Glossary of billing and insurance terms

Ambulatory care. Ambulatory care is care given in the doctor's office or surgical center without an overnight stay.

Authorization. Authorization is the approval of care, such as hospitalization, by an insurer or health plan. Your insurer or health plan may require pre-authorization before you're admitted or non-HMO providers treat you.

Balance billing. Balance billing is the practice of a provider billing you for all charges not paid by your insurance plan, even if those charges are above the plan's usual, customary and reasonable (UCR) charges 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 prohibition against balance billing may even extend to the plan's failure to pay at all (for example, because of bankruptcy).

Certification. Certification is the official authorization for use of services.

Claims review. Claims review is the review your insurer or health plan performs before paying your doctor or reimbursing you. This review allows the insurer to validate the medical appropriateness of the services given and review the charges related to your care.

Coordination of benefits (COB). Coordination of benefits is an agreement between your insurers to prevent double payment for your care when more than one plan provides coverage. The agreement determines which insurer has primary responsibility for payment and which has secondary responsibility.

Coinsurance. Coinsurance is a provision that limits an insurer's coverage to a certain percentage, commonly 80 percent. This provision is common among indemnity insurance plans and preferred provider plans. If your insurance includes coinsurance, you'll be responsible for charges beyond those covered by your insurance.

Copayment. Copayment is the portion of a claim or medical expense that you must pay out-of-pocket. Copayment usually is a fixed amount.

Current Procedural Terminology (CPT-4) codes. Medical professionals use this set of five-digit codes for billing.

Deductible. A deductible is the portion of your health care expenses that you must pay before your insurance applies.

Diagnosis-related groups (DRGs). DRGs are a system of classifying inpatient stays for payment. The Centers for Medicare & Medicaid Services uses DRGs to derive standard reimbursement rates for medical procedures and to pay hospitals for Medicare recipients. Some states use DRGs for all payers, and some private health plans use DRGs for contracting.

Explanation of benefits (EOB). An explanation of benefits is a statement mailed to an insured person noting how a claim was paid or why it wasn't covered. Medicare recipients receive a Medicare Summary Notice (MSN).

Fee schedule. A fee schedule is a list of the maximum fee that a health plan will pay for each service based on CPT-4 billing codes. Some plans refer to it as fee maximums or as a fee allowance schedule.

HCFA 1500 form. The HCFA 1500 form is required by Medicare and used by some private insurance companies and managed care plans for billing.

Health maintenance organization (HMO). An HMO can be defined in several ways: 1. An organization that provides health care to members in return for a preset amount of money. 2. A health plan that places at least some of the care providers at risk of medical expenses. 3. A health plan that uses primary care doctors to determine whether members receive care from specialists (although some HMOs don't).

International Classification of Disease (ICD) codes. ICD codes are an international disease classification system used in diagnosis and treatment.

Managed health care. Managed health care refers to a system of health care delivery that tries to manage the costs and quality of health care and access to care. It often involves use of contracted provider networks, limitations on benefits for care given by noncontracted providers (unless authorized to do so) and use of care authorization systems. Managed care includes managed indemnity plans, preferred provider organizations, point-of-service plans, open-panel HMOs and closed-panel HMOs.

Medicaid. Medicaid is a program financed jointly by the federal government and the states that provides health care coverage and nursing home care for low-income people. Benefits vary widely from state to state.

Medicare. Medicare is the federal program insuring people age 65 and older and people who have disabilities of all ages. Medicare Part A covers hospitalization and is a compulsory benefit. Medicare Part B covers outpatient services and is a voluntary benefit.

Medigap. Medigap is private insurance that supplements Medicare reimbursement for medical services. Medicare often reimburses care at lower rates than those charged by doctors. Medigap is meant to cover the gap between Medicare reimbursement and provider charges so that the Medicare recipient doesn't have to pay the difference.

Per diem reimbursement. In per diem reimbursement, an institution such as a hospital receives a set rate per day rather than reimbursement for charges for each service provided. Per diem reimbursement can vary by service (for example, medical or surgical, obstetrics, mental health and intensive care) or can be a set rate.

Point-of-service (POS) plan. A point-of-service plan is one in which members don't have to choose the coverage for services until they need them. Most often, the plan enrolls each member in both an HMO (or HMO-like) system and an indemnity plan. These plans provide different benefits depending on whether the member stays within the plan. Dual choice refers to an HMO-like plan with an indemnity plan, and triple choice refers to the addition of a PPO to the dual choice.

Pre-admission certification. Pre-admission certification is the practice of reviewing requests for hospital admission before you actually enter the hospital.

Pre-certification. Pre-certification also is known as pre-admission certification, pre-admission review and pre-cert. It refers to the process of obtaining authorization from the health plan for routine hospital admissions (inpatient or outpatient). Failure to obtain pre-certification often results in reduced reimbursement or denial of claims.

Preferred provider organization (PPO). Preferred provider organizations contract with independent providers for services. The doctors in a PPO are paid on a fee-for-service schedule that is discounted below standard fees. The panel of providers is limited, and the PPO usually reviews health care utilization. PPO members sometimes can use a doctor outside the PPO network, but usually must pay a bigger portion of the fee.

Provider. A provider is any supplier of health care services such as doctors, pharmacists, physical therapists and others.

Self-insured plan. In self-insured (self-funded) plans, the employer (rather than an insurance company or managed care plan) assumes the risk of medical costs. Self-funded plans are exempt from state laws and regulations such as insurance premium taxes and mandatory benefits. Self-funded plans often contract with insurance companies or third-party administrators to administer the benefits.

Skilled nursing facility (SNF). A skilled nursing facility generally is an institution for convalescence or a nursing home. Skilled nursing facilities provide a high level of specialized care for long-term or acute illness.

Third-party administrator (TPA). Third-party administrators handle the administrative duties and sometimes utilization review for self-funded plans.

Usual, customary or reasonable (UCR) charge. Usual, customary or reasonable charges reflect the prevailing fees for service in an area. Many insurers and managed care plans reimburse providers based on UCR charges. This term may be synonymous with a fee allowance schedule.