Medical Insurance Terminology and Concepts

Insurance: A contract between an insurance company (carrier or insurer) and an individual or group (insured).
Medical Insurance (Health Insurance/Healthcare Coverage): Specifically covers medical benefits.
- The policy dictates that the insurer pays some/all medical bills for certain injuries/illnesses.
- The insured pays premiums to the insurance carrier for this coverage.
Premiums: Payments made by the insured to the insurance carrier, typically monthly, quarterly, semi-annually, or annually in advance.
Benefits: Payments made by the insurance carrier for medical treatment, according to the insurance policy.

Insurance companies make money by collecting premiums from many individuals but paying benefits to relatively few.
They require an itemized list of diagnoses, procedures, pharmaceuticals, and materials before paying benefits.
Procedures are identified using specific codes that determine benefits.
Medical providers offer services in return for payment, known as reimbursement.

Reimbursement: Compensation or repayment for healthcare services already provided.
Patients may not pay the full amount at the time of service, requiring providers to seek reimbursement.

First Party: The patient or the person responsible for the patient's bill (potentially a guarantor).
- Guarantor: Someone responsible for an account, often when the patient is a minor, and liable for unpaid amounts.
Second Party: The physician, clinic, or hospital providing healthcare services (the provider).
Third Party Payer: An organization other than the patient or provider involved in financing health services, such as an insurance company.
- Submitting a claim to an insurance company means billing a third party payer.

The more you use the terms, the less you'll need to use your materials as a reference.

Physicians often contract with insurance companies, becoming participating providers.
Participating Providers: Agree to accept a payment level determined by the insurance company.
Allowable Charge: The maximum amount an insurance carrier will pay for a specific service.
Non-Participating Providers: Insurance companies may pay minimal benefits if a subscriber sees a non-participating provider.

Deductible: The amount an individual pays before insurance benefits begin.
- Example: A policy might not pay the first $250$ , $500$ , or $1000$ of medical charges annually but then covers a percentage above that amount.
Applied to Deductible: An allowable charge subtracted from the total deductible amount; the insurance carrier pays nothing on these charges.
Example:
- Toby has a policy with a $250$ deductible and 80% coverage after the deductible.
- Toby has already spent $200$ on covered medical care.
- Toby must pay an additional $50$ before the insurance pays 80% of covered costs.

Co-payment: A flat amount paid by the patient for services like prescriptions or office visits.
- Paid each time a prescription is filled or a doctor is visited.
- Some policies require co-payments after the deductible is met; others have no deductible but require a co-payment for all medical care.
- Co-payments are usually paid at the time of service.

Explanation of Benefits (EOB): A document from the insurance carrier explaining how much was paid and what was disallowed.
- Includes payments for one or more patients.
- Check each patient's name, dates of service, procedures billed, amounts billed, amounts allowed, deductibles, co-payment amounts, and payment on each claim.
The physician bills the patient for amounts applied to the deductible, co-payment amounts, and non-covered procedures, according to the contract.
Service Benefit Contract: Often stipulates a maximum charge per service.
The insurance company disallows any amount exceeding the maximum charge; the patient may be responsible, or the provider may write off the difference.

Preauthorization: Notifying the insurance company before hospitalization, surgery, or certain tests are performed.
- The insured calls the insurance company or a third-party oversight company to explain the planned procedure and its necessity.
- Third-party oversight companies review cases to ensure medical necessity.
Purpose:
- Reduces fraud by allowing the insurance company to review patient history before major costs occur.
- The company might discuss the necessity of procedures with the doctor.
Example:
- John needs to be hospitalized and must notify his insurance company.
- Without notification, benefits may be reduced or denied.
The insurance company might extend or reduce the proposed hospital stay based on average stays for the procedure.
- John's doctor wants him to stay four days after knee surgery, but the insurance company only authorizes three days.
- If John stays four days and has no complications, he is responsible for the cost of the fourth day.
Emergency Situations:
- Notification is typically required within 24 hours of an emergency hospitalization.
- The company may reduce the claim amount if preauthorization was not received.

Visitation Limits: Set the number of visits to specialists or special treatments (e.g., physical therapy) that a patient may have.
Insurance companies establish these limits.

Annual Limits: Review the information for a comprehensive understanding. Use online learning resources to build on what you’re learning.