Insurance Vocabulary Update

insurance morguefile

“I hate insurance”. “ I don’t understand insurance!” These are statements we hear often. Insurance is clearly a complicated product subject to lots of regulations and nuance.  So vocabulary is important.  Following is a simple vocabulary lesson to help you to understand your insurance contracts.

Deductible – the dollar amount an insured individual must pay for covered expenses before the plan begins paying co-insurance benefits.  Many plans use a calendar year deductible, even if the plan anniversary is not on the calendar year.

Co-pay/co-payment – the amount an insured individual must pay toward the cost of a particular benefit. For example, a plan might require a $25 co-pay for each doctor’s office visit.  This may or may not apply to the deductible.  Most ACA compliant plans now must apply copayments to the stop loss.

Co-insurance – the percentage of covered expenses an insured individual shares with the carrier. (i.e., for an 80/20 plan, the health plan member’s co-insurance is 20%.) If applicable, co-insurance applies after the insured pays the deductible and is only required up to the plan’s stop loss amount.

Stop-loss or Out of pocket maximumthe dollar amount of claims filed for eligible expenses at which the insurance plan begins to pay at 100% per insured individual. Stop-loss is reached when an insured individual has paid the deductible and reached the threshold that is established for limiting the amount the insured must pay out-of-pocket for covered expenses. Hence the term, (OOP) Out of pocket maximum

Incurred Date:  This is the date on which the services are rendered.  This is the date used for tracking accumulated deductible or stop loss provisions.  It is not based on the date the claims was actually paid.

Explanation of Benefits (EOB) – a carrier’s written response to a claim for benefits. Sometimes accompanied by a benefits check.

Preferred Provider Organization (PPO) – A network or panel of physicians and hospitals that agrees to discount its normal fees in exchange for a high volume of patients. The insured individual can choose from among the physicians on the panel.

Brand-name drug – prescription drug which is marketed with a specific brand name by the company that manufactures it. May cost insured individuals a higher co-pay than generic drugs on some health plans. (see “generic.”)

Generic drug ­ the chemical equivalent to a “brand name drug.” These drugs cost less, and the savings is passed onto health plan members in the form of a lower co-pay.

Specialty Drug:  These are typically very high cost or high risk medications.  They are often covered subject to the medical deductible and paid at the plan’s basic coinsurance level.

Many plans are now providing sub-categories of Brand and Generic Rx coverage.  A Preferred Brand Name or generic Rx will be reimbursed more favorably than non-preferred.

What is community rating and how does  it affect rates?

Along with guaranteed issue, health care reform requires health insurance companies to move to modified community rating for individuals and small businesses. By pooling a group of people together, healthy people help balance health care costs for people who aren’t healthy. The risk and cost is shared among everyone in the pool.

Health care reform has introduced new rules for community rating, which is why it’s called modified community rating. Insurance companies can’t base rates on any person’s health history. Instead, rates can be based on age, tobacco use (but not in California), family size and location. The law limits how much coverage can cost. The highest rate can’t be more than three times the lowest rate.

All individual customers in a state will be in one risk pool and all small business customers will be in another risk pool. In addition: These laws prevent insurance companies from creating separate risk pools that charge higher or lower rates.

Unfortunately this new 3:1 ratio raised rates for younger people.  It will also reduce rates for older persons, but not all that much.  That is why it’s important that young people with a grandfathered individual plan must be cautious.  In 2016 new or Non-Grandfathered plans may have higher rates for folks under 35.

Note: All information in this column is provided” to the best of my knowledge” subject to final regulation by the respective agencies.

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.