Types Of Plans

Health Maintenance Organization (HMO)

HMO plans generally provide the most comprehensive coverage and are the least expensive for employees to use.  However, they are the most restrictive plan, requiring the selection of a Primary Care Physician (PCP) from the Carrier's network at the time of enrollment.  In order to see a contracted specialist, you must first obtain a referral authorization from the Primary Care Physician, except in life-threatening emergencies.  No benefits are provided if the insured goes outside of the network.  There are minimal co-payments for office visits, usually full coverage for hospitalization, no annual deductibles and no claim forms.

Open Access HMO

A provision that specifies that plan members may self-refer themselves to a specialist; for an additional cost, without a referral from their Primary Care Physician.

Preferred Provider Organization (PPO)

A PPO is similar to an Indemnity Plan (which allows you to go to any Health Care Provider you choose) but with a network of Physicians and Hospitals.  You may see any network provider without a referral.  These providers have agreed to group pricing and clients can take advantage of reduced fees.  PPO's give members a financial incentive to stay within the network.  Higher costs are customary for medical services received out of the provider network.  This increased freedom translates to higher premiums and higher health care costs than an HMO.

Point Of Service (POS)

A POS plan is a hybrid between an HMO and PPO plan.  The insured must still select a Primary Care Physician and rely on him for specialist referrals.   However, the employee is not restricted to staying in the Carrier's network.  They can choose treatment outside the network without a referral for an increased cost at any time.  (Hence the name "Point Of Service".)   The premium for this type of plan usually falls between the cost of the HMO and PPO.

Fee For Service Payment System

Also, referred to as an Indemnity Plan, this system allows the Carrier to reimburse the member directly for each covered medical expense only after the expense has been incurred and paid for.  This plan allows for absolute freedom in selecting Physicians and medical facilities.

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Guaranteed Insurance Information

There are four ways to buy guaranteed insurance:

1) You can buy an Individual plan from the state of California called the "California Major Risk Medical Insurance Program" (MRMIP).  This program is designed to provide health insurance to individuals who are declined by an Insurance Carrier and are unable to obtain coverage on the open market.  This program is funded by the forty million dollar tobacco tax.  You may choose from a list of major carriers and select either an HMO or PPO program.  The scope of benefits is very limited and the cost is high.  In addition, there is usually a waiting list prior to final approval.

2)  You can be an employee of a small business that offers an employer-sponsored health plan.  In 1992, California passed legislation called AB1672.  This law guarantees medical insurance coverage to any full-time eligible employee employed by a firm having between 2- 50 employees despite any pre-existing medical conditions they may have.

3) Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA & Cal-COBRA) [California COBRA]  If you are an employee working for an employer group of more than 2 employees, you are eligible for this continuing coverage. Whether you lose your job voluntarily or involuntarily, reduce your hours, or are no longer eligible for insurance, you may elect to purchase the same plan that was offered to you through your employer.  You are allowed to retain the insurance plan for a minimum of one month and up to eighteen months from date of termination, twenty-nine months for disability or thirty-six months for divorce or death of a family member.  You are required to pay the full cost of this coverage plus 2% for administration on COBRA, and 10% for Cal-COBRA.  There are no medical questions asked.

4) Health Insurance Portability And Accountability Act Of 1996 (HIPAA) This law will allow you to continue your health insurance coverage once you have exhausted your allotted time on COBRA or Cal-COBRA or a minimum of 18 months under an employer-sponsored group health plan. Your coverage must have been in force within the last 63 days and you cannot be eligible for Medi-Cal, Medicaid or any other insurance plan.  These plans usually offer a high deductible and co-insurance; but, are otherwise comprehensive and reasonably priced.  There is no medical underwriting.

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Types Of Prescription Drugs

Brand Name Drugs
Prescription drugs approved by the Food And Drug Administration (FDA) under patent to the original manufacturer's branded name.

Generic Drugs
Generic drugs must be approved by the FDA as safe and effective.  However, they  are produced and sold under the chemical name after the original patent has expired.  Generic drugs cost less than the brand name drug equivalent.

Formulary Drugs
A comprehensive list of drugs classified by disease class that are considered preferred therapy and that are medically necessary.  Formulary drugs almost always include generic drugs but not all brand name drugs.  They are always chosen as the most cost effective drug available to treat a particular disease.

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Acts & Legislation

Employee Retirement Income Security Act (ERISA)
A broad-reaching law that establishes the rights of pension plan participants, standards for investments of assets and more recently requirements for the disclosure of insurance plan provisions and funding.

Family & Medical Leave Act (FMLA)
This act affects Employer Groups of 50 or more employees.  Employees must be allowed up to twelve weeks of unpaid leave during a twelve month period for either a birth or adoption of a child or to provide medical care for a seriously ill family member or themselves.  Employers are required to continue to make group health benefits available to employees while they are on leave for this purpose.

Mental Health Parity Act
A federal law passed in July of 2000, which prohibits Group Health Insurers from imposing more restrictive limits on coverage for serious mental illness or substance abuse than they would for physical illness.

Newborns and Mothers Health Protection Act
A federal law which mandates that coverage for hospital stays for childbirth cannot be less than 48 hours for normal deliveries or 96 hours for cesarean births.

Note:  The complexity of the above-mentioned legislation is far-reaching in scope.  The purpose is to give you an accurate but general overview of the intent of these laws.  Please contact your licensed Insurance Agent or other legal advisor for the complete legal ramifications and benefits in their entirety. 

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Miscellaneous Insurance Definitions

Coinsurance
A method of cost-sharing in a health insurance policy that requires a member to pay a stated percentage of eligible medical expenses after the deductible has been satisfied.

Co-Payment
A specified dollar amount that a member must pay for a specified service at the time the service is rendered.

Deductible
A flat dollar amount an insured must pay before the insurance company will make any benefit payments.

Disability Insurance
A type of insurance which protects the insured against loss of wages due to a chronic illness or injury which prohibits the member from being able to perform the major duties of their occupation.

Long Term Care Insurance
A type of insurance which protects the insured against the loss of assets associated with caregiver costs due to a chronic illness.  A chronic illness is one that manifests slowly, worsens over time and impacts the insured's ability to function independently.  "Triggers" of Long Term care illness are categorized into seven activities of daily living: eating, bathing, dressing, toileting, continence, transferring and ambulating.  A loss of two of the seven activities of daily living usually will qualify an insured for benefits.

Medical Underwriting
The evaluation of a written health insurance questionnaire submitted to an Insurance Carrier by a proposed applicant in order to determine whether the applicant is insurable by that Carrier.

Medical Savings Account (MSA)
A tax - deferred trust that individuals may establish to pay for out-of-pocket medical expenses.

Out-Of-Pocket Maximum
A specific dollar amount set by the Insurance Carrier that limits the amount a member has to pay out of their pocket for health care services on an annual or lifetime basis.

Pre-Existing Condition
An illness or injury for which an individual received medical advice, treatment,  diagnosis or medical care during a designated time period immediately prior to the insurance policy's effective date.  In group health insurance this period is usually 6 months.

Primary Care Physician (PCP)
A Physician who serves as a member's first point of contact with their plan's health care system.  This provider usually does not have a medical specialty and is often a General Practitioner, Family Practitioner or Internist.

Rate Adjustment Factor (RAF)
The difference between the highest and lowest rates that an Insurer can charge a small group from 2-50 employees.  Even though AB1672 prohibits eligible small group employers from being denied health coverage due to poor medical experience, it does allow for a discount of up to 10% (.90) for healthy groups, or a surcharge of up to 10% (1.10) for non-healthy groups.  These amounts are based on the Standard Risk Rates (1.0) which are determined annually by the Department of Insurance.  This allows for an overall rate spread of 20%.

Section 125 Cafeteria Plan
This plan is I.R.S. regulated and is also known as a Flexible Benefit Plan.  The plan allows eligible employees to save on insurance premiums, out-of-pocket health care expenses or dependent care expenses by deducting these monies from their wages pre-tax.  The money is deducted from the paycheck before Federal, State and Social Security taxes are calculated.  The result is a reduced taxable income and higher take-home pay.

Usual, Customary And Reasonable Fee (UCR or Reasonable And Customary Fee)
The amount commonly charged for a particular medical service by a Physician within a particular geographic area.  UCR fees are used by insurance carriers as the basis for Physician reimbursement.

Utilization Review
The evaluation of medical procedures to ensure that a patient receives "medically necessary" appropriate, high quality care in the most cost-effective manner possible.  Only medically necessary and appropriate procedures are eligible for reimbursement by the Insurance Carrier.

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