Health Insurance The product someone buys to get their medical bills paid for when they receive medical care. As you’ll see, a health plan is a bundled combination of a lot of services and not just the “insurance” portion.

Provider A catch-all term for any person or organization that offers medical care services. This includes doctors, hospitals, clinics, etc.

Payor (or Payer or Insurer) The entity that pays for providers’ services. This includes health insurance companies, Medicare/Medicaid, and employers if they are self-insured (explained later).

Member Term for person on a health plan. Members (or the company they work for) pay payors a monthly premium (a subscription fee) so that when members get care from providers, payers pay providers for the care (a fun tongue-twister).

Group Term for a company (or some other sort of collection of people like a union) that buys health insurance for their employees.

Provider Network An entity that has a collection of negotiated contracts with providers that outline exactly how much the provider can charge for every procedure they administer.

Because billing in healthcare is not upfront, often when paying for a bill, a provider and payor will negotiate what’s a reasonable price. To cut down this back and forth, providers will pre-negotiate pricing in the form of a contract with a provider network.

  • • Large payors are also their own provider network (like United) which is why the term is confusing, but some companies are just the provider network and charge smaller payors to rent their network, meaning paying a fee to the network to access their contracts with providers.
  • • There are literally thousands of provider networks. What’s happened lately is that large payors like United have bought up many small provider networks which is why there is not a unified “United network” but a multitude of networks with a lot of overlap. A lot of networks are regional which is why sometimes a network is strong in some states and not others.

    • Pharmacy Benefits Management (PBM) Similar to a provider network but for pharmaceutical drugs. PBMs negotiate discounts with drug manufacturers and pharmacy retailers and charge a fee to access these discounts and services.

    Medicare The US has a government program called Medicare that pays for the medical care of citizens 65+ years, effectively making the government the country’s largest payor. Any provider that wants to get paid for treating medicare-eligible patients can only charge the government Medicare rates, a fixed price list for procedures decided by the government every month.

    Reference-Based Pricing (RBP) An alternative to the provider network model, RBP is when payors promise to pay a percentage of the Medicare rate to providers (generally around 140% and can go up to 200% depending on the provider/procedure). Providers can either just accept the payment (even if they charged more) or send a balanced bill to the member to try to recoup the remainder or even sue the payor.

    Cash Pay The idea that a member shows up to a provider, says they don’t have insurance, asks for the cash price of procedure, and pays for the bill themselves. This might seem like a bad deal, but often the cash price that providers offer is similar or sometimes even cheaper than the negotiated rate providers have with provider networks. This is because networks expect deep discounts, and so providers quote artificially high prices so the final “deeply negotiated price” is close to the actual market rate. Networks can then go market their “deeply discounted contracts” while providers still collect a reasonable fee. The people caught in the middle are the uninsured when providers try to charge the artificially egregious rate. Cash prices are also hard to find because if too publicized, insurers would expect discounts off of that rate rather than the inflated one.

    Plan Doc (or Plan Design) A literal text document that outlines what services a payor would cover and how it would split the costs with the member and itself. When you “buy health insurance,” this plan doc, an outline of coverage, is essentially what you’re paying for.

  • • Deductible Amount a member pays for care before the payor pays anything. So insurance doesn’t “kick-in” until after deductible.
  • • Co-Insurance The percentage of the bill the payor pays once a member hits their deductible.
  • • Max Out-of-Pocket Amount a member pays before payor covers everything.
  • • Copay An upfront fee a member pays to see a provider.
  • • Carve-Out Procedures that explicitly fall outside of the health plan’s coverage. For example, dialysis is a common carve-out.
  • • Provider Network vs RBP Plans will specify which provider network they are renting if they use one (and often offer incentives like lower deductible to members if they get care from providers in the network) or if they don’t use a network, what percent of medicare of the bill they cover (RBP).

    • Third-Party Administrator (TPA) When a payor wants to administer a plan, they hand off the plan doc to a TPA to do the grunt work. This means that whenever a member sees a provider, the provider sends the bill to the TPA to adjudicate, essentially determining how much the payor is obligated to pay, how much the member is obligated to pay, negotiate down the claim, and send off the final cheque based on the plan doc.

  • • Claim Term for the medical bill sent by the provider.
  • • EDI The file format claims are sent it. EDI files need to be parsed just to be readable.
  • • Clearing House Providers don’t send claims to TPAs directly. They send claims to clearing houses who then send them to the TPA.

    • Stop-Loss Insurance The type of insurance payors buy to protect their own risk. When a payor sells a health plan, they are incurring financial risk. If the group they sold their plan to incurs more medical costs than the monthly premium they pay, the payor is on the hook for the difference. Often, payors will just buy stop-loss insurance to not worry about the burden.

  • • Spec (specific stop-loss) Insurance that covers the risk of an individual member. This protects from individually expensive claims like freak accidents.
  • • Agg (aggregate stop-loss) Insurance that covers the risk of a group. This protects against the group being statistically unhealthy and expensive.

    • Managing General Underwriter (MGU) Name of the people that sell stop-loss insurance. A payor pays an MGU for stop-loss insurance.

    Health Insurance (revisited) Plan Document + Provider Network + PBM + TPA + Stop-Loss bundled together in a single package.

    Fully-Insured Plan What you probably think of when you hear “health insurance.” The payor sells a health plan to other companies for a flat fee, and the payor does all the work and takes on the financial risk.

    Self-Insured Plan When a company decides to create their own health plan, doing the work themselves and taking on the financial risk, rather than just buying everything bundled from an insurance company. Some large health insurance companies also offer Administrative Services Only (ASO), so companies can outsource the work but still take on the financial risk. Why would a company self-insure? Taking on more financial risk lets them save on stop-loss insurance. In fact, about 80% of companies in the US larger than 200 employees are self-insured.