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Glossary of Health Insurance Terms



 

-A-

Actuarial justification  -- The demonstration by an insurer that the premiums collected are reasonable, given the benefits provided under the plan or that the distribution of premiums among policyholders are proportional to the distribution of their expected costs, subject to limitations of state and federal law.  Minn. Stat. 62A.02 requires companies to file rates for individual health insurance products and provide certain actuarial justification.   The actuarial justification is reviewed before rates are approved.

Adjusted community rating  -- A way of pricing 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. The ACA requires the use of adjusted community rating, with maximum variation for age of 3:1 and for tobacco use of 1.5:1.  

Affordable Care Act (ACA) -- This is the title usually given to the federal health reform passed in March 2010 and collectively refers to the provisions of the Patient Protection and Affordability Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act).

Age Rating -- Varying premiums based on age.  The ACA will cap the maximum variation for age at 3:1.   Minnesota law already limits maximum variation for age to a 3:1 ratio (Minn. Stat. 62A.65 Subd. 3 for individual policies and 62L.08 Subd. 3 for small group policies).

Annual limit  -- Many health insurance plans have historically placed dollar limits upon the claims the insurer will pay over the course of a plan year.  The ACA restricts annual limits for essential benefits for plan years beginning after Sept. 23, 2010. The cap on annual limits is $750,000 for plan years starting on or after September 23, 2010 but before September 23, 2011 and will increase each year until January 1, 2014 when plans can no longer have annual limits.  Grandfathered plans in the individual market are not required to follow the ACA requirements on annual limits.  Some plans may be eligible for a waiver from the rules concerning annual dollar limits, if complying with the limit would mean a significant decrease in benefit coverage or a significant increase in premiums.

-C-

COBRA coverage -- Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986.  COBRA provides certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. The COBRA law generally covers health plans maintained by private-sector employers with 20 or more employees, employee organizations, or state or local governments.  While COBRA does not apply to plans of employers with less than 20 employees or plans in the individual market, Minnesota law provides continuation coverage to employees of small firms and those covered under health plans in the individual market. (See Minn. Stat. 62A.146-62A.148, 62A.16-62A.17, and 62A.20-62A.21).

Coinsurance -- A percentage of a health care provider's charge for which the patient is financially responsible under the terms of the policy.

Community rating -- A way of pricing insurance, where every policyholder pays the same premium, regardless of health status, age or other factors.

Co-payment -- A flat-dollar amount which a patient must pay when visiting a health care provider. 

-D-

Deductible -- A dollar amount that a patient must pay for health care services each year before the insurer will begin paying claims under a policy.

Disease managem ent -- A broad approach to appropriate coordination of the entire disease treatment process that often involves shifting away from more expensive inpatient and acute care to areas such as preventive medicine, patient counseling and education, and outpatient care. The process is intended to reduce health care costs and improve the quality of life for individuals by preventing or minimizing the effects of a disease, usually a chronic condition.

-E-

ERISA -- The Employee Retirement Income Security Act of 1974 (ERISA) is a comprehensive and complex statute that federalizes the law of employee benefits. ERISA applies to most kinds of employee benefit plans, including plans covering health care benefits, which are called employee welfare benefit plans.

Essential Benefits -- The ACA requires all health insurance plans sold after 2014 to include a basic package of benefits including hospitalization, outpatient services, maternity care, prescription drugs, emergency care and preventive services among other benefits. It also places restrictions on the amount of cost-sharing that patients must pay for these services.

Exchange -- The ACA creates an Exchange in each state to assist individuals and small businesses in comparing and purchasing qualified health insurance plans. Exchanges will also determine who qualifies for subsidies and make subsidy payments to insurers on behalf of individuals receiving them. They will also accept applications for other health coverage programs such as Medicaid and CHIP.

External review -- The review of a health plan's determination that a requested or provided health care service or treatment is not or was not medically necessary by a person or entity with no affiliation or connection to the health plan. 

-F-

Formulary -- The list of drugs covered fully or in part by a health plan.

-G-

Grandfathered plan -- A health plan that an individual was enrolled in prior to March 23, 2010 is considered a grandfathered plan under the ACA. Grandfathered plans are exempted from most changes required by the ACA. New employees may be added to group plans that are grandfathered, and new family members may be added to all grandfathered plans.

Guaranteed issue -- A requirement that health insurers sell a health insurance policy to any person who requests coverage without regard to any pre-existing health conditions.  HIPAA already requires guaranteed-issue in the small group market.  The ACA requires that all health insurance be sold on a guaranteed-issue basis beginning in 2014.   For children under age 19, the guaranteed-issue requirements of the ACA are phased in earlier and begin to take effect on September 23, 2010 for non-grandfathered plans which offer coverage to kids.  Minn. Stat. 62L.03 Subd. 1 provides guaranteed issue in the Minnesota's small group market.

Guaranteed renewability -- A requirement that health insurers renew coverage under a health plan except for failure to pay premium, fraud or misrepresentation.  HIPAA requires that all health insurance be guaranteed renewable.  Minn. Stat. 62A.65 Subd. 2 provides guaranteed renewal in the individual health insurance market and Minn. Stat. 62L.03 Subd. 1 provides guaranteed renewal for the small group market. 

-H-

Health Maintenance Organization (HMO) -- A type of managed care organization (health plan) that provides health care coverage through a network of hospitals, doctors and other health care providers. Minn. Statutes, Chapter 62D govern HMOs and are under the jurisdiction of the Minnesota Department of Health.

Health Savings Account (HSA) -- The Medicare bill signed by President Bush on Dec. 8, 2003 created HSAs. Individuals covered by a qualified high deductible health plan (HDHP) (and have no other first dollar coverage) are able to open an HSA on a tax preferred basis to save for future qualified medical and retiree health expenses. Additional information about HSAs can be found on the IRS web site: http://www.irs.gov/publications/p969/ar02.html#en_US_2010_publink1000204020 .

Health Status Rating -- Varying premiums based on health status.  Though Minnesota statutes do not currently require health plans to issue coverage in the individual market on a guarantee-issue basis, Minn. Stat. 62A.65 does limit the amount that premiums can vary in the individual market due to health status, claims experience and occupation to 1.67:1.  Minnesota law does require guarantee-issue on small group plans and applies the same 1.67:1 ratio to the amount that small group plan premium can vary based on health status.  Minnesota includes refraining from tobacco use and other actuarially valid lifestyle factors associated with good health as a health status factor.  The ACA, once fully implemented in 2014, will prohibit health status rating except for rating based on tobacco use.  The ACA will limit the maximum amount that premiums can vary for tobacco use to 1.5:1.

High Deductible Health Plan (HDHP) -- A type of health insurance plan that, compared to traditional health insurance plans, requires greater out-of-pocket spending, although premiums may be lower. In 2010, an HSA-qualifying HDHP must have a deductible of at least $1,200 for single coverage and $2,400 for family coverage. The plan must also limit the total amount of out-of-pocket cost-sharing for covered benefits each year to $5,950 for single coverage and $11,900 for families.

High-risk pool -- A health plan that provides coverage for individuals with pre-existing health care conditions who cannot purchase it in the private market. The Minnesota Comprehensive Health Association (MCHA) is the state high risk pool and was established in 1976.  The ACA created a second, temporary high risk pool program, called the Pre-Existing Condition Insurance Plan (PCIP) which is administered by the federal government for Minnesota residents.  The two high-risk pools differ in eligibility requirements.

-I-

In-Network provider -- A health care provider (such as a hospital or doctor) that is contracted to be part of the network for a managed care organization (such as an HMO or PPO). The provider agrees to the managed care organization's rules and fee schedules in order to be part of the network and agrees not to balance bill patients for amounts beyond the agreed upon fee.

Individual mandate -- A requirement that everyone maintain health insurance coverage. The ACA requires that everyone who can purchase health insurance for less than 8 percent of their household income do so or pay a tax penalty.

Internal review -- The review of the health plan's determination that a requested or provided health care service or treatment health care service is not or was not medically necessary.  This review is performed by personnel working at or associated with the health plan. The ACA requires all plans to conduct an internal review upon request of the patient or the patient's representative.   Minnesota's internal review process is outlined in Minn. Stat. 62Q.68 through 62Q.72.

Interstate compact -- An agreement between two or more states. The ACA requires the NAIC to develop standards for voluntary interstate compacts that will permit sales of health insurance policies across state lines.  These regulations are due July 1, 2013 to permit states to enter into Interstate compacts January 1, 2016.  Where there is opportunity for interstate compacts for other insurance products, Minnesota has participated in the Interstate Insurance Product Regulation Compact. (See. Minn. Stat. 62A.99)

-L-

Lifetime limit -- Many health insurance plans have historically placed dollar limits upon the claims that the insurer will pay over the course of an individual's life. The ACA prohibits lifetime limits on benefits beginning for plan years that start on or after September 23, 2010. 

Limited Benefits Plan -- A type of health plan that provides coverage for only certain specified health care services or treatments or provides coverage for health care services or treatments for a certain amount during a specified period.

-M-

Mandated benefit -- A requirement in state or federal law that all health insurance policies provide coverage for a specific health care service.

Medical loss ratio (MLR) -- The percentage of health insurance premiums that are spent by the insurance company on health care services. The ACA requires that large group plans spend 85 percent of premiums on clinical services and other activities for the quality of care for enrollees. Small group and individual market plans must devote 80 percent of premiums to these purposes. Minnesota passed regulations in 1993 that initially required insurers in the small group market to meet a 75 percent medical loss ratio and individual market insurers to meet a 65 percent loss ratio.  Both medical loss ratios increased by 1 percentage point each year until 2000, when the loss ratios were 82 percent in the small group market and 72 percent in the individual market.  The loss ratios have remained at these levels since 2000.  (See Minn. Stat. 62A.021)

Medicare -- A federal government program that provides health care coverage for all eligible individuals age 65 or older or under age 65 with a disability, regardless of income or assets. Eligible individuals can receive coverage for hospital services (Medicare Part A), medical services (Medicare Part B), and prescription drugs (Medicare Part D). Together, Medicare Part A and B are known as Original Medicare. Benefits can also be provided through a Medicare Advantage plan (Medicare Part C).  These plans are regulated by the Center for Medicare and Medicaid Services (CMS).

Medicare Advantage -- An option Medicare beneficiaries can choose to receive most or all of their Medicare benefits through a private insurance company. Also known as Medicare Part C. Plans contract with the federal government and are required to offer at least the same benefits as original Medicare, but may follow different rules and may offer additional benefits. Unlike original Medicare, enrollees may not be covered at any health care 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. These plans are regulated by the Center for Medicare and Medicaid Services (CMS).

Medicare Cost Plans -- Medicare cost plans are a type of HMO that contracts as a Medicare Health Plan. As with other HMOs, the Medicare Cost plan only pays for services outside its service area when they are emergency or urgently needed services. If a Medicare beneficiary enrolled in a Medicare Cost Plan gets any routine services outside of the plan's network without a referral, the Medicare-covered services will be paid for under Original Medicare, and the patient will be responsible for the Original Medicare deductibles and coinsurance.

Medicare Select Plans -- A type of Medigap policy that may require the Medicare Beneficiary to use hospitals and, in some cases, doctors within its network to be eligible for full benefits.  Minn. Stat. 62A.318 governs Medicare Select plans.

Medicare Supplement (Medigap) Insurance -- Private insurance policies that can be purchased to "fill-in the gaps" and pay for certain out-of-pocket expenses (like deductibles and coinsurance) not covered by original Medicare (Part A and Part B). Minnesota Statutes governing Medicare Supplement policies include Minn. Stat. 62A.3099 - 62A.44.

Minnesota Comprehensive Health Association (MCHA) -- The Minnesota Comprehensive Health Association (MCHA) offers policies of individual health insurance to Minnesota residents who have been turned down for health insurance coverage in the private marketplace. MCHA is sometimes referred to as Minnesota's "high risk pool" for health insurance, the "insurance of last resort," or the "safety net." Currently, about 27,000 Minnesota residents are insured by MCHA.  

MCHA is not a State funded program. Rather, MCHA is a non-profit Minnesota corporation.  MCHA was created by the Minnesota Legislature in 1976 as an option for individuals that are denied coverage in the private marketplace (See Minnesota Statutes, Chapter 62E). MCHA is regulated by the Minnesota Department of Commerce and an eleven-member board of directors provides policy direction to MCHA. The executive staff manages the administration of the plan though MCHA's administrative contract with Medica, for the day-to-day operations. 

Multi-state plan -- A plan, created by the ACA and overseen by the U.S. Office of Personnel Management (OPM), that will be available in every state through that state's Exchange beginning in 2014.

-N-

National Association of Insurance Commissioners (NAIC) -- The organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories. The NAIC provides a forum for the development of uniform policy when uniformity is appropriate.

The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members:

Protect the public interest;
Promote competitive markets;
Facilitate the fair and equitable treatment of insurance consumers;
Promote the reliability, solvency and financial solidity of insurance institutions; and
Support and improve state regulation of insurance.

-O-

Open enrollment period -- A specified period during which individuals may enroll in a health insurance plan each year. In certain situations, such as if one has had a birth, death or divorce in their family, individuals may be allowed to enroll outside of the open enrollment period.

Out-of-network provider -- For health plans that utilize an HMO or PPO, a health care provider (such as a hospital or doctor) that is not contracted to be part of the HMO or PPO network. Depending on the health plan's 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.

Out-of-pocket limit -- An annual limitation on costs for which patients are responsible under a health insurance plan. Costs such as deductible and coinsurance generally apply to this limit. Copays may also be included.  This limit does not apply to premiums, amounts in excess of the allowed amount out of network health care providers or other services that are not covered by the plan.

-P-

Patient Protection and Affordable Care Act (PPACA) -- Legislation (Public Law 111-148) signed by President Obama on March 23, 2010. One of two laws collectively referred to as the Affordable Care Act or simply as federal health reform.

Pre-existing condition exclusion -- The period of time that an individual receives no benefits under a health benefit plan for an illness or medical condition for which an individual received medical advice, diagnosis, care or treatment within a specified period of time prior to the date of enrollment in the health benefit plan. For kids under age 19, the ACA begins to phase-in a prohibition on pre-existing condition exclusions effective September 23, 2010.  The ACA will prohibit pre-existing condition exclusions on all plans beginning January 2014.  

Pre-existing Condition Insurance Plan (PCIP) - This is a new high-risk pool created as part of the ACA for and administered in Minnesota by the federal government.  This pool is available to Minnesotans who have been uninsured for at least six months and have been turned down for health insurance in the private market due to a health condition.

Preferred Provider Organization (PPO) -- A network of providers which a health plan identifies as network providers for purposes of plan benefits. Typically the PPO requires the policyholder to pay higher costs when they seek care from an out-of-network provider.

Premium -- The periodic payment required to keep a policy in force.

Preventive Services -- Covered services that are intended to prevent disease or to identify disease while it is more easily treatable. The ACA requires insurers to provide coverage for certain preventive services without deductibles, co-payments or coinsurance.

-Q-

Qualified health plan -- A health insurance policy that is sold through an Exchange.  The ACA requires Exchanges to certify that qualified health plans meet minimum standards contained in the law. Minnesota outlines state requirements for qualified plans in Minn. Stat. 62E.02-62E.06.

-R-

Rate review -- Review by insurance regulators of proposed premiums and premium increases. During the rate review process, regulators examine proposed premiums to ensure that they are sufficient to pay all claims, that they are not unreasonably high in relation to the benefits being provided, and that they are not unfairly discriminatory to any individual or group of individuals.  Minnesota's health insurance rate review requirement is outlined in Minn. Stat. 62A.02 and 62A021.

Reconciliation Act -- Legislation (Public Law 111-152) signed by President Obama on March 30, 2010. One of two laws collectively referred to as the Affordable Care Act (ACA).

Reinsurance -- Insurance purchased by insurers from other insurers to limit the total loss an insurer would experience in case of a disaster or unexpectedly high claims.

Rescission -- The process of voiding a health plan from its inception usually based on the grounds of material misrepresentation or omission on the application for insurance coverage that would have resulted in a different decision by the health insurer with respect to issuing coverage. The ACA prohibits rescissions except in cases of fraud or intentional misrepresentation of a relevant fact.   Minn. Stat. 62A.04 further provides that after a health policy has been in effect for two years, no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy can be used to rescind the policy.

Risk adjustment -- A process through which insurance plans that enroll a disproportionate number of sick individuals are reimbursed for that risk by other plans who enroll a disproportionate number of healthy individuals.  The ACA requires states to conduct risk adjustment for all non-grandfathered health insurance plans.

Risk corridor -- A temporary provision in the ACA that requires plans whose costs are lower than anticipated to make payments into a fund that reimburses plans whose costs are higher than expected.

-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, including Minnesota. The ACA will broaden the market to those with between 1 and 100 employees.  Minnesota Statutes, Chapter 62L governs health insurance in the small group market.

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. Minnesota Statutes, Chapter 60B provide this authority in Minnesota.

-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.  Minn. Stat. 62A.61 requires disclosure of methods used by health carriers to determine usual and customary fees.

-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.  Effective in 2014, the ACA will limit waiting periods to 90 days.

Acronyms

ACA - Affordable Care Act
CHIP - Children's Health Insurance Program
CMS - Center for Medicare and Medicaid Services
ERISA -- Employee Retirement Income Security Act of 1974
HDHP - high deductible health plan
HHS - U.S. Department of Health and Human Services
HMO - Health Maintenance Organization
MCHA - Minnesota Comprehensive Health Association
MLR - medical loss ratio
NAIC - National Association of Insurance Commissioners
OCIIO - Office of Consumer Information and Insurance Oversight (in HHS)
OPM - U.S. Office of Personnel Management
PCIP - Pre-Existing Condition Insurance Plans
PPACA - Patient Protection and Affordable Care Act
PPO - Preferred Provider Organization
SEGIP - State Employee Group Insurance Program
UCR - usual, customary and reasonable