The insurance industry terms below are not consistently used from one company to another. This listing defines these terms as generically as possible. Abbreviations and acronyms used in the industry are also included.

A&S

Accident & Sickness

AAD

Annual Aggregate Deductible

Accident & Sickness

Coverage for short-term income replacement when the covered person is disabled because of an accident or illness. Same as weekly indemnity, weekly disability, and short term disability.

Actively-At-Work

A contract provision that provides that the coverage will only be available for employees actively at work on a full time basis on the effective date of coverage. Those not actively at work on that date become eligible upon their return to work. The matching provision for dependent coverage is often a not-hospital-confined provision.

AD&D

Accidental Death & Dismemberment

Administrative Services Only

An arrangement under which an insurance company, for a fee, processes claims and handles paperwork for a self-funded group. This frequently includes all insurance company services (actuarial services, underwriting, benefit description, etc.) except assumption of risk.

Adverse Selection

The tendency of higher risk persons or groups to seek coverage more than less risky persons or groups, for example, people with poor health applying for individual coverage while those with excellent health do not.

Aggregate Attachment Point

See Annual Aggregate Deductible

Aggregate Factor

The dollar figure that is multiplied by the number of covered persons each month during the contract period to calculate the AAD. It includes expected claims plus margin.

Aggregate Stop Loss

The form of excess risk coverage that provides protection for the employer against the accumulation of claims exceeding a stated level. This is protection against abnormal frequency of claims in total rather than abnormal severity of a single claim.

Annual Aggregate Deductible

This number represents the overall limit of claim liability for the group (employer). Beyond this point the Stop Loss policy indemnifies the group at the end of the contract period. Also called the trigger point or attachment point. See also Loss Fund.

ASO

Administrative Services Only

Attachment Point

 See Annual Aggregate Deductible.

Benefit Plan Summary

The description of employee benefits required to be distributed by ERISA to the employees covered under a plan. A synopsis of the benefits, usually in simple language, which does not include all the details of the plan.

Blues

Nickname for Blue Cross and/or Blue Shield plans.

Broker

The licensed producer representing a client who negotiates a program with an insurer and TPA.

COB

Coordination of Benefits

COBRA

Consolidated Omnibus Budget Reconciliation Act. Legislation relative to mandated benefits for all types of employee benefit plans. The most significant aspects are the requirements for continued coverage for up to 18 months (30 months for dependents in the event of the employee’s death) for employees and/or their dependents under the plan who would otherwise lose coverage.

Conventional Funding

Fully insured plans. Typically premiums are paid monthly in advance and experience refunds may or may not be part of the policy provisions.

Conversion

An individual health policy issued to an employee or dependent leaving the group. The conversion policy is issued without regard to pre-existing conditions at appropriate rates. The benefits are generally limited.

Coordination of Benefits

The contract provision that prevents a claimant from profiting by collecting from two different group plans such that the total is greater than actual expenses. COB provisions provide for primary and secondary status for the various plans involved and seek to guarantee that the total paid by all will not exceed 100% of the out-of-pocket expenses of the claimant.

Cost Containment

Features in a plan of benefits or in the administration of a plan designed to reduce or eliminate certain charges to the plan such as charges for unnecessary surgery or hospital days thus improving the plan’s loss experience. Items labeled cost containment features include second surgical opinion, outpatient surgery, hospital bill audit, hospital pre-admission certification, length of stay review, discharge planning, and large case management.

Cost Plus

A method of administering claims only, by either an insurer or a Blue plan. Similar in result to ASO, Cost Plus is often used by entities such as health care contractors that cannot issue ASO agreements.

Covered Employee

A person meeting the definition of eligibility in the employer’s plan document.

Deposit Premium

The amount required in order to place a Stop Loss policy in force, generally the first month’s premium.

DRG

Diagnostic Related Groups. A prospective payment system that pays a set amount for a given diagnosis. If treatment actually costs less, the provider keeps the excess; if treatment costs more, the provider loses.

ERISA

Employee Retirement Income Security Act of 1974. The basis of most employee benefit legislation. Even new laws and changes are normally designed as amendments to ERISA. This federal legislation allows for and sets guidelines regarding a group’s ability to self-fund their benefits.

Excess Loss Coverage/Insurance

See Stop Loss Coverage/Insurance.

Excess Risk

See Stop Loss Coverage/Insurance.

Expected Paid Claims

An estimate of the dollar value of claims to be paid during a contract period.

Experience Period

An historical period with specific beginning and ending points for which paid claims and covered employees are known. To have a complete understanding of the experience period, it is also necessary to know what the plan design was, whether it was the first or the subsequent contract period with that carrier, rates (with effective dates) and paid premiums if insured, and any other bits of information about who incurred claims and how they were paid.

Extended Benefits

Some plans provide for extension of benefits to disabled persons for a set period of time beyond the termination of coverage under the plan. Benefits are provided only for the disabling condition and require continuous disability.

Final Enrollment

A complete listing of employees covered on the effective date of coverage. They must b eligible by the definition established in the plan document.

Final Underwriting

A review of quoted rates and factors upon receipt of requested additional documents and data to firm up a conditional offer.

Form 5500

The annual filing form for ERISA for all plans with 100 or more participants.

Ground Up

Refers to a claim from the first dollar payable by the claimant as opposed to the first dollar payable by the self-funded plan, the Stop Loss plan, or the reinsurer of the Stop Loss plan.

HIAA

Health Insurance Association of America. The national association of health insurance companies.

HMO

Health Maintenance Organization. An organization that provides comprehensive and preventive health care services for a fixed periodic payment from the covered person (or the covered person’s employer) generally through owned (or contracted) facilities and a salaried medical staff.

IBNR

Incurred But Not Reported. A reserve for claims that have been incurred but not yet been submitted for payment. This is the reserve intended to cover claim run-out upon termination of the program.

Incurred and Paid

An expense both incurred during the contract period and paid during the same contract period.

Incurred Claims

Refers to the accrual method of accounting for all known and unknown claims. Includes paid claims plus adjustments for claims reported but not yet paid and those incurred but not reported.

Incurred Date

The date the covered service is rendered, the covered purchase is made, or the covered person earns periodic payment due to total disability.

Individual Deductible

See Specific Deductible.

Individual Stop Loss

 See Specific Stop Loss.

Lag

The usual delay between the actual time a service is rendered or an item is supplied and the time it is paid for and recorded. Lag includes both claims that have not yet been submitted and claims that have been submitted but not yet paid. Lag is the result of administrative efficiency of the provider, the employer (if employer involvement is required in supplying claim forms or verifying eligibility), the employee, and the claim administrator. Human procrastination is a major factor in lag.

Lifetime Maximum

(a) Maximum payable under the employer’s plan per person. (b) Maximum payable under the Specific Stop Loss contract per person. Please note that (b) cannot be higher than (a), but that (a) may be higher than (b), in which case the employer has an uninsured exposure.

Limited Extension of Coverage

A Stop Loss optional benefit which provides a 90 day extension upon termination of the Specific Stop Loss.

Loss Fund

A term for the funds the group has (or should have) set aside for the payment of claims based upon the covered persons and the Aggregate factors. The Loss Fund should cover the expected claims and the margin.

Loss Fund Factor

See Aggregate Factor.

Manual Cost

A rate or factor based on actuarial estimates rather than on the group’s experience.

Margin

The difference between expected paid claims and the Aggregate deductible. Granting that the expected claims will most likely be paid in any circumstance, the margin is the corridor of risk the employer is accepting in his self-funded program. It is expressed as a percent of expected paid claims and is customarily 25%.

Minimum Attachment Point

The lowest AAD to be used for a contract period, generally stated as a dollar amount or as a percent (usually 85% to 95%) of the first month’s calculated Aggregate deductible times the number of months in the contract period.

Not-Hospital-Confined

A contract provision that provides that coverage will only be available to persons (usually applies only to dependents) who are not hospital confined on the effective date of the coverage. Persons who are hospital confined become eligible upon their discharge. The matching provision for the employee is usually an actively-at-work provision.

Paid Claim

Payment occurs on the date the payment check is issued (or the draft is drawn), provided it is promptly delivered to the payee and is paid upon presentation. Other definitions of paid focus on the date the payment clears or is recorded as cleared in the company’s records.

Paid Claims

The total of claims actually paid during a specific time period. A straight cash accounting basis with no adjustment for anticipated or known liabilities that have not yet been paid.

Participating Employer

A company and its subsidiaries electing to take part in a trust sponsoring a Stop Loss policy.

Participation Agreement

The application completed by the participating employer when requesting membership in the Stop Loss trust.

PL

Public Law. Usually seen as PL 98-133 where the first two numbers represent the Congress in session that passed the law.

Plan Document

The master description of benefits under which the employer’s health and welfare plan is administered. This is the document that tells the TPA how to pay the eligible expenses and tells the Stop Loss insurer how to validate Stop Loss claims.

Policy

The contract of coverage issued to the employer for non-trust coverage or to the trustees of a Stop Loss trust.

PPO

Preferred Provider Organization. A group of providers that have banded together in hopes of preserving and enlarging their market share by providing discounted services to groups with which they have contracts. These organizations can be of two types: (a) one is risk-bearing and provides its services in exchange for a pre-set monthly payment; (b) the other is non-risk-bearing and provides discounts off its usual charges.

PRO

Peer Review Organization. A watchdog group formed by members of the same profession to guard against improper treatment or charges. Sometimes used to review questionable claims.

Providers

A generic term for doctors, hospitals, nurses, dentists, therapists, and others who provide health care services.

Retention

The portion of the premium retained by an insurance company as their coat of doing business including premium taxes, commissions, profit, claims, and other administrative expenses.

Schedule of Benefits

An outline of the benefits described in the plan document. Often supplies the exact values of items referred to in the body of the plan document such as the deductible.

Self-Funding

The method providing employee benefits in which the group does not purchase conventional insurance but rather elects to pay for the claims directly (generally through the services of a TPA) with Stop Loss insurance in place to cover abnormal risks.

Self-Insurance

The method of providing employee benefits in which the group purchases no insurance at all (conventional or Stop Loss), thereby assuming full responsibility for the claims.

Shock Loss

A large loss that significantly affects the experience of a group. Generally claims on a single claimant during a single contract period totaling more than 50% of the Specific Stop Loss deductible.

Short Term Disability

See A&S.

SIC

Code Standard Industrial Classification is the statistical classification standard underlying all establishment-based Federal economic statistics classified by industry. The manual is available from the National Technical Information Service, 5285 Port Royal, Springfield, VA 22161. (Order number PB87-100012)

SIIA

Self Insurance Institute of America. The national association specializing in self-insurance. Members are TPAs, insurers, reinsurers and self-funded groups as well as support product vendors.

Specific Deductible

The dollar amount paid by an employer’s plan before the Stop Loss policy will reimburse additional expenses.

Specific Stop Loss

The form of excess risk coverage that provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific Stop Loss is also known as Individual Stop Loss.

Stop Loss Coverage/Insurance

A general term referring to the category of coverage that provides insurance protection to an employer for his self-funded plan. Also known as Excess Loss or Excess Risk.

Summary Plan Description

Same as Benefit Plan Summary.

TPA

Third Party Administrator. A non-risk-bearing company that provides claims and administrative services for a self-funded client.

Trigger Point

See Annual Aggregate Deductible

Underlying Plan

The employer’s plan of benefits as described in the plan document.

Weekly Disability

See A&S.

Weekly Indemnity

See A&S.