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Health Insurance

Introduction to Health Insurance

Why Do You Need Health Insurance?

Today, health care costs are high, and getting higher. Who will pay your bills if you have a serious accident or a major illness? You buy health insurance for the same reason you buy other kinds of insurance, to protect yourself financially. With health insurance, you protect yourself and your family in case you need medical care that could be very expensive. You can't predict what your medical bills will be. In a good year, your costs may be low. But if you become ill, your bills could be very high. If you have insurance, many of your costs are covered by a third-party payer, not by you. A third-party payer can be an insurance company or, in some cases, it can be your employer.

Glossary of Health Insurance Terms

Glossary of Health Insurance Terms

Glossary of Health Terms

Capitation

A method of paying medical providers through a pre-paid, flat monthly fee for each covered person. The payment is independent of the number of services received or the costs incurred by a provider in furnishing those services.

COBRA

The Consolidated Omnibus Budget Reconciliation Act 1985, commonly known as COBRA, requires group health plans with 20 or more employees to offer continued health coverage for you and your dependents for 18 months after you leave your job. Longer durations of continuance are available under certain circumstances. If you opt to continue coverage, you must pay the entire premium, plus a two percent administration charge.

Coinsurance

The amount you are required to pay for medical care in fee-for-service plan or preferred provider organization (PPO) after you have met your deductible. The coinsurance rate is usually expressed as a percentage of billed charges. For example, if the insurance company pays 80 percent of the claim, you pay 20 percent.

Co-payment

A cost sharing arrangement in which a person pays a specific charge for a specific medical service -- say $10 for an office visit or $5 for a prescription.

Deductible

The amount of money you must pay upfront 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.

Fee-for-Service

A payment system for health care where the provider is paid for each service rendered.

Health Maintenance Organization (HMO)

Prepaid health plans in which you pay a monthly premium and the HMO covers your doctor's visits, hospital stays, emergency care, surgery, preventive care, checkups, lab tests, X-rays, and therapy. You must choose a primary care physician who coordinates all of your care and makes referrals to any specialists you might need. In an HMO, you must use the doctors, hospitals and clinics that participate in your plan's network.

Health Savings Accounts (HSA)

An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Lifetime Limit

A cap on the benefits paid under a policy. Many policies have a lifetime limit of $1 million, which means that the insurer agrees to cover up to $1 million in covered services over the life of the policy.

Managed Care

An organized way to manage costs, use, and quality of the health care system. The major types of managed care plans are health maintenance organizations (HMOs), point-of-service (POS) plans and preferred provider organizations (PPO).

Medicaid

A joint federal-state health insurance program that is run by the states and covers certain low-income people (especially children and pregnant women), and disabled people.

Medicare

The federally sponsored health insurance program of hospital and medical insurance primarily for people age 65 and over.

Out-of-Pocket Maximum

The most money you will be required to pay in a year for deductibles and coinsurance. It is a stated dollar amount set by the insurance company, in addition to regular premiums.

Point-of-Service (POS) Plan

A type of managed care plan combining features of health maintenance organizations (HMOs) and preferred provider organizations (PPOs), in which individuals decide whether to go to a network provider and pay a flat dollar copayment (say $10 for a doctor's visit), or to an out-of-network provider and pay a deductible and/or coinsurance charge.

Portability

The ability for an individual to transfer from one health insurer to another health insurer with regard to pre-existing conditions or other risk factors.

Pre-authorization

A cost containment feature of many group medical policies whereby the insured must contact the insurer prior to a hospitalization or surgery and receive authorization for the service.

Pre-existing Condition

A health problem that existed before the date your insurance became effective. Many insurance plans will not cover preexisting conditions. Some will cover them only after a waiting period.

Preferred Provider Organization (PPO)

A network of health care providers with which a health insurer has negotiated contracts for its insured population to receive health services at discounted costs. Health care decisions generally remain with the patient as he she selects providers and determines his or her own need for services. Patients have financial incentives to select providers within the PPO network.

Premium

The amount you or your employer pays in exchange for insurance coverage.

Primary Care Physician

Under a health maintenance organization (HMO) or point-of-service (POS) plan, usually your first contact for health care. This is often a family physician, internist, or pediatrician. A primary care physician monitors your health, treats most health problems, and refers you to specialists if necessary.

Provider

Any person (doctor or nurse) or institution (hospital, clinic, or laboratory) that provides medical care.

Third-Party Payer

Any payer of health care services other than you. This can be an insurance company, an HMO, a PPO, or the federal government.

Usual and Customary Charge

The amount a health plan will recognize for payment for a particular medical procedure. It is typically based on what is considered "reasonable" for that procedure in your service area.

Utilization Review

A cost control mechanism by which the appropriateness, necessity, and quality of health care services are monitored by both insurers and employers.

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Implementing A Cafeteria Plan

Implementing A Cafeteria Plan

Internal Revenue Code 125 allows an employer to implement an employee benefit plan which allows employees to se1ect the benefit programs they prefer.

The plan offers two or more options and the employee chooses the option most appropriate for him or her. Because of the "menu" of benefits available, the plan is referred to as a "Cafeteria Plan".

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