Translating billing terms to make them easier to understand.
You may encounter these commonly used terms pertaining to health care insurance, payment and services.
Glossary of Terms
Term
Definition
Approved Amount
The amount of the hospital’s charge that a payer will recognize in calculating benefits. If the provider charges more than this amount, the individual is responsible for paying the difference. Also called “Reasonable and Customary Fees” or, under Medicare, “Medicare Allowable Charge.”
Authorization
As it applies to managed care (insurance), authorization is the approval of care, such as hospitalization. Pre-authorization may be required before admission or care provided by non-HMO providers.
Balance Billing
The practice of a provider billing a patient for all charges not paid for by the insurance plan, even if those charges are above the plan’s UCR (usual, customary or reasonable) or are considered medically unnecessary. Managed care plans and service plans generally prohibit providers from balance billing except for allowed copayments, coinsurance and deductibles. Such restrictions may even extend to the plan’s failure to pay at all (e.g., because of bankruptcy).
Benefits Period
A plan that contracts with independent providers at a discount for services. The physicians in a PPO are paid on a fee-for-service schedule that is discounted, usually about ten to twenty percent below normal fees. The panel of providers is limited and usually has a utilization review system associated with it. PPOs are often formed as a competitive reaction to HMOs by physicians who contract out with insurance companies, employers, or third-party administrators. A patient can use a physician outside of the PPO providers, but he or she will have to bear a bigger portion of the fee.
Certification
Certification is the official authorization for use of services.
Claims Review
The method by which health care service claims are reviewed by insurance carriers before reimbursement is made. The purpose is to validate medical appropriateness of the provided services and to be sure the cost of service is not excessive.
COB (Coordination of Benefits)
An agreement to prevent double payment for services when a subscriber has coverage from two or more sources. For example, a husband may be covered by Blue Cross and Blue Shield through work, and his wife may be covered by an HMO through her employer. The agreement determines primary and secondary responsibility for payment.
Coinsurance
A provision in a member’s coverage that limits the amount of coverage by the plan to a certain percentage, commonly eighty percent. Any additional costs are paid by the member/patient. This is common with PPO and indemnity insurance plans. Coinsurance amounts for the patient are usually about 20 percent of the cost of medical services after the deductible is paid.
Copayment
The portion of a claim or medical expense that a member/patient must pay out of pocket. Usually a fixed amount, such as $20.
Deductible
The portion of a member’s (patient’s) health care expenses that must be paid by the patient before any insurance coverage applies. Deductibles are common with insurance plans and PPOs but uncommon in HMOs and might range from $500 to very high amounts such as $7,500-$10,000.
DRG (Diagnosis-Related Groups)
A statistical system of classifying an inpatient stay into groups for payment purposes. This is the form of reimbursement that the Health Care Financing Administration (HCFA) uses to pay hospitals for Medicare recipients. Also used by a few states for all payers and by some private health plans for contracting purposes. A standard flat rate per procedure is derived from this scale, which is paid by Medicare for their beneficiaries.
EOB (Explanation of Benefits)
A statement mailed to a covered insured person explaining how and why a claim was or was not paid: the Medicare version is called an EOMB.
Fee Schedule
A listing of the maximum fee that a health plan will pay for a certain service based on CPT billing codes. (Also referred to as Fee Maximums or a Fee Allowance Schedule.)
HCFA – 1500
A claims form used by professionals to bill for services. Required by Medicare and generally used by private insurance companies and managed care plans.
HMO (Health Maintenance Organization)
HMOs encompass two possibilities: a health plan that places at least some of the providers at risk for medical expenses and a health plan that utilizes primary care physicians as gatekeepers (although there are some HMOs that do not).
ICD-10-CM – Internal Classification Disease
The classification of disease by diagnosis and represented by codes.
Managed Health Care
A general term that refers to a system of health care delivery that tries to manage costs, quality and access to care. Common elements include a restricted group of contracted providers, some limitations on benefits to subscribers who use non-contracted providers (unless authorized to do so), and some type of authorization system. Managed care is actually a spectrum of systems, ranging from so-called managed indemnity through PPOs, Point of Service, open-panel HMOs and closed-panel HMOs.
Medicaid
A program financed jointly by the federal government and states providing health coverage for mostly low-income women and children as well as nursing home care for low-income elderly. Levels of funding and benefits and the portion of low-income people covered vary widely from state to state.
Medicare
The federal program of health insurance for people ages 65 and older and for disabled people of all ages. Medicare Part A covers hospitalization and is a compulsory benefit. Medicare Part B covers outpatient services and is a voluntary service.
Medicare Medical Savings Account
A Medicare health plan option made up of two part:.1) a Medicare MSA Health Policy with a high deductible; and 2) a special savings account, called a Medicare MSA.
Medigap
Insurance coverage provided by carriers to supplement monies reimbursed by Medicare for medical services. Since Medicare pays physicians for services according to their own fee schedules, regardless of what the physician charges, the individual may be required to pay the physician the difference between Medicare’s reimbursable charge and the physician’s fee. Medigap is meant to fill this gap in reimbursement so that the Medicare beneficiary is not at risk for the difference.
Original Medicare Plan
The traditional pay-per-visit arrangement that covers Part A and Part B services.
PCP (Primary Care Physician)
Sometimes referred to as a “gatekeeper,” the primary care physician is usually the first doctor a patient sees for an illness. This physician treats the patient directly, refers the patient to a specialist (secondary care), or admits the patient to a hospital. The primary care physician can be a family medicine physician, internist, pediatrician and occasionally, obstetrician/gynecologist.
Per Diem Reimbursement
Reimbursement of an institution, usually a hospital, based on a set rate per day rather than on charges. Per Diem reimbursement can vary by service (e.g., medical/surgical, obstetrics, mental health, and intensive care) or can be a set rate, regardless of intensity of services.
POS (Point of Service)
A plan in which members do not have to choose the coverage for services until they need them. The most common use of the term applies to a plan that enrolls each member in both an HMO (or HMO-like) system and an indemnity plan. Occasionally referred to as an “HMO swing-out plan” or “out-of-plan benefits rider” to an HMO, or a “primary care PPO.” These plans provide different benefits (e.g., one hundred percent coverage rather than seventy percent) depending on whether the member chooses to use the plan or go outside the plan for services.
PPO (Preferred Provider Organization)
A plan that contracts with independent providers at a discount for services. The physicians in a PPO are paid on a fee-for-service schedule that is discounted, usually about ten to twenty percent below normal fees. The panel of providers is limited and usually has a utilization review system associated with it. PPOs are often formed as a competitive reaction to HMOs by physicians who contract out with insurance companies, employers, or third-party administrators. A patient can use a physician outside of the PPO providers, but he or she will have to bear a bigger portion of the fee.
Pre-admission Certification
The practice of reviewing claims for hospital admission before the patient actually enters the hospital. This cost-control mechanism is intended to eliminate unnecessary hospital expenses by denying medically unnecessary admissions.
Pre-certification
Also known as pre-admission certification, pre-admission review and pre-cert. It also describes the process of obtaining authorization from the health plan for routine hospital admissions (inpatient or outpatient). Often involves appropriateness review against criteria and assignment of length of stay. Failure to obtain precertification often results in a financial penalty to either the provider or the subscriber/patient.
Provider
Any supplier of services, i.e., physician, pharmacist, case management firm, etc.
Provider Responsibility
The portion of your bill that the health care provider is responsible for under an agreement between the health care provider and the insurance company.
Referral
Permission from your primary care doctor to see a certain specialist or receive certain services.
Self-Insured or Self-Funded Plan
A health plan where the risk for medical costs is assumed by the company rather than an insurance company or managed care plan. Under the Employee Retirement Income Security Act (ERISA), self-funded plans are exempt from state laws and regulations such as premium taxes and mandatory benefits. Self-funded plans often contract with insurance companies or third-party administrators to administer the benefits (also see ASO).
Skilled Nursing Facility (SNF)
Typically, an institution for convalescence or a nursing home. The skilled nursing facility provides a high level of specialized care for long-term or acute illness. It is an alternative to extended hospital stays or difficult home care.
Supplemental Insurance Policy
A plan offered by many private insurance companies to cover all or portions of health care expenses including the Medicare deductibles and coinsurance.
Total Charges
The total amount of charges that were submitted on your behalf to your insurance company.
TPA (Third Party Administrator)
An organization outside the insuring organization that handles the administrative duties and sometimes utilization review. Third-party administrators are used by organizations that actually fund the health benefits but who delegate the administration of the plan to someone else.
UB04
The claim form used to submit hospital charges to your insurance company. The practice of reviewing claims for hospital admission before the patient actually enters the hospital.
Utilization Review
A review by an HMO of the treatment patterns of particular providers to see how their usage of drugs, X-rays, lab tests and other services compares with their peers. Utilization Review affects the amount of income providers will receive from the HMO.