EMPLOYEE BENEFITS AND INSURANCE TERMS

Courtesy of the Northwest Entrepreneur Network (www.NWEN.org)

401(k) plan - A tax-qualified defined contribution plan that allows participants to contribute pre-tax dollars through salary reduction.

Cafeteria Plan - An arrangement under which employees may choose their own benefit structure. Sometimes these are varying benefit plans or add-ons provided through the same insurer or 3rd party administrator, other times this refers to the offering of different plans or HMOs provided by different managed care or insurance companies.

Carve-Outs - Practice of excluding specific services from a managed care organization's capitated rate. In some instances, the same provider will still provide the service, but they will be reimbursed on a fee-for-service basis. In other instances, carved out services will be provided by an entirely different provider. A payer strategy in which a payer separates ("carves-out") a portion of the benefit and hires an MCO to provide these benefits. Common carve outs include such services as psychiatric, rehab, chemical dependency and ambulatory services. Increasingly, oncology and cardiac services are being carved out. This permits the payer to create a separate health benefits package and assume greater control of their costs. Many HMOs and insurance companies adopt this strategy because they do not have in-house expertise related to the service "carved out." A "carve-out" is typically a service provided within a standard benefit package but delivered exclusively by a designated provider or group. This process may or may not seem transparent to the subscriber, but it often means that separate UR and pre-certification entities are involved as well as different payers and providers. Carve-outs are also called sub-contractors, sub-capitators or junior capitation contracts.

Catastrophic health insurance - Health insurance which provides protection against the high cost of treating severe or lengthy illnesses or disability. Generally such policies cover all, or a specified percentage of, medical expenses above an amount that is the responsibility of another insurance policy up to a maximum limit of liability.

COBRA -Consolidated Omnibus Budget Reconciliation Act. 1985 law that requires employers to offer continued health insurance coverage to terminated employees and their beneficiaries, restricted the definition of insured termination for purposes of the Pension Benefit Guaranty Corp. and raised the employer's annual PBGC premium rate.

Competitive Medical Plan (CMP) - A type of MCO created by the 1982 Tax Equity and Fiscal Responsibility Act to facilitate the enrollment of Medicare beneficiaries into managed care plans. Competitive medical plans are organized and financed much like HMOs but are not bound by all the regulatory requirements facing HMOs. A health plan can be eligible for a Medicare risk contract if it meets specified requirements for service provision, capital, risk protection, and financial solvency. This is different from a Federally Qualified HMO.

Comprehensive Major Medical Insurance - A policy designed to provide the protection offered by both a basic and major medical health insurance policy. It is generally characterized by a low deductible, a co-insurance feature, and high maximum benefits.

Contract Year - A period of twelve (12) consecutive months, commencing with each Anniversary Date. May or may not coincide with a calendar year.

Coordination of benefits - Occurs when an individual is covered by more than one group medical program and payments must be coordinated to avoid duplication of benefits.

Co-Payment - A cost-sharing arrangement in which the HMO enrollee pays a specified flat amount for a specific service (such as $10 for an office visit or $5 for each prescription drug). The amount paid must be nominal to avoid becoming a barrier to care. It does not vary with the cost of the service, unlike co-insurance that is based on some percentage of cost.

CPT Codes - Current procedural terminology. List of medical services assigned five-digit codes that have become the standard reference for billing and reporting.

Deductible - Fixed amount for insured medical services that must be paid by the beneficiary prior to any claims reimbursement by the benefit plan.

Defined contribution plan - A qualified retirement plan in which specified contributions are made to the individual accounts of participants. Benefits are based solely on those contributions and their investment performance. Accumulated amounts may also include employer contributions from accounts of other employees who left the organization before becoming fully vested.

Employee stock ownership plan (ESOP) - An individual account plan that provides shares of stock in the sponsoring company to participating employees' retirement plans. "Leveraged" ESOPs are permitted to borrow money.

Exclusive provider organization - A health care plan that covers only the services of designated providers.

Fee-for-service - A traditional reimbursement in which a health care provider receives a payment equal to their billed charge for each unit of service.

Fiduciary - A person who exercises discretionary control or authority over management of a benefit plan, often identified in relationship to a pension or retirement savings plan.

Firewall protections - Safeguards established to protect pricing information of pharmacy benefit management companies from their competitors or from drug manufacturers. Also, computer software protections against data access by unauthorized persons.

Flexible benefit plan - Sometimes referred to as a "cafeteria" plan, a qualified arrangement that lets beneficiaries choose from among a combination of taxable and non-taxed forms of compensation, such as health insurance, 401(k) plan contributions, dependent are or vacation days.

Gatekeeper - Typically in an HMO or similar managed care plan, a primary care provider who serves as the patient's entry point to the system and often controls patient access to physician specialists.

Generic drugs - A prescription drug that is chemically equivalent to a brand-name product with an expired patent dispensed under its generic chemical name. Generally less expensive than branded products, pharmacy benefit plans often measure the success of cost-cutting techniques by monitoring substitution of generics for brand names ("generic fill rate").

GIC - Guaranteed Investment Contract. A negotiated contract issued by an insurance company that specifies how and when contributions are made, the applicable interest rate and length of time to maturity. Common option under 401(k) plans.

Group universal life insurance - Usually an employee-pay-all program that provides employees with universal life insurance and offers a choice between a fixed death benefit and a benefit that is a multiple of compensation plus the policy's cash value at time of death.

HCFA - Health Care Financing Administration. The federal agency, within the Department of Health and Human Services, that administers Medicare and oversees state administration of Medicaid.

HMO - Health Maintenance Organization. A prepaid managed medical plan that arranges to provide specified services to enrolled members through designated hospitals and doctors for a fixed premium per person. Model types such as group, network, staff and independent practice association refer to the contractual relationship between the plan and its providers.

IRA - Individual Retirement Account. A trust or custodial account for the exclusive benefit of an individual or his/her beneficiary. By law, certain individuals can make tax-deductible contributions up to a fixed annual amount, currently $2,000.

Job sharing - Form of flexible work schedule strategy in which two people voluntarily share one full-time job with prorated salary and benefits.

Keogh plan - A qualified retirement plan (either defined benefit or defined contribution) for self-employed persons, although not excluding coverage for other employees. Tax-deductible contributions up to an annual limit may be made in compliance with the IRC.

Long-term disability - Disability preventing an individual from continuing in an occupation for which he/she was trained or educated, generally of two years or more in duration.

Lump sum distribution - The distribution of the entire account balance from a defined contribution plan or value of an accrued benefit from a defined benefit plan.

Mandated benefits - Those benefits, such as workers' compensation, that employers are required to offer by state or federal governments.

Medically necessary - Health care service or treatment ordered by a provider that can not be omitted without harming the patient' s health status, as judged against generally accepted standards of medical practice.

Money Purchase Pension Plan - A defined contribution plan with individual accounts wherein employer contributions are usually determined as a fixed percentage of pay and allocated to participants' accounts.

Multi-employer plan - Plan to which two or more unrelated companies are required to contribute, pursuant to a collective bargaining agreement with one or more groups representing employees, usually those engaged in similar types of work.

Outcomes measurement - Processes used to track a patient' s clinical progress and responses to various treatments, for purposes of identifying those treatment pathways to lead to the most desirable outcome as measured by morbidity and functional status.

Outsourcing - Popular employer means of eliminating in-house management, administrative and/or clerical duties associated with a particular benefit by contracting with an external service provider specializing in that particular benefit area.

Parental leave - Leave benefits for mothers or fathers offered by employers voluntarily or as mandated by federal The Family and Medical Leave Act of 1993, state-mandated disability insurance or agreed to through a collective bargaining agreement.

Participating provider - Processes used to track a patient' s clinical progress and responses to various treatments, for purposes of identifying those treatment pathways to lead to the most desirable outcome as measured by morbidity and functional status.

Pharmacy and Therapeutics committee (P&T) - Panel of doctors from various medical specialties who advise a health plan on use of prescription drugs. Typically a focal point of decisions about which drugs will be included on an open or closed formulary and covered by reimbursement.

Pharmacy benefit manager (PBM) - Service vendors that contract to manage an employer' s prescription drug benefit. Services typically include development of formularies and drug utilization review.

POS - Point of service plan. A health plan that allows members to choose to receive services from a participating or nonparticipating network provider, usually with a financial disincentive for going outside the network. More of a product than an organization, POS can be offered by HMOs, PPOs or self-insured employers.

PPO - A preferred provider organization (PPO) is designed to reduce costs by having patients see providers who have agreed to offer service at reduced costs. Patients are allowed to see other non-PPO providers, but they are subject to higher deductibles and copayments.

Prospective payment system - Medicare reimbursement system established in 1983 that sets hospital rates before delivery of service. Payments are based on costs occurring within statistical norms around treatment of categories of illness, knows as diagnosis related groups (DRGs).

Profit sharing plan - A defined contribution plan where contributions are allocated among participants' accounts according to an established formula, with payment based on age, fixed number of years or occurrence of an event such as disability.

Qualified plan - Any employee benefit plan meeting applicable federal standards and receiving tax-favored treatment by the Internal Revenue Service.

Reinsurance - Also commonly known as stop-loss, reinsurance is coverage purchased by a self-funded employer, at-risk managed care plan, or another insurance company to protect against a payout of claims in excess of a designated limit such as $25,000 or $50,000.

Relocation assistance - Benefits offered by an employer to a current employee accepting an assignment at a different worksite. Benefits might include reimbursement for house-hunting expenses, household moving costs and interim travel expenses.

Savings plan - Also known as a "thrift plan," a defined contribution plan allowing participants to make voluntary contributions up to a specified limit and allowing employers to contribute, usually in the form of a percentage match of employee contributions. Participant contributions are usually made with after-tax dollars, a distinction between a cash or deferred arrangement.

Secondary payer - In a coordination of benefits, an insurer whose coverage is subordinate to that of another company, plan or program which is rightfully the primary payer. Often mentioned in the context of Medicare's efforts to recoup payments made as primary payer when other primary, duplicate coverage existed.

Section 125 Plan - Synonymous with flexible benefit plans. Refers to the IRS code that defines such plans and establishes that employee contributions may be made with pre-tax dollars.

Self-dealing - An ERISA prohibition against actions undertaken by plan fiduciaries for personal gain or profit, such as inappropriate use of plan assets or accepting bribes or kickbacks from anyone dealing with the plan.

Self-funding/Self insurance - A health care benefits financing technique in which an employer pays claims out of an internally funded pool, as permitted under ERISA. Self-funded companies might or might not also be self-administered, meaning they perform the administrative tasks associated with the benefit as opposed to purchasing such services from an outside firm.

Short-term disability (STD) - Period of disability precluding normal occupational duties generally defined as lasting less than two years.

Sexual harassment - Any physical or psychological abuse based solely on sex that threatens the victim's employment status or interferes with his/her work performance.

Social investing - An investments strategy that directs retirement plan money towards funds or individual companies that espouse some form of social responsibility, e.g., "green" funds that target investments reflecting environmental awareness.

Split-dollar insurance - Life insurance policies in which the employer and employee share in premiums, ownership and death benefits.

Subrogation - The ability of an insurance company to recover from a third party all or part of benefits paid to an insured.

Summary plan description - A detailed description of all benefits offered to an employee as part of the employer's benefit package. A required document for all persons covered by self-insured plans.

Terms and Conditions of Employment - This phrase includes all aspects of the employment relationship between an employee and his or her employer including, but not limited to, compensation, fringe benefits, leave policies, job placement, physical environment, work-related rules, work assignments, training and education, opportunities to serve on committees and decision-making bodies, opportunities for promotion, and maintenance of a nondiscriminatory working environment.

Third party administrator (TPA) - An independent company or person who contracts with an employer to provide administrative functions associated with a benefit or benefits but does not assume or underwrite risk.

Top hat plan - A plan maintained by an employer primarily to provide deferred compensation for highly compensated employees or certain members of upper management.

Upcoding - Practice of health care providers who seek to maximize reimbursement by coding a treated illness as more serious than presented.

Vesting - Under a qualified retirement plan, the process or schedule by which a participant earns nonforefeitable accrued benefits for account balances representing employer contributions to the plan.

Voluntary employee beneficiary association (VEBA) - A tax-exempt welfare benefit fund, regulated by the IRC, which pays death, sickness, accident or other benefits to members, dependents and/or beneficiaries.

Workers' compensation - State-mandated benefits to workers disabled by an occupational accident or illness. Components include first-dollar coverage for medical services and wage replacement.