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Managing Your Health Care

Glossary of Terms

Capitation:
A payment arrangement whereby a health carrier pays a primary care physician a fixed amount for each patient with deductions for each referral or treatment the patient receives. See also “risk sharing” agreement.

Certificate of Coverage:
The document that provides evidence of coverage that is issued to a consumer who is enrolled in a group health plan.

Co-Insurance:
The percentage of the cost that is charged to the consumer for certain services after the deductible has been paid. For example, a coinsurance level of 20 percent means that the plan pays 80 percent of the costs, and the member pays the remaining 20 percent of the cost.

Co-Pay:
An arrangement which requires a covered person to pay a fixed amount each time a covered service is used. For instance, the enrollee might be required to make a $10 co-payment for each office visit or an $8 co-payment for each prescription drug.

Deductible:
An amount that a covered person must pay before plan payments begin. For instance, the health plan may have a $500 deductible, in which case the enrollee pays the first $500 in medical bills before the plan pays anything.

Dependent:
A family member of a policyholder who has coverage under the policyholder’s health contract.

Employee Retirement Income Security Act of 1974 (“ERISA”):
This federal law applies to self-insured employee benefit plans.

Explanation of Benefits Form (“EOB”):
A form sent by the health plan to the consumer explaining what payments were made on behalf of the consumer and what the unpaid amounts are.

Fee-For-Service:
A payment arrangement whereby a health carrier pays a primary care physician based on the actual services provided. Formulary: A list of drugs covered by a plan.

Fully-Insured:
A health coverage agreement under which an HMO, insurance company or nonprofit health services corporation assumes the risk of paying the covered person’s health claims.

Health Carrier:
An insurance company, health maintenance organization, or nonprofit health service plan corporation that sells health plans.

Managed Health Care:
A system of financial reimbursement which relies upon strategies designed to influence cost and use of treatment.

Non-Participating Provider:
A physician or clinic that has not signed a contract with a health plan to provide treatment to the health plan’s patients.

Out-of-Pocket Maximum:
The total amount of money that the consumer will be obligated to personally incur each year in co-payments and deductibles. For instance, the health plan may have a $3,000 annual out-of-pocket maximum which means that after the deductible and co-pay costs reach $3,000, the enrollee has full coverage.

Participating Provider:
A physician who has a contract with the health plan to provide treatment to the health plan’s patients. Preferred Provider Organization (“PPO”): An organization which, among other things, contracts with health plans to provide a network panel of physicians.

Premium:
The amount paid to obtain insurance coverage. Qualifying Coverage: Health benefits or health coverage provided under a private health plan, Medicare Part A or B, a self-insured health plan, or a government-sponsored health plan.

“Risk Sharing” Agreement:
A payment made in advance by a health plan to a physician or clinic which is a flat, pre-arranged amount. Under a risk sharing payment structure, the physician receives a payment from the health plan for a particular patient. This amount is reduced for each treatment or referral the patient receives, which means that the physician or clinic makes less money if more referrals and treatments are provided. This is different from more traditional “fee-for-service” payments under which a physician makes more money if the patient receives more care. A capitation or risk-sharing agreement operates as a financial incentive to the physician to limit treatment or referrals.

Self-Insured:
A system under which an employer agrees to use its own assets to pay the health claims of its employees. Self-insured health plans are filed with the United States Department of Labor and subject to a federal law called ERISA. Large corporations are more likely to be self-insured than small businesses.

Short-Term Coverage:
A form of health insurance consumers can purchase in between jobs, after college, or for other short-term reasons that only require a month or more of coverage. Minnesota law allows such policies to contain broad definitions of pre-existing conditions.

Stop Loss Insurance:
An insurance policy purchased by a self-insured employer to reimburse the employer for claims paid on behalf of covered employees in excess of certain amounts.

Summary Plan Description (SPD):
The evidence of coverage required under federal law to be issued by a self-insured employer to its employees.

Third-Party Administrator (TPA):
An entity which processes claims on behalf of a self-insured health plan. In Minnesota, third-party administrators are licensed by the Minnesota Department of Commerce.

Underwriting:
A process where a health plan reviews a consumer’s medical history to decide whether to issue a policy.

Utilization Review Organization (URO):
An organization which evaluates the necessity and appropriateness of medical treatments for purposes of determining medical necessity. In Minnesota, utilization review organizations are licensed by the Minnesota Department of Commerce.