Glossary of Employee Benefit Terms

HR Benefit Services Glossary - San Francisco, California Human Resources

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Accelerated benefit - A benefit of life insurance that allows an insured who is terminally ill or unable to perform two or more activities of daily living without substantial assistance to ask that a portion of his or her life insurance benefit be payable in advance to pay for required care. The life insurance benefit payable at death is reduced by the amount of the accelerated benefit that is paid.

Accidental Death and Dismemberment insurance (ADD) - A form of health insurance that provides payment in the event of death or specific bodily losses resulting from an accident.

Actuary - A professional who mathematically analyzes and determines the price of the risk associated with providing insurance coverage. An actuary may also determine the anticipated cost of providing future benefits. Factors considered in the study include the projection of future claims experience, administrative expenses and anticipated investment return.

Administrative Services Only (ASO) - A type of contract with an insurance company or a third party administrator that provides an employer with administrative services. It does not provide coverage for risk or insurance protection. The usual expenses covered include claims processing, plan design advice and printing benefits booklets. These contracts are usually entered into by large employers who can afford the risk of providing insurance protection with their own money.

Administrator - A person who is designated to be responsible for the proper operation and administration of a plan. When the plan sponsor does not designate a person for this duty, then ERISA considers the plan sponsor to be plan administrator.

Adverse Selection - A tendency which occurs when a person makes a decision based on his/her diminished health condition or frequency of needed treatment and is, therefore, considered a poorer claims risk than most others in the group.

Agent - Licensed by the state, performs the functions for sole proprietors and small businesses that Human Resource Departments do for large businesses, gathers census data, prepares proposals, makes presentations to businesses, explains benefits to employers, does field underwriting when required, delivers policies and certificates, explains benefits to employees, assists in handling claims, services the business in any other related tasks required by the employer or sole proprietor.

Aggregate Amount (limit) - Maximum amount a plan sponsor (employer) is liable for any single loss or series of losses.

Attachment Point - For aggregate stop-loss insurance, it is the point at which the stop-loss insurance carrier begins to reimburse the employer based upon the cumulative total of claims paid within a policy year.



Balance Billing - For specific stop-loss insurance, it is the point at which the stop-loss insurance carrier begins to reimburse the employer based upon the individual's total of claims paid within a policy year. The practice of medical care providers (such as doctor, hospital or other medical practitioner) billing the insurer for full costs, then billing the insured for the portion of the bill which was not paid.

Beneficiary - The person entitled to receive benefits under a plan, including the covered employee and his or her dependents.

Benefit Period - A period of time during which benefits are payable under a plan or insurance contract.

Benefit Schedules - A list showing how benefits are arranged for employees. For example: life insurance may be two times annual salary for in-office employees and two times commissioned earnings (excluding bonuses) for sales employees. It would also show any maximum benefit periods, elimination periods and any other variables along with premium amounts.



Cafeteria Plan - A plan which offers a choice between two or more qualified benefits or a choice between cash and one or more qualified benefits and which complies with Section 125 of the Internal Revenue Code (also known as flexible benefit plans or flex plans).

Capitation - A form of compensation used primarily by HMOs to pay providers a periodic fee (usually a per member, per month fee) in return for delivering as many necessary health care services as the insured may need.

Claim - An insured's request for reimbursement from an insurance company or plan for covered medical expenses.

Closed Panel - Refers to a health care program that requires the insured to use certain providers from a list provided by the plan. The primary care provider is responsible for all health care needs and refers to a specialty physician or hospitalization only when medically needed.

Co-insurance - An agreement between the insured and the insurance company where payment is shared for all claims covered by the policy. A typical arrangement is 80%/20% up to $5,000. The insurance company pays 80% of the first $5,000 and the insured pays 20%. Usually after 80% of $5,000, the insurance company then pays 100% of covered expenses during the remainder of the calendar year up to any limits of the policy.

Community Rating - A rating method that determines a single average premium based on the characteristics and claims experience of an entire membership such as an HMO or an insurance pool. Age, lifestyle, industry, health factors and gender are not used to determine rates. (See Adverse Selection.)

Conversion Privilege - A contractual right given to an insured person whose group coverage terminates to be able to convert to an individual policy without providing evidence of insurability.

Coordination of Benefits (COB) - A contractual provision to prevent an insured from receiving duplicate benefits from two or more group plans and profiting from over-insurance.

Co-payment - A small charge paid at the time a medical service is received. It does not accumulate toward a plan's deductible or out-of-pocket maximum and is designed to discourage utilization.

Cost Containment - Efforts or activities designed to reduce or slow down the cost increases of medical care services.

Cost Sharing - The sharing of costs between the payment of premium costs and medical expenses by the health care plan and its insured through employee contributions, deductible, co-insurance and co-payments.

Cost Shifting - The increased cost of medical care to other patients to make up for losses incurred in providing care to patients who are under-insured or who have no coverage.

Coverage - The different types of options selected and the benefits paid under a plan or insurance contract.

Coverage Expense(s) - An expense which will be reimbursed by the terms of the plan or insurance contract.



Deductible - The amount that the covered insured must pay before a plan or insurance contract starts to reimburse for eligible expenses.

Disability Income Insurance - A form of health insurance that provides periodic payments when the insured is unable to work as a result of illness or injury.

DOL - The Department of Labor, a federal executive department established in 1913 and charged with administering and enforcing statutes that promote the welfare of U.S. wage earners, improve their working conditions, and advance their opportunities for profitable employment.

Dual Choice - An arrangement where an employer will offer an alternative in addition to its original health plan.



ERISA (Employee Retirement Income Security Act of 1974) - A federal law which originally set minimum standards for funding, vesting and termination of employer-sponsored pension plans. ERISA also contains provisions to protect the interests of participants and beneficiaries in welfare plans. Welfare plans must be in written form, describe the benefits and name the persons responsible for the operation of the plan.

Eligible Expense(s) - The portion of the medical care provider's services that is covered for payment under the terms of the health plan or insurance contract.

Elimination Period - A specified number of days at the beginning of each period of disability during which no disability income benefits are paid.

Employee Assistance Program (EAP) - Provides family support services that address a variety of concerns such as legal support, bereavement counseling, eldercare counseling and other issues.

Evidence of Insurability - A procedure used to review factors concerning a person's physical condition and medical history. From this information, the plan or insurance company evaluates whether the risk of the individual will be accepted and if they will offer coverage.

Exclusive Provider Organization (EPO) - A different type of Preferred Provider Organization (PPO) which requires the insured to use only the listed providers or to otherwise forfeit benefit reimbursement altogether.

Exclusion - Specific conditions or services that are not covered by the terms of the plan or insurance contract.

Expected Claims - A dollar amount which represents the expected claims which will be paid during any plan or contract period.

Experience - Refers to the history of actual claims paid for the contract period (see Paid Claims) or can refer to the history of claims incurred during a contract period.

Explanation of Benefits (EOB) - A document sent to an insured when a claim is handled by the plan or insurance company. The document explains how reimbursement was made, or why the claim was not paid, and if any additional information is needed. The appeals procedure should be outlined to advise the insured of his/her rights if there is dissatisfaction with the decision.

Extended Benefits - Benefits which continue, or become payable, after the termination of coverage from a plan or insurance contract (for example, a hospitalization which continues after coverage would normally cease).



Fee for Service Reimbursement - The traditional reimbursement system where the providers of medical care receive a benefit payment calculated on the basis of their billed charge. Under this arrangement Plans or insurers have not established contracted or capitulated rates of payment with providers prior to the insured's claim occurrence.

Fiduciary - Under ERISA, any person who exercises discretionary authority or control over a plan or plan assets.

Fixed Costs - Refers to those costs which are payable monthly and which do not relate to actual claims paid or incurred (for example, premium and administration costs).

Flexible Spending Accounts - Special accounts typically funded by an employee's salary reduction to help pay for certain expenses not covered by the employer's plan or insurance contract. The advantage of these accounts is that after-tax dollars are converted to before-tax dollars, thereby reducing the actual cost of expenses.

Fully Insured Plan - The employer pays all of the premium and, in return, transfers all of the risk and responsibility for claims payment to the insurance company.



Gatekeeper Question - A qualifying question asked by an insurance company at the time of application to help identify risk(s). Example: "Have you ever been treated for a heart attack or heart condition?"

Gatekeeper (Primary Care Physician) - A health professional within a managed-care environment who determines the patient's access to treatment. The primary care physician treats the patient and determines access to further treatment and specialists.

Grace Period - Time period that follows the premium due date when the coverage and policy remain in force.

Guaranteed Issue Underwriting - The applicant is guaranteed coverage up to an agreed amount or level without evidence of insurability (see Evidence of Insurability).

Guaranteed Renewable - The insured's right to continue an in-force policy by the timely payment of premiums. The insurance company cannot charge the coverage or refuse to renew the coverage for other than non-payment of premiums (includes health conditions and/or marital or employment status).



Health Alliances - Health Alliance or Health Insurance Purchasing Cooperatives (HIPCs) are groups or entities whose primary purpose is to negotiate with health plans to provide coverage at competitive prices to members of the alliance.

Health Insurance Purchasing Cooperatives (HIPCS) - See Health Alliances.

Health Maintenance Organization (HMO) - An organization that provides a wide range of health services for a fixed, pre-paid premium. The HMO may provide all services or may contract with other sources for additional services. HMOs fall into four categories:

  • Group Model
  • Individual Practice Association (IPA)
  • Staff Model
  • Network Model


Incontestability - Provision in a policy which provides that an insurance company cannot contest the validity of a claim after the policy has been in force for a certain period, usually two or three years.

IBNR - Incurred But Not Reported claims are those which have been incurred by the insured but have not been submitted to the plan or insurance company for reimbursement (also known as lagged claims).

Insurability - The health status of an insurance applicant which makes him/her acceptable to an insurance company (i.e., health, financial conditional, occupation).

Individual Practice Association (IPA) - A type of HMO which contracts with a physician-controlled entity, usually on a capitulated or discounted fee for service basis to compensate physicians for their medical services. IPAs may also serve non-HMO patients.

IRS - The Internal Revenue Service, a division of the U.S. Treasury Dept. that is responsible for the assessment and collection of most federal taxes, except those relating to alcohol, tobacco, firearms, and explosives. Established in 1862, the IRS derives most of its revenues from the collection of corporate and individual income tax.



Lagged Claims - The time between when a service is incurred and when it is submitted and processed for payment.

Lapse - Termination of insurance coverage for failure to pay premiums.

Lifetime Aggregate or Maximum - The maximum benefit payment provided under a plan or insurance contract.

Long-term Care - The services required over a lengthy period of time due to an insured's chronic illness or disability. It may include skilled nursing care and custodial care, or adult day care or house care servers.



Managed Care - A health care system which imposes controls on the utilization of medical services and on the providers who render the care. Managed care is provided through managed indemnity plans; Preferred Provider Organizations (PPOs), Exclusive Provider Organizations (EPOs), Health Maintenance Organizations (HMOs), or any other cost management environment.

Managed Competition - Proposed system in which the government restricts the consumer to purchasing insurance from government-approved carriers.

Mandate - A specific procedure or coverage that a plan or insurance contract must offer, dictated by state or federal law.

Maximum Benefit Period - The maximum length of time for which benefits are payable during any one period of disability.

Medicaid - A medical benefits plan available for low income persons, paid by federal and state government but administered by the state.

Medicare - A federal program of medical care benefits designed for those permanently disabled or over age 65.

Multiple Employer Trust (MET) - A trust established by a sponsor that allows small employers in the same or related industries to provide medical insurance under a trust arrangement.

Multiple Employer Welfare Arrangement (MEWA) - An employee welfare arrangement designed to provide benefits to employees of two or more employers.



National Association of Insurance Commissioners (NAIC) - An organization that assists state insurance departments and helps draft model laws.

Network - Contracted providers of health care (physicians, hospitals, testing centers, rehabilitation centers, etc.) that have negotiated discount fees for their services in return for higher patient volume. This can apply to HMO, PPO, POS and EPO organizations.



Out-of Pocket Maximum - The maximum amount that an insured is required to pay under a plan or insurance contract.

Open Panel - A right included in an HMO which allows the covered person to obtain non-emergency covered services from a specialist without a referral from the primary care physician or gate keeper.



Paid Claims - The total claims payment made by the plan or insurance company. It does not include any employee cost sharing or provider discounts.

Participating Provider - A provider who has agreed to contract with a managed care program to provide eligible services to covered persons.

Payroll Deduction - Relating to group insurance, the employee's share of premiums deducted from his or her payroll earnings and then paid to the insurance company by the employer.

Point of Service Plan (POS) - Each time health care services are needed, the patient can choose from different types of provider systems (indemnity plan, PPO or HMO); each choice may provide different benefit payments.

Pool(ing) - Used by insurance companies to combine all premiums, claims and expenses in order to spread the risk of insurance coverage. This process ensures that small employers will not be singled out and unfairly assessed with a large rate increase due to unanticipated medical catastrophic claims of its insured employee(s).

Portability - Provides access to continuous health coverage so the insured does not lose insurance coverage due to any change in health or personal status (such as employment, marriage or divorce).

Pre-existing Condition - A condition or diagnosis which existed (or for which treatment was received) before coverage began under a current plan or insurance contract and for which benefits are not available or are limited.

Pre-existing Condition Clause - A clause in an insurance contract or plan which specifies if benefits will or will not be paid for a pre-existing condition. (Example: "The insured must be covered by the plan for a certain period of time or have gone a certain amount of time without any treatment.") Additionally, the clause may limit the benefit payable for treatment of pre-existing conditions until a certain time period of coverage has elapsed, usually six months to a year.

Preferred Provider Organization (PPO) - An organization of participating providers that have agreed to provide their services at negotiated discount fees in exchange for prompt payment and increased patient volume.

Prepaid Group Practice - A type of HMO plan where participating providers render specific services to the insured in exchange for an advance fixed payment.

Preventive Care - A term often relating to dental insurance that includes benefits for treatments such as regular exams and cleanings designed to help prevent more serious conditions such as gum disease.

Primary Care - Routine office medical care provided by a family physician.

Provider - A physician, hospital, skilled nursing facility, intensive care facility, health care professional or other entity which provides health care services.



Reasonable and Customary - The maximum amount a plan or insurance contract will consider eligible for reimbursement, based upon prevailing fees in a geographic area.

Reinsurance - The transfer of part of the insurance risk to another insurer or insurers. Self-funded plans generally buy specific and/or aggregate stop-loss coverage to cover losses in excess of certain limits (also known as stop loss). (See Attachment Point.)

Reserves - A specific amount of money pre-funded and set aside to assure adequate funds to cover future claims. Both insurance companies and self-insured employers must "reserve" in order to preserve cash-flow and protect solvency.

Retention - The portion of the insurance premium which is allocated for expenses, administration, commissions, risk charges and profit.

(Exclusion) Rider - An amendment to an insurance contract limiting, or excluding, an existing coverage for certain conditions (for example, a rider to a policy may exclude coverage for treatment to an applicant's knee)



Self-funding - An arrangement under which all or some of the risk associated with providing coverage is not covered by an insurance contract.

Service Area - A geographic area of operation for a managed care entity.

Staff Model HMO - An HMO that employs physicians to provide health care services to its members. Staff Models usually operate their own health center or facilities.



Third-party Administrator (TPA) - An organization that provides specific administrative duties (including premium accounting, claims review and payment, arranging for utilization review and stop-loss coverage) for a self-funded plan.

Tort Reform - The purpose of reform is to eliminate unnecessary practices and testing which are performed defensively by a physician with little or no value to the person seeking treatment. It may also include reasonable limits placed on non-economic damages paid to a patient or beneficiary.

Trend Factor - The percentage of increase used by an insurance company or plan to reflect the projected rise in health care costs. Calculation factors also include inflation, utilization, technology and geographic area.

Triple Option Plan - A plan which usually offers an insured an opportunity to choose between an indemnity plan, HMO and PPO.



Unbundling - To increase the reimbursement paid by a plan or insurance contract, each medical procedure is billed under a separate code as a separate item, instead of part of one overall procedure.

Utilization - The number of times a health care service is obtained by an insured during a specific period of time.

Utilization Review - A program designed to help reduce unnecessary medical expenses (usually hospital stays) by using preliminary evaluations and patient discharge practices.



Waiting Period - The time period between an employee's date of hire and their eligibility to receive benefits under a plan or insurance contract.

Waiver of Premium - A provision in a plan or insurance contract which relieves the insured of paying the premiums while totally disabled.

Wellness - Programs or benefits which are introduced to encourage fitness, preventive care and early detection of illness to help reduce the costs of future health care (also known as Preventive Care).

Worker's Compensation Coverage - Programs mandated by the states which require employers to provide coverage to compensate employees for work-related injuries or disabilities.