Glossary

85/15 rule.

Also called the Medical Loss Ratio and sometimes specified as 80/20. this is a financial measurement stating that an insurer must spend 85% of premium dollars to pay its customers’ medical claims and to improve health care quality. It must not exceed 15% of premium dollars to pay overhead expenses like salaries, profits, agent commissions, administrative costs, and marketing costs. The Affordable Care Act set the medical loss ratio to encourage value for insured individuals enrolled in health plans at 80/20 — 80% of premium dollars for medical claims and health care quality, and 20% for overhead — and 85/15 for larger insurance companies. The Obama Administration implemented the medical loss ratio provision of the Affordable Care Act on November, 22, 2010. Beginning in 2011, insurance companies that did not meet the medical loss ratio standard were required to reimburse their customers through rebates issued in 2012 by August 1 each year.

Copay.

A set amount for specific services that does not apply to the deductible or coinsurance. A copay may be required for doctor visits or prescription drugs administered during the doctor visit. A policyholder must pay the copay in addition to the coinsurance, a percentage of each claim above the deductible. In addition, policyholders must pay the deductible, which is a specified amount or percentage of a claim. In some policies, a specific amount of time has to pass before benefits are paid by the insurer. The policyholder agrees to this in a health insurance policy.

Deductible.

The amount an insured individual agrees to pay before the insurer makes payments to cover damages or medical expenses. For example, an auto insurance deductible may require the insured individual to pay $500 in property damage, according to AllState. If the insured individual files a claim for $2,000, the insured pays the first $500 out of pocket before the insurance company covers the remaining $1,500. A deductible may vary depending on the type of coverage, and/or the agreement between the insured individual and his/her insurance provider. A deductible may be a fixed amount or a percentage of the claim amount, or a set time that must elapse before the policy pays benefits. A higher deductible will typically lower insurance premiums.

Pre-existing condition.

A physical or mental health condition, disability, or illness that existed prior to enrollment in a health care plan. Health insurance provider coverage varies depending on its definition of a pre-existing condition. The Affordable Care Act, enacted on March 23, 2010 and currently set to go into effect by 2014 for all insured individuals, will ensure that denying coverage or excluding benefits due to a pre-existing condition will not be allowed. Until 2014, the Pre-Existing Condition Insurance Plan (PCIP) program will provide health coverage to individuals with a pre-existing condition who have been without health insurance and have been unable to obtain insurance from private insurance companies due to a pre-existing condition for six months prior to application. PCIP methods vary by state. Pre-existing condition may also refer to a condition included in group health insurance policies for which an insured individual received medical care during the three months prior to the effective date of his/her coverage.

Premium.

A fee for coverage over a defined period. A premium is an amount the insured agrees to pay for an insurance policy, typically on an annual or semiannual basis, according to the U.S. Bureau of Labor Statistics. An insurance company calculates the cost of a premium for an individual based on several factors that determine the individual’s risk of damages, injuries, or accidents covered by the insurance provider and the likelihood that the individual will make regular payments of the premium. Auto insurance companies may determine an individual’s premium based on his/her age, sex, marital status, type of car, its frequency of use, and the individual’s commute, residence, claims history, driving record, and claims history. However, homeowner’s insurance companies may determine a homeowner’s premium based on a house’s type of construction, the age of the house, its location and distance from local fire protection, the population and crime rate in the house’s surrounding area, and the amount of coverage being purchased. Factors used to calculate insurance premiums may vary by state.

Refund/rebate.

Insurance companies that did not meet the medical loss ratio standard (see 85/15 rule) by 2011 are required to reimburse their customers through rebates, starting in 2012 by August 1 each year. The Obama Administration employed the medical loss ratio provision of the Affordable Care Act on November, 22, 2010. The medical loss ratio requires insurers to report total earned premiums, total reimbursements for clinical services, total spending on quality-improvement activities, and total spending on non-claims costs, excluding state and federal taxes and fees.

Single payer.

A system of healthcare in which a single source, usually the federal government, pays health-care providers for their services rather than several agencies, like private insurers financing health care services. A majority of private agencies deliver health care, while a single public agency organizes health financing. The concept of the single payer system is to eliminate the profit motive by involving the federal government in financing to ensure every citizen has equal access to health care, according to the American Medical Student Association (AMSA). A single payer health care system allows patients to see any physician of their choosing, and significantly reduces administrative overhead. Arguments against the single payer system in the United States include a health care system dependent of federal government financing and therefore sensitive to the fluctuations of a political climate, a potential loss of several private-sector jobs and pharmaceutical profits, and the potential for physicians to exploit a government-provided, fee-for-service system.