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Insurance Information Resource and Insurance Terms Guide

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A & H, A &S — Accident & Health or Accident & Sickness. Once commonly used as generic designations for the entire field, now called Health Insurance.

Actual Cash Value — The sum of money required to pay for damages or lost property, computed on the basis of replacement value minus its depreciation by obsolescence or general wear.

Actuary — A specialist in the mathematics of insurance who calculates rates, reserves, etc. (Americanism. In most other countries the individual is known as a "mathematician.")

Actuarial — Statistical calculations used to determine insurance rates and premiums, based on projections of utilization and costs for insurance underwriting risk.

Adjuster — An individual usually representing the insurance company and acting for the company in working on agreements as to the amount of a loss and the liability of the company in same.

Administrative Costs — Costs related to utilization review, insurance marketing, medical underwriting, agents' commissions, premium collection, claims processing, insurer profit, quality assurance programs and risk management.

Administrative Services Only (ASO) — See Third-Party Administrator.

Admitted Company — An insurance company authorized and licensed to do business in a given state.

Adverse Selection — This occurs when a plan's health insurance population, usually due to age or health status, has a significantly higher utilization of health care services than an average population. The result is costs exceeding insurance premiums or fees collected. Also occurs when a programs eligibility criteria or rating structure causes it to be populated with insured's with higher losses than expected.

Age Limits — The ages below or above which the insurance company will not issue a given policy or renew a policy in force.

Agent — Any person appointed by an insurer to obtain applications and sell insurance policies on its behalf. With authorization, an agent may effectuate insurance contracts. An agent may collect premiums on insurance so applied for or effectuated. Insurance agents typically either work directly for an insurance company, or are independent insurance agents (self-employed, independent contractors) usually working on 100% commission basis. (from the RCW 48.17.010)

All-Categories — A requirement initially passed in the 1993 Washington Health Services Act provides access to different kinds of health-care providers licensed or certified by the state. The requirement, which went into effect in 1996, applies to state-regulated insurance contracts, but limited to conditions that are covered in the benefit package of Basic Health. The law was subsequently known as the "Complementary and Alternative Providers" or "Licensed-Provider" statute.

Annuity — (1) An amount of money payable yearly, or by extension, at other regular intervals. (2) An agreement by an insurer to make periodic payments that continue during the survival of the annuitant (the beneficiary of the policy) or for a specified period.

Any Willing Provider — A mandate that requires health insurance carriers to contract with any health-care providers willing to treat a carrier's subscribers. (Sometimes confused with the "all-categories" law defined above.)

Application (APP) — A form on which the prospective insured states facts requested by the insurance company and on the basis of which (together with any information from medical examiners, attending physicians, hospitals, investigations, and the agent) the insurance company decides whether or not to accept the risk, modify the coverage offered, or decline the risk. An application without premium money is a request for an offer. With premium money, it is an offer itself, unless the insurance company declines to issue as applied for.

Apportionment — The division of loss among insurance companies when two or more cover the same loss.

Assigned Risk — A risk which underwriters do not care to insure, but because of state law or otherwise, the insured must be protected and the insurance is therefore handled through the state, or a bureau and assigned to companies.


Basic Health (BH) — This plan was created in 1987 to provide low-cost, limited benefits in high unemployment areas of the state. Under the 1993 Health Services Act, the BH was expanded to statewide and its benefits were improved.

Beneficiary — A person eligible to receive benefits under an insurance policy.

Benefit Package — Also known as a Benefit Schedule. The list of covered services offered by an HCSC, HMO or insurance plan.

Binder (Or Binding Receipt) — In lines other than life and (usually) health, a binder is an acknowledgment (usually from the agent) that the insurance applied for is in force whether or not premium settlement has yet been made or the policy issued. In life and health insurance, insured binders are not issued, but if the premium settlement is made with the application, what is often erroneously referred to as a binder or "binding receipt" is issued. Actually, this is a conditional binding receipt.

Book of Business — The term insurers use to refer to the sum of their various plans and types of insurance products sold to consumers.

Broker — (1) An individual who for compensation solicits, negotiates or procures insurance or the renewal or continuance thereof on behalf of insured's or prospective insured's. (2) One who solicits, negotiates, or procures the making of contracts of insurance on behalf of the insured, other than himself or another broker, and who may render services incidental to these functions, except as an employee of an insured. (To this definition, the Commission on Insurance Terminology adds this comment: "By law, may be made agent of the insurer (insurance company) for certain purposes such as delivery of policy or collection of premium.")

Business Interruption Insurance — A type of policy that pays for loss of earnings when operations are curtailed or suspended because of property loss.

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Cancelable — A contract of insurance that may be terminated by the insurance company or insured at any time. Most insurance is cancelable. The exceptions are certain life insurance policies and health insurance, which in Washington state is now guaranteed renewable, provided subscribers pay their premiums.

Cancellation — Termination of contract of insurance in force by voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement.

Capitation — A per-member monthly payment made in advance to a managed care insurer covering contracted services. The insurance provider agrees to provide specified services to eligible members of a plan for this fixed, predetermined payment for a specified length of time (usually a year), regardless of how many times the member uses the services. No additional payment is made to the provider for services that exceed the agreed-upon amount-per-member. In such a product, the insurance premium rates may be the same for all members or adjusted for age and gender, based on actuarial projections of medical utilization.

Carrier — An insurance company which "carries" the insurance. (The term "insurance company" or "insurer" are preferred because of the possible confusion of "carrier" with transportation terminology.)

Carve-out — Services separately designed and contracted to an exclusive, independent provider by a managed care plan.

Case Management — Coordination of patient care to ensure appropriate care and reductions in costs of providing services. Physician case managers coordinate such elements as referrals to consultants, specialists, hospitals, ancillary providers and services. This is intended to eliminate mis-utilization of facilities and resources, fragmented services and to provide continuity of services and intensity of services appropriate to the patient's needs over time.

Cash Value — The amount of cash that is due the insured who surrenders a LIFE (and, extremely rarely) or HEALTH policy. Such surrender with termination of all insurance benefits is often called "cashing out."

Chartered Property and Casualty Underwriter (CPCU) — A designation granted by the American Institute for Property and Liability Underwriters upon successful completion of a series of examinations and experience requirements in the fields of insurance, plus accounting, financing, economics, management, and law.

Claim — The demand for benefits as provided by the insurance policy.

Claims Review — The process of analyzing a managed care plan enrollee's health care service claims before reimbursement to validate their medical necessity and ensure the costs are not excessive.

Clause — A term used to identify a particular part of a policy or endorsement.

Closed Formulary — See drug formulary.

CLU — Chartered Life Underwriter, a designation granted after examination and experience requirements by the American College of Life Underwriters.

Co-Insurance — In accident and health insurance, it is a provision that the insured and the carrier share losses in agreed proportion. Also known as "percentage participation." In managed health care, it refers to the portion of the cost of care for which the individual is responsible, usually determined by a fixed percentage. This often applies after a specified deductible is met. In property and casualty insurance, the insured shares proportionally in losses when the amount of insurance is less than a specified percentage of the property insured.

Collision Coverage — Physical damage protection for the insured's own automobile(s) for damage resulting from collision with another object. This is a part of most automobile insurance policies.

Commission — That portion of the premium retained by the agent or broker as compensation for sales, service, and distribution of insurance policies.

Community Rating — A method of establishing the level of premiums for health insurance in which the premium is based on the average of actual or anticipated services used by all subscribers in a specific geographic area (or the entire state). Under pure community rating, premiums also would not vary for different groups or with such variables as a group's claims experience, age, sex, occupation or health status. (Modified community rating may allow slight variances for some of these factors.) The intent of community rating is to spread costs evenly across an entire population, rather than set premiums according to individual or small group experiences.

Composite Rate — A uniform premium applicable to all those eligible in a subscriber group, regardless of the number of claimed dependents. This is common among plans purchased by large employer groups.

Comprehensive Health Insurance — Sometimes called "Comprehensive Major Medical." A form of health insurance that combines the coverage of Major Medical and Basic Medical Expense contracts into one broad contract that provides coverage for almost all types of medical expense with few internal limits, usually subject to a small deductible for some or all expenses and to a percentage participation clause (sometimes called "coinsurance") applicable to all or some of the covered expenses.

Comprehensive Personal Liability Policy (CPL) — A personal liability contract. It provides liability insurance coverage for the individual and family needs arising out of numerous personal activities and situations, such as the ownership of residential property, ownership of pets, sports activities and many other everyday activities.

Concurrent Review — Review of a procedure or hospital admission made by a health care professional (usually a nurse) other than the individual providing the care.

Contract Bond — A guarantee of the faithful performance of a contract and the payment of all labor and material bills incident thereto. In those situations where two bonds are required, one to cover performance and the other to cover payment of labor and material, the former is known as a PERFORMANCE bond and the latter as a PAYMENT bond.

Coordination of Benefits; COB is used to determine the amount payable by each insurer when the claimant is covered under 2 or more group health plans. Total reimbursement should not exceed 100 percent of the cost of care.

Co-Payment — A co-payment is a patient's share of a health-care bill. It usually is a small amount - $5 or $10 per office visit. Health-care reform advocates say its primary function is to remind consumers that health care is not free - and to discourage them from seeking unnecessary care.

Cost Sharing — The general set of financing arrangements whereby the consumer must pay out-of-pocket to receive care, either at the time of initiating care or during the provision of services, or both. This also can occur when an insured pays a portion of the monthly premium for his health insurance.

Cost Shifting — When an insurer charges one group of health care purchasers more to make up for the underpayment of others.

Coverage — Scope of the protection provided under a contract of insurance.

Credentialing— The review of a health care practitioner's credentials, e.g. training, experience, demonstrated ability, to determine if that provider meets the carrier's internal criteria for clinical privileging.

Credit Insurance — Insurance on a debtor in favor of a lender intended to pay off a loan or the balance thereon if the insured dies or is disabled (usually called "CREDIT LIFE" policy).


Debit — The collectable premium accounts assigned to one industrial or combination agent.

Declaration Page (Dec Sheet) — The portion of an insurance policy containing the information regarding the risk. It identifies the parties to the contract and the subject of coverage.

Decreasing Term Policy — Generally, a rider which is attached to cash value policies or other term policies. The protection decreases each year or month in accordance with a schedule. Also sold as MORTGAGE Protection policy.

Deductible — The part of the insured's expenses or loss that must be paid before insurance coverage begins.

Deferred Annuity — An annuity whose benefits begin at some designated future date (as contrasted to an annuity where benefits begin at once, called an IMMEDIATE annuity).

Diagnosis-Related Groups (DRG) — This refers to predetermined reimbursements. DRGs were originally designed to facilitate utilization review, and are also used to analyze patient case mix in hospitals and to determine reimbursement policy.

Direct Access — Under a 1995 Washington law, health-insurance carriers must cover direct access to women's health-care service providers when that care is appropriate. Insurance companies also cannot create unfair obstacles to this access, including a requirement for women to visit "gatekeeper" or primary-care providers first.

Direct Writer — An insurance company which sells its policies through salaried employees (licensed agents) who represent it exclusively, rather than through independent local agents, who represent more than one company.

Disability Income Insurance — A form of health insurance that provides periodic payments to replace income lost when the insured is unable to work as a result of sickness or injury.

Drug Formulary — A list of selected pharmaceuticals and their appropriate dosages that will be covered by a health plan. In a "closed formulary," physicians are required to prescribe from that list of drugs.


Earned Premium — That portion of a premium for which the policy protection has already been given during the now-expired portion of the policy term.

Elimination Period — A loosely-used term sometimes designating the "waiting period" and sometimes the "probationary period."

Endorsement — A form attached to the policy bearing the language necessary to change the terms of the policy to fit special circumstances.

Endowment Insurance — A form of life insurance payable to the insured if living at the end of the endowment period or to a beneficiary if the insured dies before the endowment date. (Inasmuch as a whole life policy pays the face amount at the ultimate age of the mortality table used in calculating the rate for it, age 100 on the CSO Table, it is sometimes said that whole life is "endowment at 100." However, while perhaps a descriptive explanation of a WHOLE LIFE policy, it is actuarially incorrect to refer to a whole life policy as a form of Endowment insurance.)

Early and Periodic Screening, Diagnosis and Treatment (EPSDT) — Covers screening and diagnostic services to determining physical or mental defects in patients under age 21, as well as health care and other measures to correct or ameliorate any defects and chronic conditions discovered.

ERISA — The Employee Retirement Income Security Act of 1974. This law, which dealt primarily with pensions and retirement plans, includes a section exempting self-funded employer and union health plans from state regulation. Washington's health-care reform law - the Health Services Act of 1993 - required a congressional waiver of this law so that the state could mandate employer-provided health coverage. The waiver did not pass, and the state law was subsequently changed.

Exclusions — Clauses in a health insurance contract that deny coverage for certain conditions, treatments, supplies or risks, such as acts of war. In property and casualty contracts, certain events or circumstances also may be excluded from coverage.

Exclusive Provider Organization (EPO) — A managed care organization similar to PPOs in that physicians do not receive capitate payments, but members may only choose medical care from network providers. A patient seeking care outside the EPO network would not be reimbursed for the cost of that treatment. See also Group Model HMO.

Experience — The loss record of an insured, a class of coverage, or of an insurance company.

Experience Rating — A method used by insurers to determine the premium to be charged based on the actual utilization of individual large groups. Federal qualification guidelines for HMOs do not permit this rating method, but it is common in other health insurance plans.

Exposure — (1) State of being subject to the possibility of loss. (2) Extent of risk as measured by payroll, gate receipts, area, or otherwise. (3) Possibility of loss to a risk being caused by its surroundings.


Face — The first page of a policy.

Face Amount — In a life insurance policy, the death benefit stated on the first page of the policy.

Federally Qualified HMOs — Health maintenance organizations (HMOs) that meet certain federal requirements designed to protect consumers, such as providing a broad range of basic health services, financial solvency, and a system to monitor the quality of care. The qualification process is administered by the Health Care Financing Administration (HCFA, pronounced "Hick-fah") in the U.S. Department of Health and Human Services (DHHS).

Fee — A charge or price for professional services.

Fee Disclosure — Physicians and caregivers discussing their charges with patients prior to treatment.

Fee-for-Service — The traditional payment method in U.S. health care, when patients pay doctors, hospitals and other providers for the services rendered at the time of that service, and then seek reimbursement for those costs from their private insurers or the government, if eligible for such a program (e.g. Medicare). The patient is charged according to a fee schedule set for each service and or procedure provided.

Fiduciary — A person who occupies a position of special trust and confidence (for example, in handling or supervising the affairs or funds of another).

Fiscal Intermediary — An organization that contracts with health care providers to process health insurance claims. It may also provide consulting services or serve as a communication center for providers. A Health Care Services Contractor (HCSC).

Form — An insurance policy itself or riders and endorsements attached to it.

Fraternal — An insurance company organized under a special section of the state insurance code, characterized by a lodge or social system, and issuing insurance only to members.


Gatekeeper — A primary care physician responsible for overseeing and coordinating all aspects of a patient's medical care in managed care plans to reduce health care utilization and costs. Managed care patients cannot receive referrals to specialty care or hospital admission (except for emergency room service when the patient believes an emergency exists) without pre-authorization from a gatekeeper.

General Agent — An insurance company representative in a given territory, entrusted with the task of supervising the company's business within that territory. He may appoint local agents whom he services. A true general agent is an independent contractor compensated on a commission basis. In practice, in the life and health fields, he may receive certain expense subsidies from the company for office operation and training of new agents.

Grace Period — A period of time (commonly 30-31 days) after premium-due date during which a policy remains in force without penalty even though the premium due has not been paid.

Group Contract — A contract of insurance made with an employer or other entity that covers a group of persons identified as individuals by reference to their relationship to the entity. A GROUP CONTRACT may be life insurance, health insurance, or an annuity. There are some applications in the property-liability field.

Group Insurance — Insurance policy or health services contract covering a group of employees (and often their dependents) under a single contract issued to an employer or other group by an HCSC, HMO or other insurer.

Group Model HMO — There are two types: closed panel and the contract model. Closed panel HMO deliver medical services in the HMO's health center or clinics by providers who belong to a legally separate medical group paid a negotiated monthly capitation fee. Its providers are salaried and generally prohibited from carrying on any fee-for-service practice. In the second type, the HMO contracts with an existing independent group of physicians to deliver medical care at their facilities to HMO members for a prepaid fee. Such a medical group may also offer health services on a fee-for-service basis. The medical group generally contracts with more than one HMO.

Guaranteed Insurability Rider — A rider that may be attached to a health or life insurance policy, which permits the insured, to purchase additional insurance at one or more specified "option dates," without providing new evidence of insurability at that time.

Guaranteed Renewable — A contract that the insured has the right to continue in force by the timely payment of premiums for a substantial period of time, as set forth in the contract, during which period the insurance company has no right unilaterally to make any change in a provision of the contract while the contract is in force, other than a change in the premium rate for classes of insured. (In commenting on this definition, the Committee on Health Insurance Terminology of the American Risk and Insurance Association adds: "The term guaranteed continuable is synonymous with guaranteed renewable. Guaranteed renewable should be distinguished from non-cancelable.") An NAIC - National Association of Insurance Commissioners - definition specifies that the policy must be renewable to at least age 50 or, if issued after age 44, for at least five years.


Health Care Service Contractor (HCSC) — A legal entity in Washington state that may be sponsored by certain health professionals or which uses contracts with health professionals for the provision of prepaid health care services. Examples of HCSCs include Blue Cross/Blue Shield plans.

Health Care Financing Administration (HCFA) — The U.S. Department of Health and Human Services (DHHS) agency renamed to the Centers for Medicare and Medicaid Services (CMS) that administers federal health financing and related regulatory programs, principally Medicare, Medicaid, and Peer Review Organization programs. The contracting agency for HMOs that provide Medicare managed care plans.

Health Insurance — Insurance against loss by sickness or bodily injury.

Health Maintenance Organization (HMO) — A legal entity in Washington state that provides health care in a geographic area, and which accepts responsibility to provide directly or by contract an agreed-upon set of health services to a defined, voluntarily-enrolled group of individuals. HMOs are reimbursed through a pre-determined, fixed, periodic prepayment made by or on behalf of each subscriber without regard to the amount of actual services provided. (In other states, HMOs are regarded as synonymous with "managed care." However, in Washington state other kinds of health carriers also may employ managed care.)

Health Plan — A generic term referring to a specific benefit package offered by an insurer.

High Risk Pool — A non-profit entity called the Washington State Health Insurance Pool, created by state law in 1987, to provide access to health insurance to all residents of Washington who are denied adequate health insurance for any reason. (RCW 48.41) The premium is limited 150 percent of the average group premium charged in the marketplace or 125 percent of the average group premium if the health plan is managed care. An assessment on health insurers operating in the state, based on the number of individuals each carrier covers, provides any subsidy needed.

"Hold Harmless" Clause — found in managed care contracts in which the HMO and its physicians hold each other not liable for malpractice or corporate malfeasance if either is found liable. This clause is also common for insurance carriers. State law requires this type of clause to prohibit health care providers from billing patients if their managed care company becomes insolvent.

Homeowner Policy — A "package" or multi-line policy providing the protection needed by most homeowners. The policy provides property insurance, including theft, with very broad coverage on both the building and the contents. Liability insurance is also provided. There are basically six homeowner forms available in most states, and they are numbered 1 through 6. Homeowner 6 is used for owners of condominium units. Homeowner 5 provides the broadest protection. Homeowner 4 is for use by tenants as it excludes building coverage. Homeowner 3, 2, and 1 are similar to Homeowner 5 except that they provide progressively less coverage respectively.

Hospital Benefits — Benefits payable when an insured is hospitalized.


Incurred but not reported (IBNR) — The liability for the claim cost related to services performed within the contractual period but not yet reported to the insurance carrier, HMO or HCSC.

Indemnify — To restore the victim of a loss, in whole or in part, by payment, repair, or replacement. (To this definition, the Commission on Terminology adds the following comment: "To the extent that the obligation of the insurer is to do other than make good losses, the insurance contract is not one of indemnity. The term indemnity or indemnify should not be used to apply to an obligation other than to make good loss.")

Independent Practice Association/Organization (IPA/IPO) — An HMO contracting with a physician organization which in turn contracts with individual physicians to provide health services to its members. IPA physicians practice in their own offices and also see fee-for-service patients. The IPA is reimbursed on a capitated basis. The IPA may reimburse its physicians on a capitated or modified fee-for-service basis when physicians charge agreed-upon rates to the HMO patients and then bill the IPA.

Individual Market — The portion of the health insurance industry consisting of individuals and their dependents who purchase coverage directly from a carrier - approximately five percent of the entire market. Those in the individual market usually buy their own coverage because they are not eligible for employee-sponsored or government coverage, such as Medicare, Medicaid or the Children's Health Insurance Program (CHIP).

Installment Refund Annuity — Promises to continue the periodic payments after the death of the annuitant, until the combined benefits paid to the annuitant and his beneficiary have equaled the purchase price of the annuity.

Insurable Interest — Any interest in a subject of insurance or any legal relation to it of such a nature that a certain happening might cause monetary loss to the insured.

Insurance — (1) A contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies. (2) A device for the transfer of the risks of individual entities to an insurance company, which agrees, for a consideration, to assume to a specified extent, losses suffered by the insured.

(To this definition, the Commission on Terminology adds this comment: "Notice might be taken of such characteristics of insurance as equitable contributions by insured, pooling or risks, and effecting of transfer by contract, but these are not felt to be an important part of the definition, however important they may be for an extended explanation of the business.")

Insurance Commissioner — The elected state official with the authority to enforce the provisions of the state's insurance code and to make reasonable rules and regulations to implement provisions of the code; to conduct investigations, examinations and hearings related to those enforcement activities.

Insurance Policy — Broadly, the entire written contract of insurance. More narrowly, the basic written or printed document, as distinguished from the forms and endorsements added thereto.

Insured — The party to an insurance agreement to whom, or on behalf of whom, the insurance company agrees to indemnify for losses, provide benefits, or render service. (To this definition the Commission on Terminology adds the comment: "Like Insurer, the term Insured is functional and unmistakable. Therefore, it is preferred to such terms as Policyholder.") In pre-paid hospital service plans, the insured is called the subscriber.


Joint Life Policy — Pays the insurance when the first of two or more covered persons die.


Key Man — (Key Employee) Insurance Policy - An insurance policy on the life of a key employee whose death would cause the employer financial loss, owned by and payable to the employer. In health insurance, the term KEY EMPLOYEE A & H policy is also used to designate salary continuation insurance payable to a key employee or to a medical benefits plan, payable to that employee, the employer paying all or part of the premium.


Lapse — Termination of a policy because of failure to pay the premium. In life insurance, the term is sometimes confined to non-payment before the policy has developed any non-forfeiture value, being called termination if premium failure is after non-forfeiture values develop or surrender if cash value is withdrawn.

Level Premium Insurance — Life insurance, the premium for which remains at the same level (amount) throughout the life of the policy (except as reduced by any policy dividends).

Liability Insurance — Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

Liability Limits — The sum or sums beyond which a liability insurance company does not protect the insured on a particular policy, similar to limit of liability.

Life Insurance — Insurance on human lives including endowment benefits, additional benefits in event of death or dismemberment by accident or accidental means, additional benefits for disability, and annuities.

Lifetime Policy — (1) A policy guaranteed renewable or non-cancelable to age 65 (or sometimes later). (2) A policy paying disability benefits for life.

Limit of Liability — The maximum amount that an insurance company agrees to pay in case of loss.

Limitations — Exclusions, exceptions, or reductions of coverage contained in an insurance policy.

Limits — (1) Maximum amount of benefit payable for a given situation or occurrence. (2) Ages below or above which the insurance company will not issue new policy or above which it will not continue a policy in force.

Long-Term Disability — (1) A disability having a duration longer than a short-term disability, the exact duration being variable and a matter of reference; more commonly anything longer than 90 days. (2) A form of group disability insurance paying benefits for more than the customary 13 to 26 weeks; more commonly, benefits of five years' duration or more, but again depending on terms of reference.

Loss — Any diminution of quantity, quality or value of property. With reference to policies of indemnity, this term means a valid claim for recovery there under. In its application to liability policies, the term refers to payments made on behalf of the insured.

Loss Ratio — The percentage of losses to premiums, usually losses incurred to premiums earned. The amount of the premium dollar returned to the insured as claims payments and other benefits.


Major Hospitalization Policy or Insurance — A type of health insurance that provides benefits for most of the costs of hospitalization up to a high limit, subject to a large deductible. Such policies may contain internal maximum limits and percentage participation clauses. They are distinguished from major medical by the fact that they pay only in event of hospitalization.

Major Medical Insurance — A type of health insurance that provides benefits for most types of medical expenses incurred up to a high limit, subject to a large deductible. Such contracts may contain internal limits and a percentage participation clause (sometimes called co-insurance clause). A major medical policy pays expenses both in and out of the hospital.

Managed Care — Managed care is a philosophy of health care coverage that streamlines health services and creates a health-care system that includes both the financing and delivery of services to the consumer. It also takes more responsibility for maintaining subscribers' health, not just curing them once they are sick. It lowers costs by matching the patient with appropriate care as efficiently as possible. Different insurance carriers use different kinds of managed care. Although the philosophy is popularly associated with Health Maintenance Organizations (HMOs), other kinds of carriers also employ it.

Managed Care Organization (MCO) — Any type of organizational entity providing managed care, such as an HMO or an HCSC providing services via a preferred provider organization (PPO).

Mandated Benefits — Washington state law requires certain benefits be included in any major medical coverage. These include mammograms, automatic coverage of newborn or adopted children, home/hospice treatment options, and others as required by the Legislature.

Market Share — That part of the market potential a company has captured, usually expressed as a percentage of the market potential.

Maturity — The date at which the face amount of a life insurance policy comes due either by reason of death or endowment.

Maximum Allowable Charge — The amount set by the insurer as the highest amount to be charged for a particular medical service.

Medical Cost Ratio (MCR) — Compares the cost of providing service to the amount paid for the service.

Medical Group Practice — As defined by the American Group Practice Association, the American Medical Association and the Medical Group Management Association: "provision of health care services by a group of at least three licensed physicians engaged in a formally organized and legally recognized entity sharing equipment, facilities, common records and personnel involved in both patient care and business management."

Medical Loss Ratio — Cost of health care services provided as a percentage of premium revenues. See underwriting loss.

Medical Underwriting — Screening prospective health care plan members out of the plan on the basis of health or pre-existing medical condition. This is currently not legal in Washington.

Medically Necessary — Covered services required to preserve and maintain the health status of a member or eligible person in accordance with the area's standards of medical practice.

Medicare Risk Contract — A contract between a managed care plan and HCFA to provide services to Medicare beneficiaries for a fixed monthly payment. Requires all services to be provided on an at-risk basis.

Medicare Supplement — Voluntary private insurance coverage purchased by Medicare enrollees covering the cost of services not reimbursed by Medicare.

Member — Enrollee, beneficiary, insured. Includes those enrolled or subscribed to a health insurance plan and their eligible dependents.

Morbidity - Sickness — A morbidity table shows the incidence of occurrence of sickness.

Morbidity Rate — Actuarial term for the likelihood of medical expenses occurring.

Mortality - Death — A mortality table shows the incidence of occurrence of death.

Multi-Specialty Group — A group of doctors representing various medical specialties working together.


NAIC — National Association of Insurance Commissioners. An association of state insurance commissioners, active in discussions of regulatory problems and in the formation and recommendation of uniform practices and legislation.

NALU — National Association of Life Underwriters. An organization of life insurance agents having state and local associations throughout the country.

NFIP — A government program offered by the U.S. government's Federal Emergency Management Administration. The National Flood Insurance Program is able to pool policy premiums throughout the United States. With the full faith and credit of the Federal Government it can offer reasonable rates for flood damage coverage.

NCQA — National Committee for Quality Assurance. A non-profit organization created to improve patient care and health plan performance in partnership with managed care plans, purchasers, consumers and the public sector.

Network Model HMO — An HMO that contracts with two or more independent group practices to provide health services. Solo practices may be included, but it is primarily organized around groups. This HMO model is commonly used by HCSCs.

Non-Forfeiture Values — Those values in a life (or health, including long-term care) insurance policy that the policy owner does not forfeit even if he ceases to pay premiums: cash value, loan value, paid-up value, or extended term value.


Open Enrollment — A period of time when eligible subscribers may enroll in, or transfer between available programs providing health care coverage. Federal HMO regulations require that HMOs which meet certain criteria conduct annual open enrollments for periods of not less than 30 days.

Open Panel — Private physicians contract with a plan to provide care in their own offices.

Ordinary Life — (1) All life insurance policies not classifiable as Industrial or Group. (2) A continuous premium, whole life policy (also sometimes called Straight Life).

Outcomes Management — The result of a medical or surgical intervention. It is thought that a database of outcomes experience can give caregivers a better understanding of which treatments consistently result in better outcomes for patients. Outcomes management may lead to development of clinical protocols.

Outlier — In an HMO's utilization review: one who does not fall within the norm, using either too many or too few services. Anyone whose utilization differs two standard deviations from the mean on a bell curve is termed an "outlier." Also used to describe a patient who varies significantly from other patients, such as a longer or shorter length of stay, leaving against medical advice, etc.

Out-of-Area Benefits — Coverage allowed to managed care plan members for emergency situations if temporarily outside their HMO or MCO's prescribed service area.

Out-of-Area Services — Services received by insurance plan enrollees when they are outside their plan's established geographic area of service as defined in the contract and service agreement. Usually not covered unless a delay would adversely affect the member's health.

Outpatient Services — Medical and other services provided by a hospital or other qualified facility, such as a mental health clinic, rural health clinic, mobile X-ray unit or free-standing dialysis unit. Those services include physical therapy, diagnostic X-ray and laboratory tests.


Paid-Up — Life insurance on which all premiums have been paid but that has not yet matured by death or endowment, such as LIMITED PAYMENT policy on which the premium-paying period has been completed or the insurance paid for by using the cash value under the paid-up non-forfeiture option.

Participating Provider — A provider who has contracted with a health care service contractor, HMO, PPO, IPA or other managed care organization to provide health care.

Peer Review — Evaluation of a physician's performance by other physicians, usually within the same geographic area and medical specialty.

Performance Standards — The standards an individual health care provider is expected to meet to achieve the desired quality of care. Volume of care also may be covered, e.g. office hours, office visits per week or month, on-call days, surgical procedures per year, etc.

Per Member Per Month (PMPM) — Refers to the cost or revenue from each plan member for a month. Indicates revenue, expenses or utilization of services.

Physician-Hospital Organizations (PHOs) — For-profit or not-for-profit. Their strength is in their knowledge of medicine and health, investment in medical technology and understanding of their communities. PHOs now face the challenge of realigning financial incentives and their ability to assume and manage risk.

PIP — Personal Injury Protection, part of Washington's 1994 "no fault" auto insurance law that requires insurers to offer this coverage, although consumers are not required to purchase it. It provides coverage for bodily injury, loss of wages, burial expenses and for household services expenses.

Point-of-Service Plan (POS) — Incorporates features of both HMOs and PPOs, encouraging but not requiring members to choose a primary care physician. As in HMOs, primary care physicians act as "gatekeepers" to other health care services. However, members may visit non-network providers, but pay higher deductibles and copayments.

Policy Dividend — The return of the overcharge in a participating premium. It represents the difference between the premium charged and actual experience.

Policyholder — Literally, the person who has possession of the policy. Thus the term is non-functional as commonly used. (See comment under INSURED.)

Policy Owner — The person who has the right to exercise the rights and privileges in the policy contract. Such person may or may not be the insured, depending on policy ownership and assignment, if any.

Pooling — Combining risk.

Practice Parameters — Strategies for patient management developed to assist physicians in clinical decision-making. Practice parameters may also be called practice options, practice guidelines, practice policies or practice standards. (American Medical Association definition)

Pre authorization — A method to monitor and control utilization of a medical service by evaluating need prior to it being performed.

Preadmission Review — Review of claims for inpatient admission prior to hospital admission in order to assure medical necessity.

Pre-Existing Condition — A condition of health or physical condition that existed before the policy was issued. Prior to 1993, insurance coverage was denied or significantly delayed on the basis of pre-existing conditions. In Washington state, however, carriers cannot use health screening to reject applications, and the only waiting periods allowed may be no more than nine months for a condition treated in the previous six months.

Preferred Provider Organization (PPO) — A health care arrangement between purchasers of care such as employers and insurance companies and providers offering benefits at a reasonable cost using incentives, such as lower deductibles and co-pays to get members to use providers within a network. Use of non-preferred physicians would involve a higher cost. Preferred providers must agree to specified fee schedules and are required to comply with certain utilization and review guidelines.

Preferred Risk — An insurance classification indicating a risk that is superior to the average risk on which the rate has been calculated. They are usually eligible for a reduced rate.

Premium — (1) Part of the consideration for the insurance, by whatever name called. (2) The periodic payment made to keep a policy in force. Premium and rate are sometimes incorrectly used interchangeably. Technically, rate is the amount charged for a given unit of insurance coverage, and premium is the sum of the unit rates for a given policy. (3) In annuities, the purchase payment.

Pre-Paid Hospital Service Plan — The common name for Health Maintenance Organization plan (HMO). An HMO offers comprehensive health care, usually by salaried personnel, for members who pay a flat fee for the services, whether out-patient or hospital treatment is needed.

Prescription Benefit Managers (PBMs) — Monitor prescription claims for managed care organizations, tracking the drugs and volumes of pharmaceuticals are prescribed by the plan's participating physicians.

Primary Care — Primary Care is the first care a patient receives. It is often a family physician, although patients also may receive Primary Care from a nurse, a paramedic, or other types of health-care providers, depending on the situation. Managed care systems try to resolve as many health problems as possible at this level.

Prior Authorization — Managed care procedure to control utilization of services by review and approval of a medical service. See also pre authorization.

Producer — Term commonly applied to an agent, solicitor, or other person who sells insurance, producing business for the company and for a commission (if so paid) for himself.

Progressive Rates — A method health plans use to implement new rates either monthly, quarterly or semiannually. New or renewing subscribers or groups with anniversaries falling within such periods are automatically subject to prevailing rates in effect during those periods. These rates are generally guaranteed for the full 12 months benefit year. This rate is said to offer greater rate parity than a fixed rate throughout the fiscal year.

Proof of Loss — A formal statement made by the insured to the insurance company regarding a loss. The purpose of the proof of loss is to place before the company sufficient information concerning the loss to enable it to determine its liability under the policy or bond.

Pro Rata — (1) Distribution of the amount of insurance in one policy, among the several objects or places covered, in proportion to their value or to the amounts shown. (2) The distribution of liability among the several insurance companies having policies on the risk.

Providers — Institutions and individuals licensed to provide health care services (e.g. hospitals, physicians, naturopaths, medical health clinicians, pharmacists, etc.)


Quality Assurance — Internal peer review process used to audit the quality of care provided. Should include an educational mechanism identifying and preventing discrepancies in care.


Rating Bands — Limits the difference between lowest and highest premium rates charged to a pool of groups or individual subscribers.

Rating Bureau — An organization that classifies and promulgates rates and in some cases compiles data and measures hazards of individual risks in term of rates in a given territory.

Rebate — Giving to the policy owner some part of the agent's commission (or something of value) as in inducement to buy. This is an illegal action.

Reinsurance — Insurance for insurers. A contract transferring all or part of a risk or liability already covered under an existing contract. Allows an insurer to protect itself against part or all of the losses incurred when honoring all the claims of its members or subscribers. Also referred to as "stop loss."

Replacement Cost — The cost of replacing property without deduction for depreciation.

Reserves — Restricted cash investments or highly liquid investments intended to protect the MCO against insolvency or bankruptcy.

Rider — An amendment attached to a policy that modifies the conditions of the policy by expanding or decreasing its benefits or excluding certain conditions from coverage.

Risk — (1) A chance of loss. (2) A person or thing insured (Impaired or substandard risk: An applicant whose physical condition or driving habits/record does not meet the standard on which the rate is based.)

Risk Pool — A pool of money to be used for defined expenses. Commonly, if the money put at risk is not expended by the end of the year, some or all of it is returned to those managing the risk.

Risk Sharing — Method used by MCO and contracted provider to divide responsibility for financial risk and rewards involved in caring for a plan's members and assigned to a specific provider.


Schedule — (1) A list of specified amounts payable for, usually, surgical procedure, dismemberments, ancillary expenses or the like in HEALTH INSURANCE policies. (2) The list of individual items covered under one policy as the various buildings, animals and other property in PROPERTY INSURANCE or the list of rings, bracelets, etc., insured under a JEWELRY floater.

Self-insurance — The practice of an employer or organization assuming responsibility for the health care losses of its employees. Usually a fund is established against which claims payments are drawn. Claims processing is often handled through and administrative services contract with an independent organization, usually an insurer.

SHIBA — Statewide Health Insurance Benefits Advisors program created in 1979 initially to assist senior citizens and other Medicare beneficiaries with health insurance issues at no charge. Now with a broader focus to assist health insurance consumers statewide, using a corps of trained volunteers supported by OIC staff and sponsored by local community-based organizations.

Single Payer — This system of health coverage would enroll all Americans in a government-run program financed by taxes. This plan was scrapped when overall health-care reforms were considered at the federal level in the early 1990s, but bills that would implement a single-payer system remain alive in Congress.

Special Limits — Refers to limitation in a homeowner's policy placed on losses for specific items of property, such as gold and silver bullion, currency, securities, letters of credit, manuscripts, passports, tickets, stamps, boats, trailers, firearms and silver and gold ware. To obtain full coverage, additional coverage must be purchased.

Staff Model HMO — A health maintenance organization providing health services from a group of physicians who are either staff employees of a professional group practice which is an integral part of the HMO plan or are direct employees of the HMO itself. Physicians in staff model HMOs are usually prohibited from providing fee-for-service care.

Stop Loss — That point when a third party has reinsurance to protect against an overly large single claim or excessively high aggregate claims during a given period of time. Large employers who are self-insured may also purchase reinsurance for stop loss purposes. See reinsurance.

Subrogation — Requires an insured person to assign any rights to recover damages to his insurer.

Surplus Line — Coverage procured in an unlicensed insurance company because of its unavailability from an insurance company licensed in the state.


Term — (1) Relating to a contract of health insurance that makes no provision for renewal or termination other than by expiration of the policy term. (2) Life insurance issued for a term of years, after which it expires without value. (3) The period for which the coverage runs, which is usually the period for which the premium is paid in a HEALTH INSURANCE policy. Usually used as policy term.

Third-Party Administrator (TPA) — An individual or company contracting with employers who want to pay the cost of providing health care for their employees. TPAs develop and coordinate self-insurance programs, process and pay claims, may help locate stop loss insurance for the employer. They also can analyze the effectiveness of the plan and utilization of its benefits.


Underwriter — (1) A person trained in evaluating risks and determining what rates and coverages that will be used for them. (2) An agent, especially a life insurance agent, who might qualify as a "field underwriter." In theory, the agent is supposed to do some underwriting before submitting the case to the home office. Underwriter: i.e., to make a decision on the basis of facts known on whether or not the risk is sound and to report all facts known that might affect the rate.

UIM — Under insured motorist coverage must be offered by automobile insurance companies as part of an auto insurance policy. Consumers who do not want the coverage must sign a waiver. This coverage protects an insured driver from losses that should have been the responsibility of another driver, but which are not covered at all, or not fully covered by the other driver's insurance.

Underwriting Loss — When the cost of providing medical services, plus overhead, exceeds premium income, or the amount of incurred losses and expenses exceeds earned premium.

Unearned Premium — That portion of an advance premium payment that has not yet been used for coverage written. Thus in the case of an annual premium, at the end of the first month of the premium period, 11 months of the premium would still be "unearned, etc."

Usual, Customary and Reasonable (UCR) — Health insurance plans pay a physician's full charge if it is deemed reasonable and does not exceed his or her usual charges and amount customarily charged by other physicians practicing in the area for the service.

Utilization — Patterns of use of a service or type of service within a specified time. Usually expressed in rate per unit of population-at-risk for a given period. Utilization experience multiplied by the average cost per unit of service delivered equals capitated costs.

Utilization Review (UR) — A systematic means to review and control patients' use of medical care services as well as the appropriateness and quality of that care. Usually involves data collection, review and/or authorization, especially for services such as specialists, emergency room use and hospitalization. Also known as utilization management or control.


Waiting Period — A period of time between the beginning of a disability and the date benefits begin. In Washington state, health insurance waiting periods are limited to 90 days.

Waiver — (1) A rider waiving (excluding) liability for a stated cause of accident or (especially) sickness. (2) Provision or rider agreeing to waive (forego) premium payment during a period of disability. (3) The giving up or surrender of a right or privilege that is known to exist. It may be effected by the agent, adjuster, or insurance company employee or official orally or in writing.

Withhold — The portion of the fee or monthly capitation payment to the provider that is held back by the MCO until the cost of referral for hospital services has been determined. An insurance provider who exceeds utilization norms does not receive the withheld amount. The amount returned depends on the individual utilization by the provider, referral patterns through the year, groups of physicians or the overall plan pool, and financial indicators for the overall capitated plan.

Whole Life — A life insurance policy that runs for the whole life - that is, until death (except that it will pay the face amount at the ultimate age on the mortality table being used because, as far as that table goes, that age is death for all surviving insureds). Premiums for a WHOLE LIFE policy may be paid for the whole life insurance or for a limited period during which the higher insurance premium charged pays-up the policy.

Write — In insurance terms, to insure. It also means, to underwrite or to sell insurance.

NOTE: Most of the terms, explanations and definitions in this flyer were taken from various insurance industry guides, reference books, dictionaries and the Commission on Insurance Terminology, a group that tries to bring consistency to the use of many of these terms.

Language and its use does not remain static. Meanings and word usage can change over the years and from region to region. We do not intend this to be a final statement on what various words mean, but should help the average consumer and insurance shopper better understand insurance and buying insurance policies from independent insurance agents.

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