GENERAL – FREQUENTLY ASKED QUESTIONS

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What is a deductible?

deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses.  In general usage, the term deductible may be used to describe one of several types of clauses that are used by insurance companies as a threshold for policy payments. Deductibles are typically used to deter large number of trivial claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles.

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What is a copay or copayment?

In the United States, copayment or copay (co-pay)is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after the deductible up to a certain limit. It must be paid before any policy benefit is payable by an insurance company. Copayments do not usually contribute towards any policy out-of-pocket maxima whereas coinsurance payments do. Insurance companies use copayments to share health care costs to prevent moral hazard. Though the copay is often a small portion of the actual cost of the medical service, it is meant to prevent people from seeking medical care that may not be necessary (e.g.: an infection by the common cold). The underlying philosophy is that with no copay, people will consume much more care than they otherwise would if they were paying for all or some of it. However, a copay may also discourage people from seeking necessary medical care and higher copays may result in non-use of essential medical services and prescriptions, thus rendering someone who is "insured" effectively "uninsured" because they are unable to pay higher copays. If the insured cannot afford the copay, they effectively have no insurance (high copays can cause a false sense of security). Thus there is a balance to be achieved: a high enough copay to deter unneeded expenses but low enough to not render the insurance useless.

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What is a gatekeeper?

Under some health insurance arrangements (mainly HMO or POS plans), a gatekeeper is responsible for the administration of the patient’s treatment; the gatekeeper coordinates and  authorizes all medical services, laboratory studies, specialty referrals and  hospitalizations.

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What is an indemnity plan?

A type of medical plan that reimburses the patient and/or provider as expenses are incurred. Typically an indemnity plan will pay a set amount of benefit (example: $1,000 per day in hospital) described in the policy.

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What is a preferred provider organization (PPO) plan?

An indemnity plan where coverage is provided to participants through a  network of selected health care providers (such as hospitals and physicians). The enrollees may go outside the network, but would incur larger costs in the form of higher deductibles, higher coinsurance rates, or nondiscounted  charges from the providers.

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What is an exclusive provider organization (EPO) plan?

A more restrictive type of preferred provider organization plan under which employees must use providers from the specified network of physicians and hospitals to receive coverage; there is no coverage for care received from a non-network provider except in an emergency situation.

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What is a health maintenance organization (HMO)?

A health care system that assumes both the financial risks associated with providing comprehensive medical services (insurance and service risk) and the responsibility for health care delivery in a particular geographic area to HMO members, usually in return for a fixed, prepaid fee. Financial risk may be shared with the providers participating in the HMO.

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What is a point-of-service (POS) plan?

A POS plan is an "HMO/PPO" hybrid; sometimes referred to as an "open-ended" HMO when offered by an HMO. POS plans resemble HMOs for in-network services. Services received outside of the network are usually reimbursed in a manner similar to conventional indemnity plans (e.g., provider  reimbursement based on a fee schedule or usual, customary and reasonable charges).

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What is a physician-hospital organization (PHO)?

Alliances between physicians and hospitals to help providers attain market share, improve bargaining power and reduce administrative costs. These entities sell their services to managed care organizations or directly to employers.

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What is a fully insured plan?

A plan where the employer contracts with another organization to assume financial responsibility for the enrollees’ medical claims and for all incurred administrative costs.

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What are managed care plans?

Managed care plans generally provide comprehensive health services to their members, and offer financial incentives for patients to use the providers who belong to the plan. Examples of managed care plans include:

  • Health maintenance organizations (HMOs),
  • Preferred provider organizations (PPOs),
  • Exclusive provider organizations (EPOs), and
  • Point of service plans (POSs).

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What is a maximum plan dollar limit?

The maximum amount payable by the insurer for covered expenses for the insured and each covered dependent while covered under the health plan.

  • Plans can have a yearly and/or a lifetime maximum dollar limit.
  • The most typical of maximums is a lifetime amount of $1 million per individual.
NOTE:  The Affordable Care Act has removed the ability for insurers to limit plan amounts.

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What does maximum out-of-pocket expense mean?

The maximum dollar amount a group member is required to pay out of pocket during a year. Until this maximum is met, the plan and member shares in the cost of covered expenses. After the maximum is reached, the insurance carrier pays all covered expenses, often up to a lifetime maximum.

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What is a medical savings accounts (MSA) or health savings account (HSA)?

Savings accounts designated for out-of-pocket medical expenses. In an MSA, employers and individuals 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.  Unlike FSAs, most MSAs are combined with a high deductible or catastrophic health insurance plan. Click here for a more information regarding HSA/MSA  

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What is an insurance premium?

Agreed upon fees paid for coverage of medical benefits for a defined benefit period. Premiums can be paid by employers, unions, employees, or shared by both the insured individual and the plan sponsor.

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What is a primary care physician (PCP)?

A physician who serves as a group member's primary contact within the health plan. In a managed care plan, the primary care physician provides basic medical services,  coordinates and, if required by the plan, authorizes referrals to specialists and hospitals.

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What is a third party administrator (TPA)?

An individual or firm hired by an employer to handle claims processing, pay providers, and manage other functions related to the operation of health insurance.  The TPA is not the policyholder or the insurer.

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What are usual, customary, and reasonable (UCR) charges?

Conventional indemnity plans operate based on usual, customary, and reasonable (UCR) charges. UCR charges mean that the charge is the provider’s usual fee for a service that does not exceed the customary fee in that geographic area, and is reasonable based on the circumstances. Instead of UCR charges, PPO plans often operate based on a negotiated (fixed) schedule of fees that recognize charges for covered services up to a negotiated fixed dollar amount.

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What are flexible spending accounts or arrangements (FSA)?

Accounts offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pretax dollars to pay for the employee’s share of insurance premiums or medical expenses not covered by the employer’s health plan. The employer may also make contributions to a FSA. Typically, benefits or cash must be used within the given benefit year or the employee loses the money. Flexible spending accounts can also be provided to cover childcare expenses, but those accounts must be established separately from medical FSAs.

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What is a flexible benefits plan (Cafeteria plan) (IRS 125 Plan)?

A benefit program under Section 125 of the Internal Revenue Code that offers employees a choice between permissible taxable benefits, including cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. Although a common core of benefits may be required, the employee can determine how his or her remaining benefit dollars are to be allocated for each type of benefit from the total amount promised by the employer. Sometimes employee contributions may be made for additional coverage.

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