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Glossary of Terms

A

Accelerated Benefits - a provision in a group life insurance contract that allows an insured to receive a portion of his or her death benefit while still living if one or more of the following events occur: (1) a terminal illness that is expected to result in death within 6 or 12 months, (2) a specified catastrophic illness, and (3) the incurring of nursing home and possibly other long-term care expenses

Accidental Death and Dismemberment - insurance that gives additional benefits if an employee dies accidentally or suffers certain types of injuries. Coverage is commonly provided as a rider to a group life insurance contract but may also be provided through a separate group insurance contract.

Accident Expense Benefits - benefits in some medical expense plans to cover expenses associated with accidents to the extent that these expenses are not otherwise covered

Accumulation Period - the time period within which expenses used to satisfy a per-cause deductible must be incurred for each illness or accident.

Actively-at-Work Provision - an eligibility provision for group benefit coverage, whereby an employee is not eligible for coverage if absent from work because of sickness, injury, or other reasons on the otherwise effective date of his or her coverage administrative-services-only contract

Agent - an employee of an insurance company who acts as a representative of the insurance company in the sale of the company’s products, including employee benefits

Aggregate Stop-Loss Coverage - stop-loss coverage under which the insurance company is responsible if total claims under a self-funded plan exceed some specified dollar limit during a set time period

Americans with Disabilities Act - a federal law designed to make it possible for disabled persons to join the mainstream of everyday life. Among other provisions, the act makes it unlawful to discriminate on the basis of disability against a qualified individual with respect to any term, condition, or privilege of employment. This includes payments for private insurance and retirement plans, legally required payments for government programs such as social security, payments for time not worked, extra cash payments to employees, and the cost of services to employees, such as wellness programs and retirement counseling.

Administrative Services Only (ASO) Contract - a contractual arrangement under which an employer purchases specific administrative services from an insurance company or an independent third- party administrator. These services usually include the administration of claims, but they may also include a wide variety of other services.

Assignment - a provision in a group benefit plan under which a covered person may transfer any or all rights under the contract (including benefit payments) to another party

Assisted-living Benefits - long-term care benefits for facilities that provide care for the frail elderly who are no longer able to care for themselves but who do not need the level of care provided in a nursing home

B

Beneficiary - a person designated by a group benefit plan participant, or by the terms of the plan, who is or who may be entitled to a benefit under the plan

Benefit Period - the period of time benefits will be paid prior to which a new deductible for benefits must be satisfied

Benefit Schedule - a schedule that classifies employees who are eligible for coverage under a benefit plan and specifies the amount of coverage that is provided to the members of each class

Benefit Statement - a personalized statement that specifies the benefit plans for which an employee is eligible and what benefits are available to that particular employee and his or her family. It is usually given to employees on an annual basis.

Broker - a representative of the buyer of insurance who owes his or her allegiance to the buyer rather than to the organization through which coverage is placed. Brokers have traditionally been compensated on the basis of commissions for the coverages they have placed in behalf of clients, but fees may also be charged.

Buy-Up Plan - a benefit plan under which a covered person can purchase additional coverage at his or her own expense.

C

Cafeteria Plan - a benefit program in which employees can design their own benefit packages by purchasing benefits with a prescribed amount of employer dollars from a number of available options

Calendar-Year Deductible - an all-causes deductible that applies to medical expenses incurred within a calendar year. A new deductible must be satisfied in a subsequent calendar year.

Carryover Provision - a provision in a medical expense plan that allows any expenses applied to the deductible and incurred during the last 3 months of the year to be applied to the deductible for the following year

Carve-Out - the practice of excluding certain classes or employees from a benefit plan and providing benefits to them under an alternative arrangement. Carve-outs are generally used to contain employee costs or provide broader or tax-favored benefits to key employees and executives.

Certificate of Insurance - a description of the coverage provided to employees. Although it is given to the employees, it is not part of the master contract.

Claim Reserve - an estimate by the insurance company for claims that have been approved but not yet paid, claims that are in the course of settlement, and claims that have been incurred but not yet reported

Claims Charge - the amount included in the experience rating formula for claims that will be charged against a group. It is equal to (1) the incurred claims subject to experience rating multiplied by the credibility factor plus (2) expected claims multiplied by one minus the credibility factor.

COBRA - a provision of the Consolidated Omnibus Budget Reconciliation Act of 1985 that requires group health plans to allow employees and certain beneficiaries to elect that their current health insurance coverage be extended at group rates for up to 36 months following a qualifying event that results in the loss of coverage. The provision applies only to employers with 20 or more employees. In addition, a person electing COBRA continuation can be required to pay a premium equal to as much as 102% of the cost to the employee benefit plan for the period of coverage for a similarly situated active employee to whom a qualifying event has not occurred.

Coinsurance - the percentage of covered expenses under a major medical plan that will be paid once a deductible is satisfied. The most common coinsurance is 80%.

Community Rating - the practice of using the same rate structure for all subscribers to a medical expense plan, regardless of their past or potential loss experience and regardless of whether coverage is written on an individual or a group basis

Comprehensive Major Medical Plan - a major medical plan that is designed to stand alone without any accompanying basic medical expense coverage.

Consultants - representatives of the buyers of insurance and employee benefits who owe allegiance to the buyers rather than to the organizations through which they place their clients’ coverage. Traditionally consultants have been compensated on the basis of fees charged to clients.

Contributory Plan - an employee benefit plan under which participants pay a portion or possibly all, of the cost of their own coverage

Conversion - a provision in a group benefit plan that gives an employee whose coverage ceases the right to convert to an individual insurance policy without providing evidence of insurability. The conversion policy may or may not be identical to the prior group coverage

Coordination of Benefits Provision - a provision in most group medical expense plans under which priorities are established for the payment of benefits if an individual is covered under more than one plan. Coverage as an employee is generally primary to coverage as a dependent. When parents are divorced, the plan of the parent with custody is primary, the plan of the spouse of the parent with custody is secondary, and the plan of the parent without custody pays last. Other rules apply to specific situations.

Copayment - the percentage of covered medical expenses that will not be paid by a medical expense plan and that must be paid by a person receiving benefits

Corridor Deductible - a deductible in a major medical plan under which an individual will receive no benefits until he or she has incurred a specific amount of covered expenses above those paid by his or her basic coverage.

Cost-of-Living Adjustments (COLA) - increases in benefit levels because of changes in some index. These increases apply to social security income benefits and sometimes to benefits under private insurance and retirement programs.

Cost-Plus Arrangement - an alternative funding arrangement frequently used by large employers to provide life insurance benefits. Under this arrangement, the employer’s monthly premium is based on the claims paid by the insurance company during the preceding month, plus a specified retention charge that is uniform throughout the policy period.

Covered Classification - one of the classifications in a group benefit schedule. In order to have coverage, an employee must fall into one of the covered classifications. No employee may be in more than one classification, and it is the employer’s responsibility to determine the appropriate classification for each employee.

Credibility - a statistical measure of the reliability of a group’s past claims experience

Custodial Care - care given to help with personal needs such as walking, bathing, dressing, eating, or taking medicine. Such care can usually be provided by someone without professional medical skills or training.

D

Deductible - the initial amount of medical expenses an individual must pay before he or she will receive benefits under a medical expense plan

E

Eldercare Benefits - dependent-care assistance for elderly dependents. It may include costs associated with home care for elderly dependents or care at day-care facilities for the elderly. Other employer activities related to eldercare may include seminars on issues affecting the elderly, referral services for information, employer- sponsored support groups, and making parents an eligible group for coverage under the employer’s long-term care insurance plan.

Elimination Period – a period of time that an employee must be disabled before benefits commence under a disability income plan.

Employee Assistance Program - an employer-provided program to help employees with certain personal problems. Benefits may include treatment for alcohol or drug abuse, counseling for mental and marital problems, referrals for child care or eldercare, and crisis intervention.

Employee Benefits - all benefits and services, other than wages for time worked, that employers provide to employees in whole or in part. Narrower definitions include only employer-provided benefits for situations involving death, accident, sickness, retirement, or unemployment.

Employee Welfare Benefit Plan - those group benefits, other than retirement benefits, to which ERISA applies. While most employee benefits fall under the definition, there are some exceptions. Specifically excluded are government plans, church plans, and plans to comply with workers’ compensation, unemployment compensation, and disability insurance laws. Compensation for absences from work because of sickness, vacation, holidays, etc., is also excluded to the extent that such compensation is paid out of the employer’s general assets. Payroll-deduction plans are also generally excluded as long as no contribution is made by the employer and participation is completely voluntary for employees.

Employer Mandate - an approach to national health insurance that requires virtually all employers to make medical expense coverage available to employees and their dependents and to pay a portion of the cost

ERISA - (Employee Retirement Income Security Act) - a federal act to protect the interests or participants in employee benefit plans and participants’ beneficiaries. Sections of the act affecting group benefits are those dealing with fiduciary responsibility and reporting and disclosure.

Expected Claims - the portion of premiums paid that the insurance company has anticipated will be necessary to pay claims during the experience period

Experience Period - the period subject to experience rating

Experience Rating - the practice by which the actual experience of a particular group is a factor in determining the premium the policy owner is charged

Extended Care Facility - a health care facility for a person who no longer requires the full level of medical care provided by a hospital but does need a period of convalescence under supervised medical care

Extension of Benefits - a provision in a medical expense plan under which benefits are extended for any covered employee or dependent who is totally disabled at the time coverage would otherwise terminate. The disability must have resulted from an injury or illness that occurred while the person was covered under the group contract. The length of the extension generally ranges from 3 to 12 months.

F

Facility-of-Payment Provision - a provision in a group life insurance contract under which the insurance company can pay a small specified amount to any person who incurred funeral or other expenses relating to the last illness or death of the person insured - a provision in a group life insurance contract under which the insurance company can pay periodic monthly proceeds to any person or institution who appears to have assumed the responsibility for the care, custody, or support of a minor beneficiary. This provision is only in effect until a claim is made by the beneficiary’s guardian.

Family Deductible - a provision in a major medical plan that waives future deductibles for all family members once a specified aggregate dollar amount of medical expenses has been incurred or after a specified number of family members have satisfied their individual deductibles

Family Leave - an employer practice under which employees, within limits, may take personal time off without pay for reasons such as active military duty, extended vacations, honeymoons, education, the birth or adoption of a child, and the illness of the employee or a family member

Family Medical Leave Act (FMLA) - a federal law that requires employers with more than 50 employees within a 75-mile radius to allow employees to take up to 12 weeks of unpaid leave in any 12-month period, for the birth or adoption of a child; to care for a child, spouse, or parent with a serious health condition; or for the worker’s own serious health condition that makes it impossible to perform a job. The employee must be allowed to return to an equivalent job, and health care benefits, but not pay or other employee benefits, must be continued during the period of the leave.

Fee Schedule - a list of covered benefits and the maximum fee that will be paid to the provider of benefits. Such a schedule is found in many surgical expense policies, dental policies, vision care plans, and group legal expense plans.

Fiduciary - a person who exercises discretionary authority or control over an employee benefit plan’s management and provides investment advice to the plan for compensation or has discretionary authority or responsibility in the plan’s administration. ERISA requires that a fiduciary discharge his or her duties regarding the plan solely in the interest of the participants and their beneficiaries.

First-Dollar Coverage - coverage for benefits without a deductible or coinsurance

501(c) (9) trust (VEBA) - a funding arrangement under which an employer can establish a trust to provide a benefit to employees because of death, medical expenses, disability, and unemployment. If the trust is properly designed in light of stringent IRS rules, the employer, within limits, can deduct contributions to the trust at the time they are made.

Flat-Benefits Schedule - a benefit schedule under which the same amount of coverage is provided for all employees regardless of salary or position

Flexible Spending Account - a provision in a cafeteria plan that allows an employee to fund certain benefits on a before-tax basis by electing to take a salary reduction, which can then be used to fund the cost of any qualified benefits included in the plan. Benefits are paid from an employee’s account as expenses are incurred, but monies in the account are forfeited if they are not used by the end of the plan year.

Form 5500 - an annual report that ERISA requires plan administrators to file with the Internal Revenue Service within 210 days after the end of the plan year. The return includes financial information about the plan and must be given to plan participants upon written request.

Fully Insured – a term used with medical plans to denote the insurance company has the entire risk for claims of the plan.  The employer pays premium to the insurance carrier to fund the insurance coverage.

G

Grace Period - a period specified in a group insurance contract (usually 31 days) during which a policy owner may pay any overdue premium without interest

Group Insurance - a method of providing employee benefits, characterized by a group contract, experience rating of large groups. and group underwriting

H

Health Insurance Portability and Accountability Act (HIPAA) - federal legislation, passed in 1996 that reforms the health care system through numerous provisions. The act’s primary purpose is to make insurance more available, particularly when an employed person changes jobs or becomes unemployed.

Health Maintenance Organization (HMO) - a managed system of health care that provides a comprehensive array of medical services on a prepaid basis to voluntarily enrolled persons living within a specific geographic region. HMOs both finance health care and deliver health services. There is an emphasis on preventive care as well as cost control.

Health Savings Account (HSA) - an alternative to first-dollar coverage under a medical expense plan.  An employee is given medical expense coverage that has a high deductible, and money is deposited into the medical spending account so that the employee can pay for expenses below the deductible amount. Any monies not used at the end of the year are paid to the employee.

Home Health Care - care that is received at home and includes part-time skilled nursing care, speech therapy, physical or occupational therapy, part-time services from home health aides, and help from homemakers or chore workers

Home Health Care Benefits - benefits provided in a patient’s home following hospitalization when a physician has ordered necessary part-time nursing care. Benefits are often provided for (1) nursing care; (2) physical, occupational, and speech therapy; and (3) medical supplies and equipment.

Hospice - a health care facility or service providing benefits to terminally ill persons. The emphasis is on easing the physical and psychological pain associated with death rather than on curing a medical condition.

Hospital Expense Benefits - benefits provided under a medical expense plan for hospital charges incurred. Benefits are for room and board and other charges for certain services and supplies ordered by a physician during a person’s hospital confinement.

I

Incontestability Provision - a provision in a group insurance contract stating that, except for the nonpayment of premiums, the validity of the contract cannot be contested after it has been in force for a specified period, usually either one or 2 years

Incurred Claims - those claims attributable to the recently ended period of coverage that was subject to experience rating equal to (1) claims paid during the experience period, less (2) claims paid during the experience period but incurred during the prior period, plus (3) an estimate of claims incurred during the experience period but to be paid in future periods

Indemnity Benefits - benefits expressed in terms of dollar maximums

Intermediate Care - care involving occasional nursing and rehabilitative care that must be based on a doctor’s orders and can be performed only by or under the supervision of skilled medical personnel

L

Legal Expense Plan - a legal expense plan that covers all legal expenses except those that are specifically excluded

Level Commission Schedule - a commission schedule that has the same commission rates for both the first year and any renewal years

Lifestyle Management Program - a wellness program primarily designed to encourage employees and often their dependents to modify behavior so that they will lead healthier lives. Examples include programs for smoking cessation, weight reduction, and stress management.

List Billing - a type of plan administration where the insurance carrier or third party administrator sends a detailed billing invoice to the customer listing each covered employees name and premium.  In some cases, coverage information is also included in a list billing.

M

Major Medical Insurance - a medical insurance plan designed to provide substantial protection against catastrophic medical expenses. There are few exclusions and limitations, but deductibles and coinsurance are commonly used.

Managed Care - a process to deliver cost-effective health care without sacrificing quality or access. Common characteristics include controlled access to providers, comprehensive case management, preventive care, risk sharing, and high-quality care.

Mandated Benefits - benefits that states require be included in group insurance contracts issued in the state

Manual Rating - the process of determining a premium rate on the basis of broad classes of group insurance business, rather than on a particular group’s claims

Master Contract - a contract issued to someone other than the persons insured that provides benefits to a group of individuals who have a specific relationship to the policy owner

Medicaid - a federal/state program to provide medical expense benefits for certain classes of low-income individuals and families

Medicare - the health insurance portion of the social security program that is available to persons aged 65 or older and limited categories of persons under age 65

Medicare Supplement - an employer-provided medical expense plan for employees aged 65 or older under which benefits are provided for certain specific expenses not covered under Medicare. These may include a portion of expenses not paid by Medicare because of deductibles, coinsurance, or copayments and certain expenses excluded by Medicare, such as prescription drugs.

Money-Purchase Plan - a payroll deduction plan under which the amounts of coverage are sold on the basis of what can be purchased with a given premium

Morbidity - the sickness and disability rates of a group of persons covered under an employee benefit plan

Mortality - the death rate of a group of persons covered under a benefit plan

N

 

National Association of Insurance Commissioners (NAIC) - an association composed of state insurance regulatory officials that has as its goal the promotion of uniformity in legislation and administrative rules affecting insurance

No-loss No-gain Provision - a law that prohibits a new insurance company from denying (by using a preexisting-conditions clause) the continuing claims of persons that were covered under a prior group insurance plan if these claims would otherwise be covered under the new contract

Noncontributory Plan - an employee benefit plan under which the employer pays the entire cost of the coverage

Nondiscrimination Rules - rules that deny favorable treatment to employee benefit plans that do not provide equitable benefits to a large cross section of employees. Not all plans are subject to nondiscrimination rules, and different rules may apply to different types of benefits.

O

OASDHI - the old age, survivors, disability, and health insurance program of the federal government, commonly referred to as social security

OASDI - the old-age, survivors, and disability insurance portion of the social security program

P

Pension Schedule - a benefit schedule found in group life insurance plans under which the amount of coverage is a function of an employee’s projected pension at retirement

Per-Cause Deductible - a deductible amount that must be satisfied for each separate accident or illness before major medical benefits are paid

Per Diem Reimbursement - the practice of reimbursing hospitals on the basis of a set amount for every day a patient is hospitalized, regardless of what the actual charges might be

Persistency - the length of time a group insurance contract will remain on the insurance company’s books

Point-of-Service Plan - a hybrid arrangement that combines aspects of a traditional medical expense plan with an HMO or a PPO. At the time of medical treatment, a participant can elect whether to receive treatment within the plan’s network or outside the network.

Pre-Existing Conditions Provision - a provision that excludes coverage, but possibly only for a limited period of time, for a physical and/or mental condition for which a covered person in a benefit plan received treatment or medical advice within a specified time period prior to becoming eligible for coverage

Preferred Provider Organization (PPO) - groups of health care providers that contract with employers, insurance companies, union trust funds, third-party administrators, or others to provide medical care services at a reduced fee. PPOs may be organized by the providers themselves or by organizations such as insurance companies, the Blues, or groups of employers.

Premium - the total price that a group insurance policy owner will pay for the entire amount of coverage purchased

Premium Conversion Plan - a provision in a cafeteria plan under which an employee can elect a before-tax salary reduction to pay his or her premium contribution to an employer-sponsored health or other welfare benefit plan

Premium Rate - the price for each unit of group insurance benefit, such as each $1,000 of life insurance

Prescription Drug Expense Benefits - basic medical expense benefits for the cost of prescription drugs. These benefits are often separate from other medical expense coverage because of techniques that can be used to contain costs.

Probationary Period - a period of time that must be satisfied before an employee is eligible for coverage under a group benefit plan

Q

Qualified Benefits - benefits (other than cash) that can be provided under a cafeteria plan.

Quarters of Coverage - the basis on which eligibility for benefits under the OASDI portion of social security is determined. Credit for up to 4 quarters of coverage may be earned in any calendar year.

R

Rating Basis - the basis on which group insurance rates will be determined, involving decisions on the benefit unit to use, the extent to which rates will be refined by factors affecting claims, and the frequency with which premiums will be paid

Reasonable-and-Customary Charge - a charge that falls within the range of fees normally charged for a given procedure by physicians with similar training and experience in a geographic region. It is usually based on some percentile of the range of charges for specific medical procedures.

Rehabilitation Benefit - a benefit under workers’ compensation laws or disability income plans that provides rehabilitative services for disabled workers. Benefits may be given for medical rehabilitation and for vocational rehabilitation, including training, counseling, and job placement.

Respite-Care Benefits - benefits under long-term care insurance that provide reimbursement for occasional full-time care at home for a person who is receiving home health care. These benefits enable family members (or other persons) who are providing much of the home care to take a needed break.

Retention - the excess of premiums paid over claims payments and dividends

Risk Charge - a factor in the calculation of rates for group insurance benefits. It represents a contribution to an insurance company’s contingency reserve as a cushion against unanticipated and catastrophic amounts of claims.

S

Salary Continuation Plan - an uninsured arrangement to replace lost income for a limited period of time, usually starting on the first day of disability

Salary Reduction Plan - a cafeteria plan that consists solely of one or both types of before-tax salary reductions that can be used in a cafeteria plan.  Also known as a premium conversion plan or premium only plan.

Section 79 - the Internal Revenue Code provision that provides favorable tax treatment to employer contributions for life insurance that qualifies as group term insurance

Self-Administration - a type of plan administration where the insurance carrier accepts a summary of the number of covered employees, volume and premium for each line of coverage.  Self-Administration or Self-Billing is typically the preferred method of administration for large sized groups.

Self-Funding - a method by which an employer can finance the cost of an employee benefit plan. In the method’s purest sense, the employer pays benefits from current revenue, administers all aspects of the plan, and bears the risk that benefit payments will exceed those expected.

Settlement Option - the method by which proceeds from a group life insurance contract can be received. In general, proceeds are payable in a lump sum unless the insured or the beneficiary has selected an optional form of settlement.

Skilled Nursing Care - daily nursing and rehabilitative care that can be performed only by or under the supervision of skilled medical personnel and that must be based on doctors’ orders

Social Security - the term commonly used to identify the old-age, survivors, disability, and health insurance (OASDHI) program of the federal government.

Standard Commission Schedule - a commission schedule that has high first-year commission rates and lower rates in renewal years

Stop-Loss Coverage - protection for employers who self-fund benefits. Under this arrangement, an insurance company provides coverage if claims exceed some specified limit during a set period of time. It may apply to aggregate claims or claims on each individual employee.

Summary Plan Description - a detailed report about an employee benefit plan that ERISA requires a plan administrator to give plan participants and the Department of Labor within 120 days after the plan’s adoption

Supplemental Life Insurance - additional life insurance that all or certain classes of employees may purchase. Coverage is generally contributory and may be either incorporated into a basic group life insurance contract or contained in a separate contract.

Surgical Expense Benefits - medical expense benefits for physicians’ charges associated with surgical procedures

Survivor Income Benefits - a group life insurance plan designed to relate benefits to the actual needs of each employee’s survivors. Benefits are paid in the form of periodic income to specific dependents who survive the employee, and no death benefits are paid unless an employee has qualified survivors.

T

Telemedicine - is the use of telecommunication and information technologies in order to provide clinical health care at a distance.

Third-Party Administrator (TPA) - a person or organization hired to provide certain administrative services to employee benefit plans on behalf of the insurance company.

24-Hour Coverage - a single benefit plan that responds to injuries whether they occur on or off the job. In effect, this arrangement combines medical expense coverage. Disability income coverage and workers’ compensation benefits into a single plan.

U

Underwriting - the process by which an insurance applicant is evaluated, decisions are made on the applicant’s acceptability for insurance, and a rating basis is established

Universal Life Insurance - a flexible-premium group life insurance policy that divides the pure protection and cash value accumulation into separate and distinct components. The interest rate credited to cash value accumulations can vary, but there is a minimum guarantee.

Universal Access – the availability of medical coverage to all persons, even though they may not actually purchase coverage.

Universal Coverage – a goal of many national health insurance programs whose purpose is to see that all persons have coverage for medical expenses.

Utilization Review – the process of reviewing the appropriateness and quality of care provided to patients.

V

Variable Universal Life Insurance - a group universal life insurance contract under which certificate holders can allocate net premiums to one or more of several investment accounts. The investment risk is borne by the certificate holders.

Vision Care Expense Benefits – benefits for vision care expenses that are not actually covered under other medical expense plans.  Benefits are provided for the cost of eye examinations and eyeglasses or contact lenses.

Voluntary Benefits – a plan offered to employees under which they may purchase coverage with premiums paid through payroll deduction.

W

Waiting Period – a period of time that a new employee must wait before their group insurance benefits become effective.

Waiver of Premium Provision – a provision in group insurance plans under which coverage is continued without the payment of premiums as long as an employee is totally disabled.

Welfare Benefit – the term used to describe employee benefits other than retirement benefits.

Wellness Program – an employer provided program to promote the well-being of employees and sometimes their dependents.  A program may be designed to discover and treat medical conditions before they become severe and/or change employees’ lifestyles to eliminate possible causes of future medical problems.

Whole Life Insurance – a form of permanent life insurance coverage that remains in force for the insured’s whole life and requires premiums to be paid every year into the policy.  There are several forms of whole life policies that include cash value accumulations.