As a benefits manager or human resources professional, you probably come across a lot of acronyms and benefits terms. Some are like a second language to you such as PPO, HMO, and HSA. But some terms might be a little harder to decipher. So, we’ve boiled down the top 15 terms every benefits manager should be familiar with:
You’ve likely heard of HMO and PPO but might not be familiar with an EPO. An EPO, or Exclusive Provider Organization, is somewhat like a hybrid between an HMO and PPO. Like a PPO, the plan does not require a primary physician or referrals. But unlike a PPO and more like an HMO, an EPO does require the patient to stay in-network.
While you might understand the basics of in- and out-of-network, there’s a little more information that’s important to know regarding why certain providers are part of some networks and not others. At its most basic level, a network is a cost-saving tool for patients. Networks determine the cost for services, so doctors in certain networks can only charge the allowed amount for that network. For example, a doctor might typically charge $150 for an office visit, but if she is in a network that has determined office visits to be $50, then that doctor can only bill the insurance company for $50.
When a doctor is out-of-network for a specific plan, that means they have chosen not to participate in the network. In the case of a PPO, the patient will have to file their visits under the out-of-network benefits. For EPOs and HMOs, if a patient sees any provider out-of-network, they will be responsible for the full amount charged.
A deductible is the amount a patient will pay for all covered services before the insurance will begin covering the costs as outlined by the plan. For example, if a patient goes to the doctor and gets some diagnostic tests at the start of the year for a total of $2,500 and they have a $2,000 deductible, they will owe $2,000. The remaining $500 will be covered as outlined by their plan, and they will likely owe a co-payment and/or co-insurance. Plans with higher deductibles typically have lower premiums and vice versa.
Though the definition of an HDHP, High Deductible Health Plan, is in the name, we wanted to explain the purpose of this type of plan a little further. Like catastrophic coverage, an HDHP is meant to save patients money by offering lower premiums in exchange for higher costs when the insurance is used. Ideal for someone who rarely visits the doctor, these plans will be costly for someone with a chronic illness.
The difference between co-payments and co-insurance can get a little confusing. Both are costs that patients have to pay, but the price varies. Co-insurance is calculated as a percentage and is required on some plans after the deductible is met, but before the out-of-pocket costs have been met. For example, if a patient has a $500 deductible, a 20% co-insurance for office visits, and a $10,000 out-of-pocket limit, then that patient will need to meet their deductible first, and then will owe 20% of the cost of every office visit up to $10,000 (for the year).
A co-payment, usually called a co-pay, is a fixed cost. Unlike co-insurance, the amount a patient pays will not vary. Co-payments usually vary across services. For example, a plan might offer a $15 co-pay for primary care visits but a $50 co-pay for specialty visits.
An allowed amount is the maximum amount an insurance company will pay for a service. For example, if an insurance company has determined that specialist office visits should cost $200, then that is the amount they will cover. Should a patient visit a provider that charges $250 for a visit, then the patient will owe the remaining $50.
Medical costs vary by state and region. For example, the cost of a common surgery like an appendectomy in San Francisco, CA will typically be lower than the cost of the same surgery in a rural place like Brownfield, TX. These rates are what insurance providers use to determine an allowed amount for services. This usually comes into play with out-of-network costs for PPOs, which is why a patient might pay more for out-of-network services, even when they are covered by a plan. For example, if an insurance company determines $150 is the allowed amount for a service, but an out-of-network doctor charges $200, the patient will be billed for the additional $50 on top of their usual co-pays and co-insurance.
Medical Necessity is a term used by insurance providers to determine whether a service or procedure is required to diagnose and treat an illness or injury. This is why dental and vision exams aren’t usually covered by health insurance plans. Medical necessity is usually determined across the board for all patients, and when a special circumstance arises for a service that isn’t usually covered, the necessity is evaluated on a case by case basis.
When an insurance company determines that a certain service will never be medically necessary, it becomes an excluded service. For example, acupuncture is a common excluded service. When a plan lists an excluded service, that means the insurance company will, under no circumstances, cover the cost of the service. Some plans also have limited services, which are like excluded services but do allow for exceptions under certain criteria. For example, cosmetic surgery as a limited service might be covered only if the patient will be severely limited without the surgery like those who suffer severe disfigurement from an accident.
Pre-authorization is a process that helps the insurance company determine the medical necessity of a service. For example, if a doctor determines that a patient needs an X-Ray to diagnose an injury, but the patient’s health insurance plan requires pre-authorization, then the doctor will need to submit a pre-authorization request to the health insurance company. When a pre-authorization is required varies plan by plan.
Health insurance plans can get complicated and confusing, which is why a Summary of Benefits and Coverage is offered to every patient. This document overviews the coverage available to the patient and lists out the important terms that the patient needs to know about their plan.
A wellness program, sometimes offered by insurance companies, is a way to incentivize an active, healthy lifestyle. A typical program might offer a discounted gym membership and the ability to earn points for doing things like getting a yearly physical and logging steps from a step counter. Often, those points accumulate to rewards like cash incentives or discounts the patient can use.
Health insurance companies typically don’t manage prescription benefits and instead rely on third-party PBMs, or pharmacy benefit managers. PBMs contract with pharmacies and manage the cost of prescription drugs. Larger insurance companies usually have a preferred PBM that they use for their pharmacy services, but these companies are often corporate entities with stakeholders’ interests in mind.
At ProAct, we pride ourselves on being the largest 100% employee-owned PBM, which means we offer high-touch services for our clients to help extend benefits and mitigate costs for both the employer and patient. Large, national network PBMs can’t offer the same responsive, personalized, and flexible feedback that we can offer. If you want to learn how a PBM can help you, please give us a call today at 888.254.3552.