Transcript Document

Terms You Should Know About Your Medical
Insurance
HMO (Health Maintenance Organization): HMOs are prepaid plans that provide health coverage by contracting with or
hiring physicians. There are three types of HMOs:
 IPA Model HMOs (Independent Practice Association) contract with doctors who join together in an organization,
usually through a separate corporation, to contract with an HMO. The contract specifies the compensation for
the doctor and outlines their responsibilities to the patient and health plan.
 Group Practice HMOs are made up of large multi-specialty medical groups, like the Med Clinic in Sacramento.
 Staff Model HMOs have their own doctors who are employees of the HMO. The HMO often owns its own
hospitals and related facilities. Kaiser Health Plan is an example of this type of HMO.
PPO (Preferred Provider Organization): A PPO is a group of physicians, hospitals, and other health care providers that
have signed a contract with a Preferred Provider Organization. PPOs may be operated by insurance companies, HMOs
or it may be an independent organization that contracts its services to an insurance company. Most PPO plans allow the
insured to receive a higher level of benefits if a preferred provider is used instead of a non-PPO provider.
Coinsurance: An Enrollee’s share of costs ordinarily expressed as a percentage, for Covered Services and Supplies and
usually paid to the provider at the time care is rendered. “Coinsurance” is generally used when referring to PPO plans.
Copayment: This is the amount of money payable at the time of service for an HMO and some PPO plans. Generally
there is no deductible or other coinsurance required for services with copayments. “Copayment” is usually used when
referring to HMO plans.
Covered Services: Medically Necessary medical, surgical, hospital and other services and supplies rendered by
Participating Providers, and Emergency Care and supplies provided by non-Participating Providers, which are specified as
being covered in the Evidence of Coverage booklet.
Deductible: A set amount of Covered Charges which must be paid by the Enrollee per calendar year before benefits will
begin to be paid by the plan.
Emergency: Medically Necessary service required for: 1) the alleviation of severe pain which, at the option of the
attending physician, if not immediately diagnosed and treated, could lead to death or disability; or 2) the immediate
diagnosis and treatment of an unforeseen illness or injury which, at the option of the attending physician, if not
immediately diagnosed and treated, could lead to death or disability. The attending physician is exclusively responsible
for making these medical determinations and treatment decisions.
Formulary: A list of preferred drugs under a health plan. Under a closed formulary plan, only the drugs on the list are
covered. Under an open formulary, drugs not on the preferred list are still available, but at a higher copayment.
Out-of-Pocket: The Copayment amounts that are the Member’s responsibility each calendar year. When the Out-ofPocket maximum is satisfied, the Plan will then pick up 100% of most covered charges for the remainder of the calendar
year. Some certain Covered Services do not accumulate towards satisfying the Out-of-Pocket maximum. These
exceptions would be disclosed by Blue Shield in the Evidence of Coverage booklet.
Participating Provider: Any doctor, hospital, laboratory, physical therapy, or other medical treatment provider that is
under contract with an HMO, PPO or EPO.
PCP (Primary Care Physician): A Participating Physician who has been contracted by the Plan to provide initial and
primary care to Members, maintain the continuity of patient care, and initiate referral for specialist care. The PCP is
sometimes called the “gatekeeper” because all non-emergency referrals must be authorized by the PCP. A PCP could be
This document contains confidential and proprietary information regarding VRT Insurance Services.
This document may not be reproduced and/or distributed without the written consent of VRT Insurance Services.
CA License #0F41724
Self Insured vs. Fully Insured
(1 of 2)
Although the terminologies may be somewhat different, the concept and process of renewal underwriting are very
similar whether a group is self or fully insured. The key distinction between the two is that in a fully insured plan,
the risk is with the insurer whereas in a self insured scenario, the risk and the management of that risk belong to
the group itself.
SELF INSURED
FULLY INSURED
1. Employer is the Plan Sponsor. Essentially, the
"Insurance Carrier." No deep pockets.
1. Vendor is the "Plan Sponsor". Will cover all costs
incurred during contract period even if negative.
2. Governed by Federal statutes.
2. Governed by State laws.
3. Rules surrounding non-discrimination are more
stringent. Benefits test and eligibility test under
DOL Code 105(h) that must be managed.
3. Plan can be discriminatory.
4. There is a multiple vendor selection:
administration, network, utilization/case
management, disease management, prescription
services.
4. Generally, one vendor that handles all aspects.
5. To rate a plan, the group's claims are compiled
for a given experience period (usually the most
recent 12 months).
5. To rate a plan, the group's claims are compiled
for a given experience period (usually the most
recent 12 months).
6. Depending on the type of stop-loss policy that
has been negotiated, any single claim in excess of
specific stop loss limits may receive
reimbursement from a reinsurer. Total claims in
excess of an aggregate limit may also receive
reimbursement. The purchase of stop loss
insurance protects the group from the possibility of
catastrophic losses. Such reimbursement is
deducted from the total claims. The cost in
purchasing stop-loss insurance is incorporated in
step no. 10 below (see below).
6. Claims in excess of pooling limit are "forgiven"
and are deducted from the claims experience of the
group. This action will reduce the impact of large
claims on the rating experience of the group. The
cost in providing this feature is incorporated in step
no. 10 below (see below).
This document contains confidential and proprietary information regarding VRT Insurance Services.
This document may not be reproduced and/or distributed without the written consent of VRT Insurance Services.
CA License #0F41724
Self Insured vs. Fully Insured
(2 of 2)
SELF INSURED
FULLY INSURED
7. Since some of the claims paid in the experience
period were actually incurred prior to the period and
since some of the claims incurred during the experience
period have not yet been paid (or perhaps even reported
yet), an adjustment is made to represent all claims
payments incurred during the period. This process
involves deducting the ending Incurred But Not Reported
(IBNR) reserve balance from the beginning reserve to
arrive at the incurred claims fro the experience period.
7. Since some of the claims paid in the experience period
were actually incurred prior to the period and since some
of the claims incurred during the experience period have
not yet been paid (or perhaps even reported yet), an
adjustment is made to represent all claims payments
incurred during the period. This process involves
deducting the ending Incurred But Not Reported (IBNR)
reserve balance from the beginning reserve to arrive at
the incurred claims fro the experience period.
8. The total incurred claims are divided by the total
number of employee months (exposure) to arrive at the
incurred, claims cost per employee per month (PEPM).
8. The total incurred claims are divided by the total
number of employee months (exposure) to arrive at the
incurred, claims cost per employee per month (PEPM).
9. The incurred claims cost PEPM is trended forward to
the upcoming plan year.
9. The incurred claims cost PEPM is trended forward to
the upcoming plan year.
10. Charges for stop-loss insurance, third party
administration, utilization review, consultants, and the
group's own administrative expenses will be factored
into the cost PEPM.
10. The insurer typically add charges for pooling, risk
margin, administrative expenses, and profit. All of these
fees are lumped together to make up the "retention" on
the group.
11. Additional cost factor is needed to build up and
maintain a premium fluctuation reserve. This reserve
provides stability in the claims funding rate and extra
protection in the event of usually poor claims
experience. The reserve is usually expressed in terms of
a percentage of total projected claims and generally
varies by the type of coverage and size of the group.
11. The insurer is at risk for usually poor claims
experience. However, the insurer does protect itself
from this risk by levying a "risk charge" on the group. The
cost is implicit in the "retention" margin.
12. The total projected cost PEPM is compared with the
current cost PEPM to arrive at the overall increase
percentage for the plan.
12. The total projected cost PEPM is compared with the
current cost PEPM to arrive at the overall increase
percentage for the plan.
DEFINITION FOR SELF-INSURANCE
Specific Stop Loss: Protects against an individual catastrophic claim resulting from major illness or serious accident. Specific stop loss would
come into play were a covered participant incurs claims that exceed the specific dollar amount. With a Specific Stop Loss policy set at
$45,000 per individual, an employer would fund up to $45,000 of covered expenses and the stop loss policy would be responsible for
covered expenses in excess of the $45,000. Thus, if a participant were to incur claims of $250,000 the employer would be responsible for the
first $45,000 in covered expenses and the stop loss policy would reimburse the amount of $45,000 or $205,000.
This document contains confidential and proprietary information regarding VRT Insurance Services.
This document may not be reproduced and/or distributed without the written consent of VRT Insurance Services.
CA License #0F41724