GLOSSARY OF TERMS

Coinsurance: The amount you are required to pay for medical care in a fee-forservice

plan after you have met your deductible. The coinsurance rate is usually

expressed as a percentage. For example, if the insurance company pays 80

percent of the claim, you pay 20 percent.

Coordination of Benefits: A system to eliminate duplication of benefits when you

are covered under more than one group plan. Benefits under the two plans

usually are limited to no more than 100 percent of the claim.

Co-payment: Another way of sharing medical costs. You pay a flat fee every time

you receive a medical service (for example, $5 for every visit to the doctor). The

insurance company pays the rest.

Covered Expenses: Most insurance plans, whether they are fee-for-service,

HMOs, or PPOs, do not pay for all services. Some may not pay for prescription

drugs. Others may not pay for mental health care. Covered services are those

medical procedures the insurer agrees to pay for. They are listed in the policy.

Deductible: The amount of money you must pay each year to cover your medical

care expenses before your insurance policy starts paying.

Exclusions: Specific conditions or circumstances for which the policy will not

provide benefits.

HMO (Health Maintenance Organization): Prepaid health plans. You pay a

monthly premium and the HMO covers your doctors' visits, hospital stays,

emergency care, surgery, checkups, lab tests, x-rays, and therapy. You must use

the doctors and hospitals designated by the HMO.

Managed Care: Ways to manage costs, use, and quality of the health care system.

All HMOs and PPOs, and many fee-for-service plans, have managed care.

Maximum Out-of-Pocket: The most money you will be required pay a year for

deductibles and coinsurance. It is a stated dollar amount set by the insurance

company, in addition to regular premiums.

Non-cancellable Policy: A policy that guarantees you can receive insurance, as

long as you pay the premium. It is also called a guaranteed renewable policy.

PPO (Preferred Provider Organization): A combination of traditional fee-forservice

and an HMO. When you use the doctors and hospitals that are part of the

PPO, you can have a larger part of your medical bills covered. You can use other

doctors, but at a higher cost.

Pre-existing Condition: A health problem that existed before the date your

insurance became effective.

Premium: The amount you or your employer pays in exchange for insurance

coverage.

Primary Care Physician: Usually your first contact for health care. This is often a

family physician or internist, but some women use their gynaecologist. A primary

care doctor monitors your health and diagnoses and treats minor health

problems, and refers you to specialists if another level of care is needed.

Provider: Any person (doctor, nurse, dentist) or institution (hospital or clinic)

that provides medical care.

Third-Party Payer: Any payer for health care services other than you. This can be

an insurance company, an HMO, a PPO, or the Federal Government.

FINDING THE BEST VALUE FOR YOUR NEEDS

We mentioned early on that when it comes to health care, there is no “one

size fits all.”

Ideally, working for an employer who offers non-contributory health

insurance is what most of us would aspire to. However, that is not a realistic

scenario.

Finding affordable, adequate health care coverage is a huge problem in our

country right now. If you are in a situation where you require certain

medications and have no access to reduced rates on prescriptions you can almost

bet the farm that you will be paying top dollar for the medications you need.

When considering a change in employment, scrutinizing the potential

employers health care plan is a given. Sadly, many people look at everything

about a new job except the health care plan, just lumping it together with a

“benefit package.” This could be a huge mistake. Contracting a debilitating

illness or becoming an unwilling participant in an accident is not something that

anyone can foresee.

This is particularly true with young singles. Life situations change and a

health care plan that was adequate for a single person may not apply should

he/she marry and even have children while employed. If their policy has no

provisions for the addition of dependents in the future you can find your health

care woefully inadequate. Take the time to project what your future situation

might be and plan accordingly.

One of the most overlooked segments of our society are the self-employed.

Depending on age and dependent requirements, the cost for individual coverage

can be astronomical.

If you are self-employed or a very small business owner, consider joining a

local association like a chamber of commerce, better business bureau or some

other type of business organization.

Many of these organizations offer access to health care that might

otherwise be prohibitive on an individual basis. They often charge a

membership fee to the organization. Sometimes even when you factor in several

hundred dollars a year for membership dues, that small cost far outweighs the

potential savings in premiums. Health care packages are often one of the most

lucrative options these organizations have to assist in recruitment of new

members.

If you do not fall into either of the categories above, you might investigate

other potential group options. Fraternal organizations, unions and clubs may

offer access to group rates. The important thing is to pursue every possible

avenue with an eye toward obtaining access to group health insurance.

Unless you are in a category considered as “low income” that would afford

you access to social health care you can plan on paying hefty premiums. If you

have a pre-existing condition, your chances of obtaining affordable rates are

statistically very low. But, there are some things you can do. Some tips to bear in

mind are:

<>

are and how widely diversified policies can be.

<>

adequate for your needs.

<>

excluded.

<>

<>

<>

<>

incur?

<>

<>

<>

<>

providers?

<>

<>

etc.

If you are in that “no mans land” where you do not yet qualify for

Medicare, Medicaid or any of the other social programs yet are too old for

individual coverage you might take a look at AARP. It can provide a stop gap for

that period of time while you are waiting to qualify for assistance.

If you are a young single parent, investigate any subsidized programs that

might be available in your state. Many states have programs that will provide

care for your children if not for yourself. These social programs are generally

based on a sliding scale based on your income level and in many cases visits and

prescriptions for your children might be free of charge.

With the skyrocketing costs of health care, no one should ever feel

embarrassed or sacrifice the health of themselves or their loved ones by applying

for any type of assistance that might be available to meet their needs. Until

something happens to curb this upward spiral we must all take special steps to

see that the most vulnerable members of our society receive the health care they

need. . .namely, our children and our elderly.

GROUP HEALTH INSURANCE

Most people have a general idea of the nature of ‘group’ coverage. The

most common type of group coverage is provided via employment. Many

employers provide group health coverage as a benefit to their employees, either

by paying the entire premium or sharing in the premium.

In a group situation, a single policy covers a specific group of people as

opposed to a single person as individual policies do. Because of this special

nature, insurance companies have to make certain that the number of people

covered by a group policy stays at or above a certain level.

Some states also have their own regulations that control the minimum

number of people required under a group plan. The number can differ from state

to state so check local regulations.

In order to be considered a group, the entity must have the same employer

or other commonality. As we discussed above, there are many different types of

groups that may be considered, but for our purposes we will consider an

employer/employee group.

A single master policy is issued to an individual or entity representing the

group of people. As we stated, for our purposes we will call this the employer. It

is the employers responsibility to apply for coverage for the group, own and hold

the master policy and collect and make premium payments to the insurer when

due.

Eligibility and eligibility period. In an individual policy situation where

each person is evaluated separately in terms of risk, the normal practice in a

group situation is to include all eligible employees regardless of physical

condition or age.

On condition must be met, however, for all people regardless of their

physical condition before they may be included in a group plan. That condition is

that they must apply for coverage during a specified eligibility period. Failing to

enroll in that time period will result in a requirement to take a physical

examination and they will be selected on an individual basis just as if the policy

were an individual policy. An initial 90 day employment period is typical for

group coverage, after which the employee has a 31 day eligibility period. If the

employee fails to apply during that eligibility period, then the employee will be

required to take a physical examination and must qualify as if on an individual

basis.

This is how an insurer can afford to cover a group of people without

individual selection. Otherwise some people might choose not to enroll until they

discover they have an illness or they become disabled, and requiring a physical

exam after the eligibility period helps to preclude this event.

This same concept also applies to determining who receives specific

benefits. For example, an employer may choose to offer certain groups of people

within the total employee group, a different set of benefits.

For instance, this can award certain benefits for those employed less than

5 years and a different set of benefits for those employed over 5 years. This

arrangement can be differentiated in many other ways as well using salary level,

position within the company and so on. The only stipulation is that such

divisions may not have an adverse effect on the insurer.

Further, any such special benefit provision must apply to everyone within

that specified group who meet the selected criteria. All who are designated must

automatically become eligible as soon as they qualify.

How premiums are paid depends on which of two different types of plans a

group selects. The two types are contributory and non-contributory. In the case

of non-contributory, the employer pays the full cost of the premium, while the

contributory type requires a shared cost between the employer and employee.

When applying for a contributory group plan, the employer needs to solicit

enough employees to demonstrate to the insurer that a sufficient percentage want

the coverage and are willing to pay a share of the premium. For a noncontributory

plan, 100% of the eligible employees must be included.

There are several considerations that the insurer has when determining

the group premiums. Average age of the group is an important consideration.

The higher the average age of the group, the more instance of potential claims

resulting in a higher premium.

Another consideration is the maximum indemnity period for loss of time

benefits. The longer an insurer pays disability benefits, the higher the rate will

be.

If a group policy covers occupational illness and/or injury, the degree of

occupational hazard becomes an important factor. Again, the higher the

occupational hazard, the higher the rate.

Group policy types. Group health plans may include any of several types

of insurance discussed earlier. With no intention of becoming repetitive, let’s

review some of those individual coverage’s. A group health plan doesn’t have to

include all coverage’s although most will include at least two or more. In

addition, disability income coverage may be offered in a group arrangement but it

is usually separate from hospital, medical and surgical coverage.

Therefore, the first possible group coverage pays benefits for lost earnings

resulting from accident or sickness and is commonly called disability insurance.

Accidental loss of life and accidental loss of one or more limbs or eyesight

is another common type.

Hospital expense is another type of potential group coverage. These

policies can pay for hospital expenses whether inpatient or outpatient. Fees of an

attending physician during hospital treatment may be covered. Some types of

group policies may only cover surgical expenses.

Further, there are a number of provisions that apply only or primarily to

group policies. These provisions:

<>

<>

<>

participation by eligible people necessary to sustain the plan

<>

entitled

<>

We discussed earlier that not all members of a group are necessarily

eligible under a group plan. Also, the employer may set certain eligibility

requirements.

Often working couples both qualify for group health insurance through

their employment whereby the spouse is covered by each plan. To prevent

possible abuse, special provisions are required by law in most states. This is

referred to as a Coordination of Benefits Provision and allows insureds as much

coverage as possible while doing away with over insurance. Receiving dual

benefits constitutes fraud and is punishable by law.

Businesses that offer group coverage are subject to certain provisions of

the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Terminated employees of companies that regularly employ more than 20 people

may be eligible for extended group health insurance coverage after they leave

their jobs.

COBRA requires that some group health plans offer a continuation of

coverage at group rates or slightly higher to departing employees for up to 18

months. For dependents of deceased employees and in some other special cases,

continuation of coverage can last for up to 36 months.

In most cases, if an employer discontinues group insurance, employees

must be given the opportunity to convert to individual insurance without a

medical exam.

Self-insurance is a situation where an employer provides health benefits to

its employees by depositing money in a special self insured fund which pays for

reimbursement of medical expenses from the fund. This is not a viable option for

most employers which must be large enough to have a base from which to predict

expected expenses.

HEALTH INSURANCE PROVIDERS

In this chapter we will take a look at all the different “types” of insurers

and how they are structured. The following are the different types of insurers:

<>

<>

<>

<>

<>

Traditional Insurers

This type of company is one that has evolved over time into a ‘branded”

image in the eyes of the public. This is the opposite of what we have come to

know in today’s world as Health Maintenance (HMO) and Preferred Provider

Organizations (PPO).

A traditional insurer selling health coverage may specialize in just health

coverage. The types of insurance they sell may be referred to as accident and

health (A&H) or accident and sickness (A&S) companies. Most states require a

separate license to write life, health and property casualty.

Stock and Mutual. Not only can an insurance company be categorized by

the type of insurance, they can also be considered in terms of its ownership as

either a stock or mutual company.

At the time of organization, a stock company sells stock to raise the money

necessary to operate a business. The stockholders are not necessarily insured by

the company nor do policyholders necessarily own stock in the company. It is in

business solely for the purpose of selling insurance to policyholders.

On the other hand, with a mutual company the policyholders are also

owners of the company and as such, can vote to elect the company management.

Any monies beyond the operating costs of the company may be returned to the

policyholders as dividends or reductions in future premiums.

Consumer Cooperatives. There are two different types of cooperatives.

They are consumer cooperatives and producer cooperatives. Producer

cooperatives include companies like Blue Cross/Blue shield and some Health

Maintenance Organizations which we will discuss further on.

Additionally, there are two types of consumer cooperatives. One is the

mutual insurance model discussed previously and the other less common and

unincorporated type is a reciprocal company.

A reciprocal company is based on the model of give and take. Members

agree to share insurance responsibilities among all members. All members

insure one another and share in the losses and no member can buy insurance

without committing to providing insurance in return. This type of consumer

cooperative is managed by an attorney-in-fact who handles all matters of

business for the cooperative.

Participating and Non-participating Policies. These terms indicate that

the policyholder of a traditional type of insurance, either does or does not

participate in, or receive, a share of any surplus that results from an insurers

business operations. These terms are also known as par and non-par.

The surplus from which participating policyholders might receive a return

are excess reserves for claims, interest on investments and savings on expenses.

This represents amounts not ear marked for any particular purpose and are

therefore available to participating policy owners.

Domestic, Foreign and Alien Companies

Here in the United States, companies are usually organized and chartered

under the laws of one particular state and it is common for them to do business in

many states. A company that operates its home office in the state where it is

organized is known in that state as a domestic company. In any other states

where they do business the company is considered a foreign company. If the

home office of a company is located outside the United States, it is considered an

alien company. No matter whether it is domestic, foreign or alien a company

must be registered in every state in which they operate.

Blue Cross/Blue Shield

These service organizations represent producers cooperatives. Hospitals

and physicians who sponsor Blue Cross/Blue Shield plans are providing the

insurance, therefore they are considered to be the producers of the cooperative.

Originally Blue Cross and Blue shield were separate voluntary and taxexempt

associations. Blue Cross provided payments to hospitals and Blue Shield

covered physicians, medical and surgical fees. People originally covered under

these plans were traditionally known as subscribers since Blue Cross and Blue

shield differ from traditional insurance companies.

In most states, the two have merged, but each group still covers the

expenses for which they were initially created. Over the years the tax advantages

they originally enjoyed have deteriorated and many states have removed their

exempt status. Additionally the federal Tax Reform Act of 1986 now makes them

taxable as insurance companies.

Health Maintenance Organizations (HMO)

The number of Health Maintenance Organizations (HMOs) is growing by

leaps and bounds and is in direct correlation with increasing health care costs.

The purpose of HMOs is to manage health care by using a prepaid model

that emphasizes early treatment and prevention. This prepayment is referred to

as a service-incurred basis and is paid by the consumer.

This emphasis on prevention such as routine physicals, diagnostic

screening is paid for in advance. The model is a direct contrast to health

insurance plans that historically did not pay for preventive programs but only

paid after the fact for injury and illness.

In theory, the HMOs focus on prevention is ultimately supposed to reduce

health care costs. At the same time, HMOs provide medical treatment, hospital

and surgical when needed.

There is another way that HMOs differ from the traditional health

insurance providers. HMOs have two step system that is not shared by insurance

companies. Under the traditional method, consumers receive the health care

itself from the medical profession and the financial coverage from the insurance

company.

In sharp contrast, the HMO provides both the health care services AND

the health care coverage.

These are combined because the HMO is made up of medical practitioners

who provide specific services to HMO members at prices that are pre-set and the

HMO member agrees to pay the HMO a specified amount in advance to cover

necessary services. Therefore, the HMO is furnishing health services as well as

making the financial arrangements.

As we have stated, the emphasis on prevention and the effort to containing

cost is the major factor for developing HMOs. However, federal law also

encourages the development of HMOS. They may receive government grants as

well as requiring certain employers who offer health benefits, to offer HMO

enrollment as an option by meeting certain criteria.

The basic structure of HMOs includes contractual agreements with a

variety of facilities and health care providers to provide services to HMO

subscribers. Within this structure are four different types, Group, Staff, Network

and Individual Practice Association.

Group model – Early on this was the predominant scenario. With this

arrangement the HMO contracts with an independent medical group that

specializes in a variety of medical services and the HMO in turn provides these

services to members. Additionally, the HMO is paying another entity as a whole

rather than individuals.

Staff model – This arrangement is pretty self-explanatory wherein the

physicians are paid employees working on the staff of an HMO in a clinical

setting at the HMO physical facilities. The HMO often owns the hospital as well.

In this model the HMO is taking all the financial risk as opposed to the group

model.

Network model – This arrangement works like the Group model with the

difference being that the HMO will contract with more than one group to provide

the services. The primary purpose for this model is to provide convenience and

increase accessibility for the members.

Individual Practice Association Model – This structure is designed to give

maximum flexibility to the HMO members wherein they contract individually for

all services. There are no separate HMO facilities and all services operate out of

their own facilities.

There are several types of groups that may sponsor HMOs, some of which

are:

<>

<>

<>

<>

<>

<>

<>

<>

<>

Most HMOs restrict membership to a narrowly defined group. For

instance, a labor union might limit enrollment to active members of their union.

HMOs are required to provide the following basic health care services:

<>

<>

<>

<>

<>

<>

<>

Many HMOs may also provide the following, but are not required to do so:

<>

<>

<>

<>

<>

<>

<>

<>

Those who would like supplemental services may purchase them from the

HMO only as an addition to the basic health care services that the HMO provides.

Co-payments. HMO members may be charged only nominal amounts for

basic services in additional to the original monthly payments. In some cases

there may be no additional payments for services. All details are spelled out in a

descriptive document which is known as either the certificate of coverage or

evidence of coverage.

Gatekeeper. HMOs most often have this type of system wherein a primary

care physician must be selected who in turn will authorize all care for a member

including referrals to specialists.

Twenty four hour access. Normally members have 24 hour access to the

HMO.

Open Enrollment. This term can apply in one of two different ways. An

employee sponsored group has a set time period each year when employees may

choose to enroll or remain enrolled or change plans. The second meaning is a

period each year when an HMO must advertise to the general public on an

individual basis.

Nondiscrimination. When HMO services are offered to a group, the HMO

may not refuse to cover an individual member of the group due to pre-existing

health conditions. This practice is much different from traditional insurers

where adverse conditions may preclude enrollment.

Complaints. HMOs must be set up to handle coverage complaints and

care complaints. HMO members must receive a document that spells out how

complaints can be registered.

Prohibitive practices. In addition to non-discrimination against group

members based on their health status during enrollment, HMOs are not allowed

to cancel or dis-enroll members because of their current health status or the

amount of usage of health services. HMOs are also not allowed to use words that

may imply that the HMO provides insurance in the traditional manner.

Preferred Provider Organizations (PPO)

Preferred Provider Organizations are another attempt to reduce medical

costs. This is an arrangement whereby a selected group of independent hospitals

and medical practitioners in a certain area agree to provide certain services at a

prearranged rate.

The organizers and providers agree upon medical service charges that are

generally less than the provider would charge patients not associated with the

PPO.

These differ from HMOs in that the providers are paid on a fee for service

basis rather than receiving a flat monthly amount and the organizer or

contracting agency might be:

<>

<>

<>

<>

<>

<>

<>

Those people who will receive services select a preferred provider from a

list that the PPO distributes. Usually the choices are more extensive with a PPO

than a HMO.

Sometimes PPOs and HMOs are lumped together and called a managed

care system. One characteristic still exists concerning regulation, however.

HMOs increasingly have to meet state requirements as well as standard

established by federal government. PPOs are less stringently regulated since any

group that can agree on the arrangements can call itself a PPO.