Glossary / Industry Definitions

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

Activities of daily living
Those activities performed as part of an individual’s daily self-care routine. These include bathing, dressing, eating, transference and toileting. Commonly used as a gauge for disability benefits.

Adjusted community rating
See also (community rating). Health insurance premium adjustments made based on group-specific demographics.

Administrative services only (ASO)
Services provided by a third-party health care vendor that are limited to administrative services for an employer group, absent of any risk-sharing arrangement for the cost of health care. Frequently sought when an employer self-insures health care benefits but does not wish to perform administrative functions.

Administrator
The fiduciary subject to ERISA requirements who is responsible for the administration, operation and management of a benefits plan.

Adverse selection
Situation in which in insurance carrier enrolls members who are disproportionally higher risk than the average member of a group as a whole.

Allowable costs
Those charges for services or supplies rendered by a health provider that qualify as covered expenses.

Annuity
Typically a contract that provides income at regular intervals (either level amounts or index-adjusted) for a specified period of time, usually a set number of years for life. May be purchased as an investment under a plan or distributed to plan participants as a form of benefits.

Asset reversion
The recovery by a sponsoring employer of any pension fund assets in excess of those required to pay accrued benefits under a terminated defined benefits plan. The recovered assets are subject to regular corporate income tax plus an excise tax of either 20% or 50%, depending on subsequent retirement arrangements made for employees.

Assignment of benefits
An arrangement under which claimants request that their benefit payments be made directly to a designated person or facility, such as a doctor or hospital.

Average length of stay
A health care service measure indicating the average number of days a patient spends in the hospital for each admission. Hospitals and employers commonly use this average as one factor in assessing quality of care relative to other institutions.

Average wholesale price
The standardized cost of a prescription drug arrived at by averaging the cost of a nondiscounted pharmaceutical charged to a pharmacy provider by a large group of wholesalers.

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Balance billing
Submitting an invoice to a patient for the difference between the original charge for health care services and the amount paid by Medicare.

Bank investment contract (BIC)
A contract similar to a GIC (see guaranteed investment contract) but issued by a bank.

Bed disability days
The days when an individual is kept in bed either all or most of the day due to illness or injury. Includes those work-loss and school-loss days actually spent in bed.

Board certified
Indicates a physician who has passed an examination given by a medical specialty board and who has been certified as a specialist in that field of practice.

Cafeteria plan
A plan in which participants may choose among two or more benefits containing taxable or nontaxable compensation elements, i.e. cash or (qualified benefits.) Participants may choose qualified benefits by electing not to receive taxable cash compensation or currently taxable benefits treated as cash.

Capitation
Financial arrangement between an employer and a health care provider in which the former pays a fixed, usually monthly amount for all services rendered to a beneficiary and the latter assumes risk for service costs in excess of those amounts.

Case management
The process through which covered persons with specific health needs are identified and counseled to achieve the most appropriate levels of service utilization and optimum treatment outcomes.

CDHP
Philosophically, Consumer-Driven Health Plans (CDHP) creates transparency, responsibility and opportunity. Transparency of cost/quality, responsibility to live a healthy lifestyle and seek health services with prudence and an opportunity to be physically and financially better off.

Mechanically, CDHP is the combination of a lower premium, higher deductible health plan coupled with a healthcare account, which can be structured as a Health Reimbursement Arrangement (HRA) and/or a Health Savings Account (HSA).

CHAMPUS
The Civilian Health and Medical Program of the Uniformed Services. Provides insurance coverage for armed forces personnel who are receiving care from a nonmilitary facility.

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.

Collectively bargained plan
A plan with benefits provided as the result of good-faith negotiations between an employer or group of employers and employee representatives, primarily unions. Terms are usually spelled out in a collective bargaining agreement.”

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.

Core alternative
Under an ERISA 404(c) plan, a participant’s choice from among at least three investment alternatives representing a range of options. Each must be diversified and have different risk and return characteristics.

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

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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.

Disease management
An information-based process involving the continuous improvement of value in all aspects of care (prevention, treatment and management) throughout the continuum of health care delivery.

Drug utilization review
A system for analyzing physician prescribing patterns or targeted drug use intended to determine and influence appropriate treatment.

Employee self-service
Generally an employer’s efforts to give employees more access to and control over human resource or benefits data that pertains directly to them through access from personal computers, video kiosks or interactive voice response systems. Also referred to as disintermediation.

Employee self-service
The Employee Retirement Income Security Act of 1974. Federal statute that regulates qualified private employee benefit plans. It incorporates Internal Revenue Code and labor law provisions and imposes fiduciary responsibilities and other standards on both pension and welfare plans.

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.

Employee welfare plan
Any plan, fund or program established and maintained by an employer to provide its participants with any benefits other than retirement or pensions.

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

Experience rating
A health insurance plan that bases premiums on the past cost experience of the enrolled group.

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.

Flexible Spending Account – FSA
An FSA is a plan established by an employer that permits employees to defer pretax earnings into a specifically designated account. From this account the employee may withdraw funds to pay unreimbursed medical and/or qualified dependent care expenses. Generally there is a cap set by the employer that limits the maximum amount the employee can pay into this account. There is a $5000 limit set by the federal government for the child care expenses account. Any unused funds remaining in this account at year’s end are forfeited by the employee.

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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 drug
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 which 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 policyÕ 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.

Health Insurance Responsibility Disclosure (HIRD) for Employers
Under MA Health Care Reform, MA Employers of 11 or more full-time-equivalent employees collect this form when an employee declines to use a Section 125 Plan or declines to enroll in an employer-subsidized health plan. The Employee HIRD Form is available from the Mass. Division of Health Care Finance and Policy in English, Spanish and Portuguese.

Health Insurance Responsibility Disclosure (HIRD) for Employees
Under MA Health Care Reform, Employees in MA must complete a HIRD Form if
they decline coverage under (i) an employer’s group health insurance plan, or (ii) a
Section 125 plan which permits employees to purchase health insurance on a
pre-tax basis.

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.

Hospice
A program or facility that provides palliative care and support for the terminally ill.

Indemnity plan
A health insurance program that provides specific cash reimbursements for covered services. Payments may be made directly to the patient or assigned to a provider.

Health Reimbursement Arrangement – HRA
An IRS sanctioned arrangements that allow an employer, as agreed to in a HRA plan document, to reimburse for medical expenses paid by participating employees. HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company’s selected standard insurance plan.

Health Savings Aaccounts – HSA
A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA account in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.

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Imputed income
This is the term the I.R.S. applies to the value of any benefit or service that should be considered income for the purposes of calculating your federal taxes. Some of the benefits that are considered Imputed Income include Value of employer provided life insurance coverage greater than $50,000, health, medical and dental insurance coverage for an unmarried domestic partner or a child who no longer meets the IRS definition of a dependant.

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.

IRC
The Internal Revenue Code of 1986, as amended.

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.

Large case management
Management of catastrophic illnesses.

Length of stay
Number of days a plan member spends as a hospital inpatient. LOS is often mentioned as an indicator or quality and/or cost efficiency when assessing how a facility treats patients with a given condition.

Long term care
Assistance and care for persons with chronic, often deteriorating health conditions and those having difficulty with activities of daily living.

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.

MEWA (multiple employer welfare arrangement)
A noncollectively bargained plan or arrangement maintained to provide benefits to employees of two or more unrelated companies.

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 participantsÕ accounts.

Morbidity
Incidence and severity of illness in a given population.

Multiemployer 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.

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Nondiscrimination rules
Rules denying an employer, employee or both the benefit of tax advantages if the plan discriminates in favor of highly compensated or key employees as demonstrated by government-specified tests.

Normal retirement
The age or other point at which a pension plan member can retire and immediately receive unreduced benefits.

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
A hospital, physician, pharmacy or other provider to agrees to serve plan members under terms of a sponsoring network such as an HMO or PPO.

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 employerÕ 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
Preferred Provider Organization. A managed health care plan in which a network of providers agrees to serve a group of employees in a fee-for-service arrangement, usually at discounted rates based on volume purchasing power.

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.

Prospective payment system
Medicare reimbursement system established in 1983 which 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).

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 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.

Replacement rate
The designated percentage of a retiree’s final income to be replaced by retirement plan benefits.

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 which 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 benefit 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.

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 polices 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 employers benefit package. A required document for all persons covered by self-insured plans.

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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.

Total compensation
The aggregation of all wages, salaries and other cash payments and employer payments for employee benefits.

Trustee
Any person or group of persons serving in a fiduciary capacity to a plan.

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.