Glossary of Insurance Terms

We want our clients to understand the insurance and related industries if they choose. We believe our clients should thoroughly understand their benefits, and the benefits they provide their employees. Find definitions to many common insurance terms below.

Aggregate insurance
A form of stop-loss insurance that limits your liability on a group of employees and dependents. For instance, if your company has 50 employees and dependents enrolled in your benefits plan, with specific insurance of $25,000 on each, your maximum risk—in the unlikely event that every insured has a large claim—would be $1.25 million.
Aggregate insurance insures you against this possibility, limiting your total liability so that you know your maximum benefits cost right down to the penny. Aggregate insurance must be purchased in combination with specific insurance.
Consolidated Omnibus Budget Reconciliation Act of 1985. A federal law requiring continuation of coverage to employees who leave their jobs, as well as to their dependents. Health plans sponsored by employers with 20 or more employees must provide COBRA coverage. The former employee must pay the premium, and can extend coverage for up to 18 months. Surviving dependents can receive longer coverage.
Employee Retirement Income Security Act of 1974. A federal law establishing rules and regulations to govern private pension plans. Self-funded insurance plans are created under the terms of this act, and are subject to federal, not state, regulation.
Health Insurance Portability and Accountability Act of 1996. Federal law giving patients increased access to their medical records and greater power to restrict the use of their personally identifiable health information. HIPAA requires health care providers and health plans to protect this information.
Health Maintenance Organization. A health care plan in which members must generally receive all of their medical care from providers within the HMO network. Access to providers is overseen by a primary-care physician (PCP).
Health Savings Account. A tax-advantaged medical savings account. Funds contributed to an HSA are not subject to income tax, but can only be used to pay for qualified medical expenses.
IRS Form 5500
IRS Form 5500 is an annual report that employers are generally required to file on tax-preferred benefit plans that they offer to employees.
Long-term disability insurance
An insurance policy covering disabilities lasting longer than six months to two years. Long-term disability insurance often lasts until the insured is 65 years old, or for life in the case of an accident. Compare with short-term disability insurance.
Limited self-funded plan
A self-funded benefits plan in which stop-loss insurance is used to limit employer liability to a predetermined amount.
Primary-Care Physician. A physician who coordinates all of a patient’s care. In HMO plans, the PCP typically acts as “gatekeeper,” controlling access to services.
Preferred Provider Organization. A health care network composed of physicians, hospitals, or other providers that provides health care services at a reduced fee for network members. Unlike an HMO, patients pay for care when they receive it, not in advance.
Cafeteria Plan
A flexible spending plan that allows employees to pay for benefits with pre-tax dollars. Cafeteria plans can contain a variety of benefits, including medical and life insurance, sick leave, and disability benefits.
Self-funded insurance
Self-funded insurance plans are benefit plans in which the employer designs their own benefits package rather than purchasing a pre-made package from an insurance company. Under this arrangement employers generally purchase stop-loss insurance to mitigate the risk of loss from medical expenses. EBS clients find that self-funded plans provide greater control over benefits and lower costs.
Short-term disability insurance
An insurance policy written to cover disabilities lasting 13 or 26 weeks. Short-term disability insurance can cover periods as long as two years. Compare with long-term disability insurance.
Specific insurance
A form of stop-loss insurance written to limit an employer’s liability for claims from a particular employee. For instance, an employer might purchase stop-loss insurance to cover all medical claims from an employee in excess of a particular amount. To further control liability, specific insurance can be combined with aggregate insurance.
Stop-loss insurance
Stop-loss insurance protects self-funded plans against large claims. For instance, if an employee is diagnosed with a serious illness, stop-loss insurance would kick in to pay for any claims above a pre-set limit
Third-party administrator
Third-party administrators are licensed by state to accept premiums and process claims on behalf of insurance companies and other providers. Being a licensed third-party administrator, as well as a broker, gives EBS the ability to administer benefits for its clients.
Traditional insurance
The typical insurance plan purchased by an employer for its employees. With a traditional insurance plan, you choose a pre-made plan with a state-approved, predetermined rate structure. Your liability is limited to paying the premiums. In contrast, self-funded plans allow greater customization and control (along with additional risk that is mitigated by stop-loss insurance).
Utilization reports
A report on the claims your employees are making: doctor’s appointments, hospitalization, emergency room visits, etc.