What is health insurance?

Actually, what is called “health insurance” does not provide you with health assurance. Health assurance is staying well.  Health insurance is an insurance policy that prepays for medical treatment from a medical practitioner for a medical problem after you are no longer well. Health insurance has nothing to do with keeping you healthy.  It has everything to do with professional treatment for medical conditions.

Health Insurance provided by your employer is actually a group medical plan that pays for authorized medical bills once you have a sickness or accident.  Some plans limit the number of doctors and hospitals that you can use if you want to receive the full amount of authorized benefits.

If your employer provides a group medical plan today, or you buy a personal policy, you should know what the terms mean.  Here are some terms that are commonly used.

Out-of-pocket maximum
The out-of-pocket maximum is the most you would have to pay in one calendar year toward covered medical expenses, including deductable and coinsurance but not co-pays or prescription drugs.

Since the following is taken from government terminology, we have copied it word-for-word from  http://www.bls.gov/ncs/ebs/sp/healthterms.pdf.  Additional terms are available at the web site.

Definitions of health insurance terms

In February 2002, the Federal Government’s Interdepartmental Committee on Employment-based Health Insurance Surveys approved the following set of definitions for use in Federal surveys collecting employer-based health insurance data. The BLS National Compensation Survey currently uses these definitions in its data collection procedures and publications. These definitions will be periodically reviewed and updated by the Committee.

Coinsurance – A form of medical cost sharing in a health insurance plan that requires an insured person to pay a stated percentage of medical expenses after the deductible amount, if any, was paid.

Once any deductible amount and coinsurance are paid, the insurer is responsible for the rest of the reimbursement for covered benefits up to allowed charges: the individual could also be responsible for any charges in excess of what the insurer determines to be “usual, customary and reasonable”.

Coinsurance rates may differ if services are received from an approved provider (i.e., a provider with whom the insurer has a contract or an agreement specifying payment levels and other contract requirements) or if received by providers not on the approved list.

In addition to overall coinsurance rates, rates may also differ for different types of services.

Copayment - A form of medical cost sharing in a health insurance plan that requires an
insured person to pay a fixed dollar amount when a medical service is received. The
insurer is responsible for the rest of the reimbursement.
¨ There may be separate copayments for different services.
¨ Some plans require that a deductible first be met for some specific services
before a copayment applies.

Deductible - A fixed dollar amount during the benefit period – usually a year – that an
insured person pays before the insurer starts to make payments for covered medical
services. Plans may have both per individual and family deductibles.
¨ Some plans may have separate deductibles for specific services. For example, a
plan may have a hospitalization deductible per admission.
¨ Deductibles may differ if services are received from an approved provider or if
received from providers not on the approved list.

Flexible spending accounts or arrangements (FSA) - Accounts offered and
administered by employers that provide a way for employees to set aside, out of their
paycheck, pretax dollars to pay for the employee’s share of insurance premiums or
medical expenses not covered by the employer’s health plan. The employer may also
make contributions to a FSA. Typically, benefits or cash must be used within the given
benefit year or the employee loses the money. Flexible spending accounts can also be
provided to cover childcare expenses, but those accounts must be established separately
from medical FSAs.

Flexible benefits plan (Cafeteria plan) (IRS 125 Plan) – A benefit program under
Section 125 of the Internal Revenue Code that offers employees a choice between
permissible taxable benefits, including cash, and nontaxable benefits such as life and
health insurance, vacations, retirement plans and child care. Although a common core of
benefits may be required, the employee can determine how his or her remaining benefit
dollars are to be allocated for each type of benefit from the total amount promised by the
employer. Sometimes employee contributions may be made for additional coverage.

Fully insured plan – A plan where the employer contracts with another organization to
assume financial responsibility for the enrollees’ medical claims and for all incurred
administrative costs.

Gatekeeper - Under some health insurance arrangements, a gatekeeper is responsible for
the administration of the patient’s treatment; the gatekeeper coordinates and authorizes all
medical services, laboratory studies, specialty referrals and hospitalizations.

Health Care Plans and Systems
¨ Indemnity plan – A type of medical plan that reimburses the patient and/or provider
as expenses are incurred.
¨ Conventional indemnity plan – An indemnity that allows the participant the choice
of any provider without effect on reimbursement. These plans reimburse the patient
and/or provider as expenses are incurred.
¨ Preferred provider organization (PPO) plan - An indemnity plan where coverage
is provided to participants through a network of selected health care providers (such
as hospitals and physicians). The enrollees may go outside the network, but would
incur larger costs in the form of higher deductibles, higher coinsurance rates, or nondiscounted
charges from the providers.
¨ Exclusive provider organization (EPO) plan - A more restrictive type of preferred
provider organization plan under which employees must use providers from the
specified network of physicians and hospitals to receive coverage; there is no
coverage for care received from a non-network provider except in an emergency
situation.
¨ Health maintenance organization (HMO) - A health care system that assumes both
the financial risks associated with providing comprehensive medical services
(insurance and service risk) and the responsibility for health care delivery in a
particular geographic area to HMO members, usually in return for a fixed, prepaid
fee. Financial risk may be shared with the providers participating in the HMO.
¨ Group Model HMO - An HMO that contracts with a single multi-specialty
medical group to provide care to the HMO’s membership. The group practice
may work exclusively with the HMO, or it may provide services to non-HMO
patients as well. The HMO pays the medical group a negotiated, per capita rate,
which the group distributes among its physicians, usually on a salaried basis.
¨ Staff Model HMO - A type of closed-panel HMO (where patients can receive
services only through a limited number of providers) in which physicians are
employees of the HMO. The physicians see patients in the HMO’s own facilities.
¨ Network Model HMO – An HMO model that contracts with multiple physician
groups to provide services to HMO members; may involve large single and multispecialty
groups. The physician groups may provide services to both HMO and
non-HMO plan participants.
¨ Individual Practice Association (IPA) HMO- A type of health care provider
organization composed of a group of independent practicing physicians who
maintain their own offices and band together for the purpose of contracting their
services to HMOs. An IPA may contract with and provide services to both HMO
and non-HMO plan participants.
¨ Point-of-service (POS) plan – A POS plan is an “HMO/PPO” hybrid; sometimes
referred to as an “open-ended” HMO when offered by an HMO. POS plans resemble
HMOs for in-network services. Services received outside of the network are usually
reimbursed in a manner similar to conventional indemnity plans (e.g., provider reimbursement based on a fee schedule or usual, customary and reasonable charges).

Premium - Agreed upon fees paid for coverage of medical benefits for a defined benefit period. Premiums can be paid by employers, unions, employees, or shared by both the insured individual and the plan sponsor.

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