Common Health Insurance Terms

At DAKOTACARE, we are your health insurance experts. We tell it to you straight. Below we’ve provided you a short list of terms commonly found in health insurance.

Accident - An undesigned, sudden and unexpected event, usually of an afflictive or unfortunate character, and often accompanied by a manifestation of force.

Actuary - A person in the insurance field who decides insurance policy rates and reserves dividends, as well as conducts various other statistical studies.

Acute Care - Treatment for a short-term or episodic illness or health problem.

Adjudication - Processing a claim through a series of edits to determine proper payment.

Administrative Costs - The costs assumed by a managed care plan for administrative services such as claims processing, billing and overhead costs.

Ambulatory Care - Health services delivered on an outpatient basis.  If the patient makes a trip to the doctor's office or surgical center without an overnight stay, it is considered ambulatory care.

At Risk - Term used to designate financial liability in compensation/reimbursement arrangements.  A provider may be "at risk" for additional costs, for example, if the expense of caring for a particular panel of patients exceeds the provider's capitation payment.

Average Wholesale Price (AWP) - The average cost of pharmaceuticals charged to a pharmacy provider by a large group of pharmaceutical wholesale suppliers.

Beneficiary - A person who is eligible to receive insurance benefits.

Benefit - Another name for coverage.

Benefit Year - The twelve (12) month period beginning with the effective date of a plan's deductible or coinsurance reset.

Benefit Package - Services an insurer, government agency, health plan or employer offers under the terms of a contract.

Brand-name Drugs - Prescription drugs that are sold under a trademarked brand name.

Cafeteria Plan - A corporate benefits plan under which employees are permitted to choose among two or more options that consist of cash and certain qualified benefits.  Cafeteria plans are also called flexible benefits plans or flex plans/Section 125.

Calendar Year - The period of time from January 1 of any year through December 31 of the same year, inclusive.  Most often used in connection with deductible amount provisions of major medical plans providing benefits for expenses incurred within the calendar year.

Carve Out - To separately purchase services that are typically part of a managed care package.  For example, a plan may "carve out" the vision care benefit and select a specialized vendor to supply these services on a stand-alone basis.

Case Management - The process whereby a health care professional supervises the administration of medical or ancillary services to a patient, typically one who has a catastrophic disorder or who is receiving mental health services.  Case managers are thought to reduce the costs associated with the care of such patients, while providing high-quality medical services.

Case Manager - An experienced professional (usually a nurse, physician, or social worker) who handles catastrophic or high-cost cases as a member of a utilization management team.  Case managers work with patients, providers and insurers to coordinate all health care services.

Center of Excellence - A network of health care facilities selected for specific services based on criteria such as experience, outcomes, efficiency and effectiveness.  For example, an organ transplant managed care program wherein members access select types of benefits through a specific network of medical centers.

Certificate of Creditable Coverage - A document that group health plans and health insurance issuers are required to furnish to an individual to provide documentation of the individual's prior creditable coverage.

Chemical Equivalents - Those multiple source drug products containing essentially identical amounts of the same active ingredients, in equivalent dosage forms, and that meet existing physical/chemical standards.

Chronic Case - A patient who has one or more medical conditions that persist over long periods of time.

Claim - Information submitted by a provider or covered person to establish that medical services were provided to a covered person, from which processing for payment to the provider or covered person is made.

Clinical - Health data that has been observed by physicians using instruments, devices or laboratories.

Coinsurance - A specified dollar amount calculated using a fixed percentage of the allowance for covered services for which each plan member is responsible for payment. 

Consolidated Monibus Budget Reconciliation Act (COBRA) - A law that requires employers to offer continued health insurance coverage to employees who have had their health insurance coverage terminated because of a change in employment. Applies to most non-governmental employers with twenty (20) or more employees.

Coordination of Benefits - When a Member has health care or medical benefits coverage under more than one Plan, the total amount that can be collected under this Policy and all other health plans will not be more than one hundred percent (100%) of expenses for covered services, unless such coordination of benefits is prohibited by law.

Copayment - A specified dollar amount which the plan member is required to pay for certain health services provided under the contract.  The copayment must be paid to the provider of such service. 

Creditable Coverage - Benefits or coverage provided under: (A) Medicare or Medicaid; or (B) An employer-based health insurance plan or health benefit arrangement that provides benefits similar to or exceeding benefits provided under a health benefit plan; or (C) An individual health insurance policy including coverage issued by a health maintenance organization, a fraternal benefit society; a nonprofit medical and surgical plan; a nonprofit hospital plan that provides benefits similar to or exceeding the benefits provided under a basic health benefit plan pursuant to SDCL Chapter 58-18B if the policy had been in effect for a period of at least one (1) year; or an employee welfare benefit plan as defined in Section 3(1) of the Employment Retirement Income Security Act of 1974 to the extent that the plan provides directly or through insurance, reimbursement or otherwise to employees or their dependents medical care for the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body and amounts paid for the transportation primarily for and essential to medical care; or (D) Chapter 55 of Title 10, United States Code; or (E) A medical care program of the Indian Health Service or of a tribal organization; or (F) A state health benefits risk pool; or (G) A health plan offered under Chapter 89 of Title 5, United States Code; or (H) A college plan; or (I) A public health plan or (J) A health benefit plan under Section 5(d) of the Peace Corps Act 22 U.S.C. 2504(e); or (K) A short-term limited duration policy; or (L) A children's health insurance program provided by a state or (M) A church plan. Note: Only coverage that was maintained within the last sixty three (63) days will be counted towards the pre-existing limitation period.  You will not receive any credit for health coverage you had prior to any sixty three (63) day break in coverage.

Deductible - A specified dollar amount of covered services that must be incurred by a plan member during a benefit before most benefits become payable by the plan.

Delegate Network - A regional network of health care providers who provide health care services outside the state of South Dakota for which access has been contracted for a limited group of plan members based on the member's area of residence.

Dependent - An individual who receives health insurance through a spouse, parent or other family member.

Diagnosis - The identification of a disease or condition through examination.

Disease Management - System of coordinated health care interventions and communications for populations with a variety of conditions in which patient self-care efforts are significant.

Disenrollment - The procedure of dismissing individuals or groups from their enrollment with a health carrier.

Dispensing Fee - A charge levied by pharmacists and added to the price of a drug, which covers both their pharmaceutical expertise and the cost involved in the prescription.

Electronic Medical Record - A computer entered and stored record of a patient’s medical chart from the doctor’s office.

Eligible Dependent - A dependent of a covered employee who meets the requirements specified in the group contract to qualify for coverage.

Eligible Employee - An employee who meets the eligibility requirement specified in the group contract to qualify for coverage.

Emergency Medical Condition - A medical condition manifesting itself by acute symptoms of sufficient severity, including severe pain, such that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect that the absence of immediate medical attention would result in serious impairment to bodily functions or serious dysfunction of a bodily organ or part, or would place the person's health or, with respect to a pregnant woman, the health of the woman or her unborn child, in serious jeopardy.

Employee Retirement Income Security Act of 1974 (ERISA) - A law that mandates reporting and disclosure requirements for group life and health plans.

Evidence Based Medicine - Medicine that is in accordance with “best practices” as defined by scientific societies incorporating what is known of the patient’s condition, that is, the “evidence” of that condition in the chart.

Exclusions - Specific health care services, supplies, sicknesses, or injuries that are not covered by the insurance policy.

Explanation of Benefits (EOB)  A statement sent to covered individuals explaining services provided, amount billed, and payments made based on policy benefits.

Fee Schedule - A comprehensive listing of fees used by either a health care plan or the government to reimburse physicians and/or other health care providers on a fee-for-service basis.

Flexible Benefit Plan - A benefit program that offers employees a number of benefit options, allowing them to tailor benefits to their needs.

Drug Formulary - An approved list of prescription drugs that managed care plans may provide to their members.  Drugs contained on the formulary are generally those that are determined to be both cost effective and medically effective.

Generic Prescription Medication - A medication which is a chemically equivalent copy designed from a brand name drug whose patent has expired, requires a prescription, is marketed under its chemical name, is manufactured by more than two (2) generic manufacturers and is offered at a significantly reduced cost as compared to the brand product.

Generic Substitution - In cases in which the patent on specific pharmaceutical product expires and drug manufacturers produce generic versions of the original branded product, the generic version of the drug (which is theorized to be the exact same product manufactured by a different firm) is dispensed even though the original product is prescribed.  Most Managed Care Organizations and Medicaid programs mandate generic substitution because of the generally lower cost of generic products.

Health Maintenance Organization (HMO) - A form of health insurance in which its members prepay a premium for health services, which generally includes inpatient and ambulatory care.  For the patient, it means reduced out-of-pocket costs, no paperwork (i.e., insurance forms), and only a small copayment for each office visit to cover the paperwork handled by the HMO.

HIPAA - The Health Insurance Portability Act of 1996 and amendments thereto.

Mail Order Pharmacy - A method of dispensing medication directly to the patient through the mail.  Mail order drug distributors can purchase drugs in larger volumes than retail or wholesale outlets.

Managed Health Care -The sector of health insurance in which health care providers are not independent businesses run by, for example, the private practitioner, but by administrative firms that managed the allocation of health care benefits. In contrast with conventional indemnity insurers who do not govern the provision of medical services and simply pay for them, managed care firms have a significant say in how services are administered so that they may better control health care costs. HMO and PPOs are examples of Managed Care Organizations.

Member - The term member may mean the policyholder and may be used to include anyone (spouse or dependent) which the plan extends coverage through a policy.

Network - The group of physicians, hospitals, and pharmacies that a managed care plan has contracted with to deliver medical services to its members.

Nonparticipating Provider - A health care provider who has not contracted with the carrier or health plan to be a participating provider of health care.

Office Visit - Physician services when provided in the physician's office setting.

Open Enrollment - A period during which a plan allows persons not previously enrolled to apply for plan membership.

Out of Pocket Maximum - The portion of payments for health services which is the responsibility of the member, which shall include deductible, coinsurance, and sometimes copayments.  The cost of services which are not covered due to limitations, or exclusions, or for which penalties apply due to their being rendered by non-participating providers do not apply toward the out-of-pocket maximum.

Over-the-Counter (OTC) Drug - A drug product that does not require a prescription under federal or state law to obtain it.

Participating Provider - A licensed health service provider who has entered into a service agreement with the plan or who is a delegate network health service provider which contracts with the plan to provide health services to the member.

Per Member per Month (PMPM) - A unit of measurement related to each enrollee for each month.

Pharmacy and Therapeutics (P&T) Committee - A group of physicians, pharmacists, and other health care providers from different specialties, who advise a managed care plan regarding safe and effective use of medications. The P&T Committee manages the formulary and acts as the organizational line of communication between the medical and pharmacy components of the health plan.

Physician Assistant - A health care professional certified to perform certain duties such as history taking, diagnosis, drawing blood samples, urinalysis, and injections under the supervision of a physician.

Plan - A group or individual health policy; a service plan contract; a preferred provider organization; a health maintenance organization.

Policy - The entire agreement between the plan and the policyholder, including:  1) The electronic application submitted by the member for any policy issued by the plan and, if any, 2) attached amendments, addenda, riders, and endorsements.

Preauthorization - The process a plan employs to ensure it has been notified before services are provided of an admission or provision of service in order that the Medical Necessity of the admission or service may be determined.

Preferred Provider Organization (PPO) - PPOs are managed care organizations that offer integrated delivery systems (i.e., networks of providers) that are available through a vast array of health plans and are readily accountable to purchasers for cost, quality, access, and services associated with their networks. They use provider selection standards, utilization management, and quality assessment techniques to complement negotiated fee reductions as an effective strategy for long-term cost savings. Under a PPO benefit plan, covered individuals retain the freedom of choice of providers but are given financial incentives (i.e., lower out-of-pocket costs) to use the preferred provider network. Preferred provider organizations are marketed directly to employers as well as to insurance companies and TPAs, who then market the network to their employer clients.

Premium - The monthly fee required to be paid by or on behalf of the policyholder in accordance with the terms of his/her policy.

Preventive Health Services - Health care services, including preventive exams, disease-specific screening tests, and procedures based upon evidence-based medical information. The services will be performed primarily in the primary care setting, intended for utilization in maintaining or improving the health and well-being of members.

Primary Care Network - A group of primary care physicians who have joined together to share the risk of providing care to their patients, who are members of a given health plan.

Provider - Any supplier of health care services, i.e., physician, pharmacist, case management firm, etc.

Quality-of-Life Measures - An assessment of the patient's perceptions of how they deal with their disease or everyday life when suffering from a particular condition. Although it is subjective, it has been in the health care literature for at least 25 years. It has been tapped in the area of pharmaceuticals most recently in the last seven or eight years. Through statistical means, the indices that have been developed to measure the various quality-of-life aspects have been validated over time, and these measures are reliable and reproducible.

Risk - The possibility that revenues of the insurer will not be sufficient to cover expenditures incurred in the delivery of contractual services.

Risk Analysis - The process of evaluating expected medical costs for a prospective group and determining what product, benefit level, and price best meets the needs of the group and the carrier.

Risk Pool - A defined patient population and geographic location from which revenue and expense are determined. A risk pool seeks to define expected claim liabilities of a given defined account as well as required funding to support the claim liability.

Self-Funding - Also known as self-insurance, self-funding is a health care plan funded entirely by employers who do not purchase insurance. Self-funded plans may be self-administered, or the employer may contract with an outside administrator for an administrative services-only arrangement.

Step Therapy - A prescription protocol used by HMOs and PPOs to utilize the most cost-effective drug therapy for selective diagnoses. If the patient does not respond satisfactorily, more advanced therapy is prescribed as needed.

Stop-Loss - Insuring with a third party against a risk that the plan cannot financially manage. For example, a health plan can self-insure hospitalization costs or it can insure hospitalization costs with one or more insurance companies.

Third-Party Administrator (TPA) - An organization that is outside of the insuring organization that handles the administrative duties and sometimes utilization review.  TPAs are used by organizations that fund the health benefits but do not find it cost effective to administrate the plan themselves.

Trending - A calculation used to anticipate future utilization of a group based on past utilization by applying a trend factor: the rate at which medical costs are changing because of various issues, including prices charged by health care providers, changes in the pattern of utilization and the use of expensive medical equipment.

Underwriter - Usually refers to a company that receives premiums and accepts responsibility to fulfill the health insurance policy contract. Can also apply to an insurance company employee who decides whether or not the carrier should assume a risk or the agent who sells the policy.

Universal Copay - A specified dollar amount which the member is required to pay for certain health services provided under the policy.  The copayment must be paid to the provider of such service.  This copay extends to laboratory and x-ray services ordered during the office visit.

Usual, Customary and Reasonable (UCR) - Fee-for-service payment to physicians based on the usual and customary fee for the same service in the area where the practice is located or on some other judgment of reasonableness.

Utilization Review - Performed by the health plan to discover if a particular physician-provider is spending as much of the health plan's money on treatment, or any specific portion thereof, (e.g., specialty referral, drug prescribing, hospitalization, radiological or laboratory services), as his or her peers. This study helps determine if a physician will obtain any of the money in the withhold fund at the end of the health plan's fiscal year.

Value-Added Services - These services, such as handling complicated paperwork and reimbursement forms, are offered by pharmaceutical manufacturers or drug wholesalers to enhance their competitive edge.

Value Plus - DAKOTACARE is proud to offer you the greatest selection of health care savings options.  To give you the most choice you can receive quality eye care discounts with Vision Service Plan (VSP) or EyeMed Vision.  Also available are Identity Theft Restoration services, Travel Assistance, and Weight Loss Management discounts through Weight Watchers.  Visit for more information.  Note: This is a discount program.  This is not a health insurance plan and does not provide benefits that are covered by any DAKOTACARE benefits plan.


DISCLAIMER:  This glossary has many commonly used terms, but isn't a full list.  These glossary terms and definitions are intended to be educational and may be different from the terms and definitions of your plan.  Some of these terms also might not have exactly the same meaning when used in your policy or plan, and in any such case, the policy or plan governs.