO or PPO and (2) techniques used to control costs and utilization (e.g., utilization review, prior authorization).  See Health Maintenance Organization, Preferred Provider Organization, Prior authorization, and Utilization review.

 Medicaid:  A federal-state program to finance acute and long-term care services for certain categories of poor and low-income individuals – primarily families with dependent children, the elderly and the disabled.

 Medical savings account (MSA):  An individual savings account where deposits are excluded from an individual’s taxable income and withdrawals from the account are tax free if the money is used to pay for medical expenses.

 Medicare (Part A/Part B):  A federal program that finances medical care for people age 65 and older and for certain disabled individuals under age 65.  Part A covers inpatient hospital, home health, hospice and limited, skilled nursing home services.  Beneficiaries must pay deductibles and co-payments.  Part B covers physician, outpatient laboratory and X-ray test, durable medical equipment, outpatient hospital care and certain other services.  Part B is a voluntary program that requires beneficiaries to pay a monthly premium, as well as deductibles and coinsurance.

 Medicare managed care plan:  A Medicare approved network of doctors, hospitals, and other health care providers that agrees to give care in return for a set monthly payment from Medicare.  A managed care plan may be any of the following: a Health Maintenance Organization (HMO), Provider Sponsored Organization (PSO), Preferred Provider Organization (PPO), or a Health Maintenance Organization with a Point of Service Option (POS).  An HMO or a PSO usually asks you to use only the doctors and hospitals in the plan’s network.  If you do, you may have little or no out-of-pocket cost for covered services.  A PPO or POS usually lets you use doctors and hospitals outside the plan for an extra out-of-pocket cost.

 Medicare medical savings account:  A health insurance policy with a high yearly deductible.  This is a test program currently.  Medicare pays the premium for the Medicare MSA Plan and deposits money into a separate Medicare MSA you establish.  You use the money in the Medicare MSA to pay for medical expenses.  You can accumulate money in your Medicare MSA to pay for extra medical costs.  Your insurance policy has a high deductible.  There are no limits on what providers can charge you above what is paid by your Medicare MSA Plan.

 Medicare private fee-for-service plan:  A Medicare-approved private insurance plan.  Medicare pays the plan a premium for Medicare-covered services.  A PFFS Plan provides all Medicare benefits.  The PFFS Plan (rather than Medicare) decides how much to pay for the covered services you receive.  Providers may bill you more than the plan pays (up to a limit) and you must pay the difference.  It is likely that you will pay a premium for a PFFS plan.

 Medicare supplemental insurance:  A private insurance policy that meets federal standards for supplementing Medicare benefits.  Such policies typically reduce deductibles and coinsurance on Medicare-covered services but may also cover benefits not available under Medicare (e.g., outpatient prescription drugs).  Medicare supplemental insurance is also referred to as Medigap insurance.

 Medigap insurance:  See Medicare supplemental insurance.

 Multiemployer welfare arrangement (MEWA):  a plan whereby a number of small employers group together, and use combined premiums and joint administration to provide insurance coverage.  These plans are established by trade associations and other entities and offered to small employer groups.  The employers themselves are supposed to pay the medical bills.  If there’s an insurance company involved, it is only administering the plan.  In the past, some MEWAs have set premiums too low to cover future claims.  If they fail, you’re stuck with any outstanding medical bills.

 Noncancelable:  Policies that have fixed premiums throughout the life of the contract.  When you buy such a policy you are assured that your premiums will never rise.

 Nonforfeiture Benefits: This clause applies where, for one reason or another, an insured stops making payments on their insurance policy. A nonforfeiture benefit is a form of a cash value that is paid up during the life of the policy and usually takes the form of a paid-up coverage with reduced benefits.  An alternative kind of provision is a “return of premium” benefit rider that offers a partial return of premium if the insured dies or the policy is dropped before any benefits are received.

 Nonparticipating policy:  A life insurance policy for which the insurance company does not pay dividends to the policyholder.  See also Guaranteed cost policy.

 Open enrollment:  A limited period of time during which insurers accept any individual seeking coverage regardless of medical history.

 Participating policy:  A life insurance policy for which the insurance company pays dividends to the policyholder.

 Point-of-service (POS) plan:  A modified managed care plan that allows enrollees to seek care from a non-plan provider at an added cost to the patient.  See Managed care.

 Portability:  The ability of an individual to leave an employer’s group health plan and obtain from the same insurer  an individual policy not tied to the employment that could go with the employee instead of being tied to the prior employment, to avoid being denied coverage for a pre-existing condition.  See Pre-existing condition exclusion.

 Pre-existing condition exclusion:  An exclusion used by insurers to avoid paying for care to treat a medical disease or condition that was or could have been diagnosed before enrollment under the new policy.

 Preferred Provider Organization (PPO): Preferred provider organizations are a group of physicians, hospitals, clinics or home care professionals that contract with an insurance provider or employer to deliver health care services to subscribers at a discounted or pre-determined rate.  If the patient receives services outside the network, there is a penalty charged to the subscriber in the form of a higher co-payment.  Under a PPO, a subscriber can go out of network to receive health care services, and the PPO will pay for these services.  However, the level of reimbursement for out of network services can be significantly less.  PPO’s are a cross between the traditional indemnity plan and the HMO.  PPO's allow the subscriber the freedom and flexibility to choose their health care professional while controlling costs through special arrangements between the PPO and the participating provider.  If your health care professional is a participating provider within the PPO organization, you receive better reimbursement for the services than if your physician were not participating in the network.

 Prior authorization:  The approval a provider must obtain from an insurer or other entity before performing certain procedures, using certain medical products or admitting a patient electively, in order for the service to be covered under the plan.

 Respite Care:  This is care provided to enable to caretaker to take a “break.”  This is nursing home or home care that temporarily replaces the existing level of support received from an informal, non paid caregiver for the purpose of providing care and supervision to the patient while relieving the caregiver.

 Self-insured plan:  An employer-based benefits plan through which the employer, rather than an insurer, assumes the risk for the cost of services incurred by its workers and their dependents.  Under ERISA, such plans are exempt from state insurance law and regulation, allowing employers more freedom in selecting the benefits for which they will pay and exempting them from the liability of certain state taxes.  Self-insured employers typically use a commercial insurer or third-party administrator to administer their benefit plan including claim payments.  See Employee Retirement Income Security Act.

 Skilled Care:  Nursing and rehabilitative care provided by or under the direction of skilled medical personnel - available 24-hours a day & ordered by a physician under a treatment plan. Can be either in a facility setting or at-home. Note: Medicare and Medicaid both have their own definitions of "skilled nursing care" which do not necessarily match those found in LTC policies.

 Term Life Insurance:  A life insurance policy that provides a death benefit for a “term” of one or more years.  Death benefits will be paid only if you die within that term of years. A common policy period would be one year, five years, ten years, or until the insured reaches age 65 or 70. It does not build up any of the nonforfeiture benefits or values associated with whole life policies.

 Third-party payer:  An insurance company or other entity that pays the cost of medical benefits on behalf of a patient.

 Traditional indemnity carriers: The traditional financing arrangement between providers and payers under which payment is based on what the provider charges for individual health care services.   These plans allow you to select your own physicians, hospitals and other health care providers.  You will generally have a deductible to meet and then eligible services are covered at a percentage of costs.  This type of plan allows you significant flexibility but requires that you pay certain out of pocket expenses.  Generally, the health care provider is reimbursed directly by the insurance company after services have been rendered.   See also Fee-for-service.

 Underwriting:  The process insurers use to determine whether they will accept an individual’s or small group’s application for insurance and on what basis.  Consideration may be given to factors affecting risk, including pre-existing conditions, age, occupation, et.

 Universal Life Insurance:  This is a form of life insurance, the hallmark of which is flexibility.  Premium payments can be skipped, you can increase or decrease the face amount, lengthen or shorten the protection period, increase or decrease the premiums, change the premium paying period, and contribute or withdraw lump sums.

 Usual, customary, and reasonable:  an amount for a medical service that is considered a reasonable average for a geographic area.  These amounts are reported by national consulting firms.

 Utilization review:  A tool used by providers, health care organizations, and insurance companies to influence the use of health care resources with the objective of containing costs.

 Variable Universal Life Insurance:  This is like Universal Life Insurance, but the policy ties your death benefit and cash value to the investment performance of the securities in which your policy is invested, and you choose what your policy will be invested in.  These policies give you a shot at higher growth.

Waiver of Premium: A provision which allows you to stop paying premiums once you are in a period of covered care or disability.

Waiting Period:  This is the time (typically 30, 60, or 90 days) during which your insurance policy provides no coverage, and you will be required to pay all expenses.  This is common, for example, in long term care policies.

 Whole life insurance:  A life insurance policy that gives death protection for as long as you live.  These policies develop cash values, that can be used to purchase additional continuing insurance protection, or form a basis for a collateralized loan from the insurance company, or that may.