Health Insurance Terms

Actual charge. The billing charge of the provider.

Community rating. A method of calculating health plan premiums using the average cost of health services for all subscribers. Under modified community rating, rates may vary based on demographic characteristics.

Co-payment. An amount paid by the health plan member. Could be a fixed amount per service, a percentage of the eligible charge, or in the case of out of network providers it may be the amount in excess of the eligible charge.

Deductible. The amount that must be paid by the insured before the insurer will begin paying for all or part of the remaining cost of covered services. Not applicable to HMOs.

Eligible charge . The reimbursement to provider that is negotiated to be paid by a PPO. Typically less than the actual charge. Not applicable to HMOs.

Exclusive provider arrangement. A health plan that only covers services rendered by providers within its network.

Experience rating or merit rating. A method of adjusting plan premiums based on the historical utilization data of a group of subscribers.

Fee for service. Method of billing for health services under which a physician charges separately for each service rendered. Not applicable to HMOs.

HMO. Health maintenance organization. An organization that both finances and delivers health care. Physicians within the organization are not paid on a fee for services basis. Members of the HMO can usually receive services within the HMO by paying a small co-payment. Members of the HMO usually must use a primary care physician.

HSA. Health Savings Account. Tax free savings accounts used to pay medical expenses for individuals, spouses, or dependents. Savings rollover every year and funds are portable. HSAs are open to everyone with a high deductible plan. Contributions by individuals are tax deductible and contributions by employers are not included in taxable income. Contributions per year can be up to the amount of the policy’s annual deductible. Funds can be used to pay deductibles, co-payments, prescriptions, over-the-counter drugs, long term care insurance, and premiums if individual is currently unemployed.

MSA. Medical Savings Account. Savings accounts designated for out-of-pocket medical expenses. In an MSA, employers or employees are allowed to contribute to a savings account on a pre-tax basis and carry over the unused funds at the end of the year. One major difference between a Flexible Spending Account (FSA) and a Medical Savings Account (MSA) is the ability under an MSA to carry over the unused funds for use in a future year, instead of losing unused funds at the end of the year. Most MSAs allow unused balances and earnings to accumulate. Unlike FSAs, most MSAs are combined with a high deductible or catastrophic health insurance plan. It is a more restrictive version of a Health Savings Account (HSA). MSAs are limited to small business or self-employed individuals.

Mutual benefit society. A non-profit entity organized for the primary benefit of its members and beneficiaries. In Hawaii mutual benefit societies are primarily organized to provide sickness, disability, or death benefits to its members and their dependents.

POS. Point of Service. A health plan that offers an HMO product combined with a PPO product.

PPO. Preferred provider organization. A network of healthcare providers that provides services at discounted rates in return for being part of the network. Using providers within the network is usually cheaper than using outside providers. Providers are reimbursed a percentage of the eligible charge, not the actual charge. Using an outside network provider may result in the member paying the actual charge of the service.

Primary care physician. A generalist physician who is the primary contact and provides basic or general health care. The primary care physician determines whether the patient needs to see a specialist, go to a hospital, or requires other non-routine services. The goal is to guide the patient to appropriate services while avoiding unnecessary and costly referrals to specialists.

Prior authorization. A formal process requiring a provider to obtain approval to provide particular healthcare services or procedures before they are done.

Referral. The process of sending a patient from one practitioner to another for health care services. HMOs often require that a gatekeeper or primary care physician authorize a referral for coverage of specialty services.