Glossary of Terms

A - D

AB1672 Legislation: A California assembly bill designed to educate small business owners
of group health insurance. In 1993 the assembly bill was passed and enacted that effected the
way health insurance carriers treated small businesses. Carriers such as Blue Cross of
California, Blue Shield of California, Sharp Health Plan, Health Net, Kaiser, Aetna, Cigna and
PacifiCare and many others accept groups of 2 or more. Carriers must accept all small
businesses that apply for plans regardless of the nature of the firm's business or the health
conditions of its employees. Depending on the health questions and size of the group the
premium can range from 95% to 110% of published premium. These published premium

charges are submitted and filed with the Department of Corporations. Many carriers will
automatically assign a rate of 110% for groups with fewer than 5 employees. (For more
information on the bill go to www.insurance.ca.gov)

Accidental Injury: Definite trauma resulting from a sudden, unexpected and unplanned event,
occurring by chance, caused by an independent external source.

Activities of Daily Living (ADL): the self-care and mobility skills required for independence in
normal everyday living. This does not include recreational or sports activities. (Bathing, eating,
dressing, transferring from bed to chair, toileting, continence or severe cognitive

impairment)

Acute Care: care rendered in the course of treating an illness, injury or condition marked by a
sudden onset or change of status requiring prompt attention, which may include hospitalization.
It is limited in duration and is not expected to last indefinitely.

Adult Day Care: Community centers provide different levels of medical care and therapy,
along with meals, companionship, activities and social services. They center offers the family
caregivers an alternative to using full-time providers at the home.

Annuity: A contract issued by an insurance company that offers the systematic liquidation of
principal over a selected period, including payments guaranteed to last for the lifetime of the

annuitant. Guarantees are backed by the claims paying ability of the issuer, annuities are long term
investments designed for retirement purposes. Withdrawals of taxable amounts are subject to
income tax and, if taken prior to age 59 1/2, a 10% federal tax penalty may apply. Distributions
may start as early as 59 1/2 years of age or by age 70 1/2.

Annuity (Fixed): Specifies a fixed rate of interest (usually set annually based on the prevailing
market interest rates) that will be paid on the amount invested in the annuity. The insurance
company assumes the investment risk. Most fixed annuities provide a guaranteed minimum
rate of interest for the life of the contract. Guarantees are backed by the claims paying ability of
the issuer, annuities are long term investments designed for retirement purposes. Withdrawals

of taxable amounts are subject to income tax and, if taken prior to age 59 1/2, a 10% federal
tax penalty may apply.

Annuity (Equity-Indexed): Also known as an EIA. An annuity that offers both a
guarantee of principal and earnings linked to the upside movement of an equity index.

Annuity (FPDA): Flexible contributions may be made as often and in whatever amounts the
contract owner desires; benefits begin one year from the date of purchase. Deferred annuities
are normally purchased to defer taxes on growth and accumulation, such as a retirement fund.
This annuity is also ideal for educational funding.

Annuity (SPDA): A single premium (lump sum) is put into an account from which the annuitant

will draw the periodic benefits (funds) at some specific time in the future. Benefits begin
more than one year from the date of purchase. This annuity may be ideal for educational funding.

Annuity (SPIA): A single premium (lump sum) is put into an account from which the
annuitant may immediately begin drawing benefits (funds). Funds to be drawn with a year of issue..
The immediate annuity essentially does not have an accumulation period.

Annuity (Annuitization Options):
1. Term Certain: Benefit payments received for a specified period of time, or until death; whichever
comes first.

2. Life Income: Benefit payments for as long as the annuitant lives, and upon death all payments
cease (pays more monthly income than any other option).
3. Life Income Period Certain: Benefit payments for life, or for a specified period, whichever
occurs last. If the annuitant lives beyond the period, the benefits continue for life.
4. Life Income with Refund (fixed amount or cash refund): Benefit payable for the lifetime of
annuitant. Upon his/her death, if annuitant has not received an amount equal to the total of
all payments made into the annuity, the balance is refunded to the beneficiary either a lump

sum or in installments.
5. Fixed Amount (Level Benefit): Pays an amount as stated by the annuitant for as long as
the principal and interest will pay the set or level benefit.
6. Life Income Joint & Survivor: Benefit payable to two or more annuitants while both are
living. Upon death of the first annuitant, survivor benefits continue, normally reduced to
two-thirds or one-half for the survivor's income until the survivor dies. Joint and two-

thirds life annuity is considered a full annuity for a married couple.
7. Joint Life: Benefit payable to two or more annuitants while both are living. Upon the
death of the first annuitant, the benefits stop.

Appeal: A process used by a member to request the health plan re-consider a previous
authorization or claim decision.

Basic Medical Policy: May also be referred to as a "catastrophic" policy. After deductible is
met will cover hospital, surgical, and inpatient services for x-ray, laboratory, and prescription.
These policies usually have a deductible, co-insurance clause, and a stop loss limit.

Brand Name Drug: A prescription drug which is protected by a trademark registration.

Chronic Care: care (different from acute care) furnished to treat an illness, injury or condition,
which does not require hospitalization, which may be expected to be of long duration without any
reasonably predictable date of termination, and which may be marked by occurrences requiring
continuous or periodic care as necessary.

Coinsurance: The percentage of allowable costs you pay for covered health care services after
you satisfy your annual deductible; amounts vary by plan.

Comprehensive Major Medical Policy: Combines the best features of the Basic policies and
Major Medical policy into a single policy. This includes hospital coverage and "reasonable

and necessary" medical expenses. These policies usually have a deductible, coinsurance clause,
and a stop loss limit.

Co-Payment: The specific dollar amount or percentage required to be paid by or on behalf
of a member in connection with an insurance benefit.

Custodial Care (or Maintenance Care): care furnished in home primarily for supervisory care or
supportive services, or in a facility primarily to provide room and board (which may or may not
include nursing care, training in personal hygiene and other forms of self care or supervisory care
by a doctor of Medicine).

Deductible: An amount that a member must pay for covered services each year before the plan

begins paying part of the costs.

Dependent: A person who is eligible to be enrolled for coverage under a member or subscriber's
plan. Examples would be a subscriber's spouse or child.

Dependent Care Account: A savings account to offset cost of child care. A maximum of $5000 can be set aside annually pre-tax from payroll check. Consult tax guidelines if this is ideal or if you should file deduction upon filing your taxes.

Disability: 1a. The condition of being disabled. 1b. The inability to pursue an occupation
because of a physical or mental impairment.
An occupational disability consists of an injury or sickness that was caused on the job.
A non-occupational disability consists of an injury or sickness that occurred while off the job.

Disability Insurance: A contractual agreement that provides a portion of income if the

individual becomes disabled from an injury or sickness on or off the job. Types: short-term,
long-term, state or federal programs, group or individual plans.

Domestic Partner: A person considered a lawful or documented dependent of the subscriber and dependent upon the individual for support. For some types of insurance coverage the appropriate
documentation (a notarized affidavit or, for same-sex domestic partners, a Declaration of
Domestic Partnership filed and stamped by the Secretary of State).

E - J

Eligible Employee: A permanent employee who works either full-time (at least 30 hours) or
part-time (between 15 - 29 or 20 to 29 hours) and has a normal work schedule. They must
be compensated for the work by their employer (subject to withholdings appearing on a

W-2 form).
Sole Proprietors/Partners/Corporate Officers are eligible and must work at least 20 hours per
week.
Others: Seasonal workers within the agricultural industry, and private household staff may be
considered eligible though subject to underwriting approval.

Explanation of Benefits (EOB): A form provided to members to explain how the payment
amount for a health benefit claim was calculated.

Flexible Spending Account: A type of cafeteria plan authorized under Section 125 of the
Internal Revenue Code. Separate FSAs can be set up to cover expenses such as health

insurance premiums (POP), qualified medical expenses or dependent care expenses. There are
no specific health plan requirements. An employee or employer can contribute to the account on
a pre-tax basis.
Unused FSA balances are forfeited at the end of the year. (Note: New legislation in May 2005
issued y the U.S. Department of Treasury (2005-42) allows employers to modify FSAs in order
to extend the deadline for reimbursement from accounts. The deadline can be extended by up to
2 1/2 months, at the employer's discretion. Still pending is legislation to allow $500 to be rolled
over. For more information to go http://www.treas.gov/press/releases/reports/n9542.pdf.

Formulary (Drug Formulary): A listing of prescription drugs and insulin established by the
health plan which includes both Brand Name and Generic Prescription Drugs. These drugs are
subject to copayments that may vary based on the plan design.

Generic Drug: A prescription drug which is not protected by trademark registration, but is
produced and sold under the chemical formulation name.

Health Maintenance Organization (HMO): A third party, usually a legal entity, which
arranges payment for the provision of basic and supplemental health services to its members
from a network of independently contracted providers and facilities on a prepaid or reduced fee
basis. Members are required to select a primary care physician to provide routine care, and

provide referrals for specialty and hospital services when appropriate.

Health Reimbursement Arrangements (HRA): An employer funded account that reimburses
employees for qualified medical care expenses. This arrangement is usually combined with a
high deductible health plan.

Health Savings Account: A savings account or trust account created by the Federal
Government (under 2004 Medicare Legislation) that are designed to help individuals save for
today's and tomorrow's medical expenses on a tax-free basis. Each state may choose to comply
with the federal guidelines or establish their own guidelines concerning the state treatment of HSAs.
An individual must have a compatible Qualified High Deductible Plan. An individual or employer

may contribute to this account. Interest may accrue on the account. Funds may roll over each year.

Home Care: Is the provision of preventative, supportive, rehabilitative, or therapeutic
health care in a home setting. It also includes supportive supportive social services such as
homemaker and personal care services.

Home Health Care: Skilled medical care for the seriously ill, injured or dying at the home provided
by a nurse, therapist, certified nurse's aid or other licensed health care professional. A home maker/
home health aids are an invaluable part of this team. Home health care covers the use of assistive
devices (crutches, canes, walkers, IV setups, hospital beds, wheelchairs, ostomy supplies,
prostheses, and oxygen).

Hospice Care: Care received under a program that is:
1. Designed to provide comfort and supportive care to individuals who have received a diagnosis
of Terminal Illness.
2. Supportive to covered family members by providing certain services listed under the Home
Health Care, Home Hospice, and Home Infusion Care benefit.
3. Licensed or certified in jurisdiction where the program is established.
4. Directed and coordinated by medical professionals.

HIPAA: Is a federal law enacted in 1996. It is designated to improve availability and portability

of health coverage by:
- limiting exclusions for pre-existing conditions;
- providing credit for prior health coverage;
- allowing transmittal of coverage information to a new issuer;
- providing new rights to allow individuals to enroll for health coverage when they lose their
health coverage or have a new dependent;

- prohibiting discrimination in enrollment/premiums;
- guaranteeing availability of health insurance coverage for small employers.
HIPAA's Administrative Simplification and Privacy (AS& P) Act final rules took effect in
April 2001. The purpose of these rules is to improve the efficiency of health care system by
standardizing the electronic exchange of health information and protecting the security and
privacy of member-identifiable health information.

Individual Retirement Accounts (IRA): Anyone under the age of 70-1/2 who has earned income

may open an IRA. Contributions grow tax-free until they are withdrawn. Maximum annual
contribution allowed by IRS is $3000 (2001-2004), $4000 (2005-2007). Distributions must start
by age 70-1/2 or incur a 50% excise tax. Premature distributions before age 59-1/2 will incur a
10% penalty tax. (See Rollover)

Ineligible Employees: Individuals considered temporary, leased or substitute workers and
persons compensated on a 1099 basis.

Insurance: n. 1. An insuring or being insured. 2.a. Contract (insurance policy) whereby a
person or company guarantees payment for a specified loss by fire, death, etc. 3. The amount
for which something is insured. 4. The business of insuring against loss.

IPA (Independent Practice Association): A group of providers that contract with
managed care plans while maintaining their separate practice.

L - P

Life Insurance: A contractual agreement providing insurance of payment for a stipulated
sum to a designated beneficiary upon the death of the insured. Types: Term, Universal,
Whole.

Long-Term Care (LTC): Long-term care is the daily assistance necessary when one contracts
a serious disability that lasts for a period of time, and they are not able to care for themselves.
Types of care include: home health care, home care, adult day health care, respite care, assisted

living facilities, skilled nursing facilities and hospice services.

Long-Term Care Insurance: Is the business of insuring against the loss of one's ability to
function independently in society whether it be due to an injury or sickness or through the
natural progression of growing old and/or becoming frail.

Medicaid / Medi-Cal: Provides increased assistance to those with a financial need and unable
to pay for their medical needs. Medicaid is a federal and state administered program. Medicaid
pays for hospital care, outpatient care, certain nursing facilities, doctors, laboratory, x-ray
services, prescriptions, Long-Term Care, and some home health care after current assets are
exhausted.

Medicare: Is a federal administered program developed by Congress in 1965 as an amendment
to the Social Security Program. It is not designed for a specific class of society, but primarily for
our citizens age 65 and older. Others of any age who received Social Security disability benefits
for at least two years are eligible. Medicare is a federal health insurance program. There are two
traditional parts to the program: Part A- Hospital Insurance and Part B- Medical Insurance. For
more information go to www.medicare.gov.

Medicare Advantage: Formally known as Part C. Is available from all the major health insurance
carriers. It is designed as an affordable HMO plan and the member assigns their benefits over to

the medical facility that will do all the billing to Medicare.

Medicare Enrollment Periods: A) Initial Enrollment Period lasts 7 months, and begins on the
first day of the third month before your 65th birthday and ends on the last day of the third month
following the month in which one is eligible. B) General Enrollment Period is a period from
January 1 to March 31of each year in which one can enroll for Medicare if he/she did not
enroll during the initial enrollment period. Coverage will begin the following July.

Medicare Supplement Insurance: Also known as Medi-Gap. This is health insurance offered
by private insurance companies to fill the "gaps" in the original Medicare Plan coverage of Part A
and Part B. These supplements give you power of choice and the flexibility to choose any

doctor or hospital that accepts Medicare. ( 10 standard plans: A - J. H, I, and J have a drug
benefit. A new supplement with a drug benefit will be available January 2006.)

National Association of Health Underwriters (NAHU): w

Negotiated Fees: Discounted fees for medical services that have already been agreed upon by
the insurance carrier and in-network/participating providers.

Network: Physicians, hospitals and other health care providers who contract with a specific
insurance carrier to participate in health benefit plans. Also see Primary Providers and Non-
Participating Providers/Physician.

Non-formulary Drugs: A prescription drug that is not covered under the Drug Formulary.

Each plan design may have a provision for these drugs.

Non-Participating Provider: This term generally used to mean providers who have not
contracted with a health plan to provide services at reduced fees. Also called Non-Preferred Care Providers or Out of Network Providers.

Occupational Therapy: Treatment to restore a physically disabled person's ability to
perform activities such as walking, eating, drinking, dressing, toileting, and bathing.

Out-of-Pocket Maximum: The maximum out of pocket that member will have to pay for
expenses covered under the health plan. The maximum may be a coinsurance maximum or a
copayment maximum. Generally the OOP amount is calculated by the sum of all paid deductible
and copayment or coinsurance amounts. Some POS plans may have two types of OOP

maximums for services in and out of the network. Once the member reaches the OOP
maximum(s) the plan pays 100% of expenses for covered services. Note: A family OOP is
2 or 3 times an individual member's amount.

Outpatient: Care provided in a clinic, emergency room, hospital or non-hospital surgical
facility (SurgiCenter) without admission to the hospital or facility.

Outpatient Facility: Refer to Outpatient.

Outpatient Surgery: Surgical procedures performed that do not require an overnight stay in the
hospital or ambulatory surgery facility. Such surgery can be performed in the hospital, a surgery
center, or physician office.

POS: Point of Service Plan provides benefits for covered services received from both
participating (primary) and non-participating providers. when you enroll in a POS, you choose
a primary care physician (PCP) for general care except for emergency and direct access benefits.
You are responsible for copayment or coinsurance payments. Care received on a self-referred
basis will be subject to higher out of pocket costs such as deductibles, coinsurance and
balance billing. You are responsible for obtaining pre-certification for services provided by non-participating or non-network providers.

Preferred Provider Organization (PPO): Also known as Open Choice. Members may
choose any licensed health care provider for covered expenses. They will have lower out of
pocket expenses when they utilize participating providers (Primary Network or In-Network )

Members need not select a primary care physician to manage their care, and can self-refer
to providers either in or out-of-network)

Primary or Preferred Provider: Physicians, hospitals and other health care providers who
contract with a specific insurance carrier to participate in health benefit plans. They provide
services at reduced fees. Also see Non-Participating Providers.

Preventative Care: Primary services provided for the early detection of disease when
no symptoms are present. (e.g. annual physical, pap smear, PSA test, laboratory
testing for sexually transmitted disease and/or adult immunizations, colorectal screening,
osteoporosis screening, well-baby examination, pediatric immunization, eye and ear screening,

mammogram, chest x-ray, FDA approved cervical cancer screening)

Q - Z

Respite Care: continuous care of the patient in the most appropriate setting for the primary
purpose of providing temporary relief to the family from the duties of caring for the patient.
(Covered under most Long-Term Care Plans.)

Rollover: Changing from one type of qualified plan to another. IRS rollover guidelines permit a
rollover to avoid taxation as an early withdrawal. Must be completed within a 60-day window. A
direct rollover is from a trustee to trustee (nontaxable) and may only be completed once very 12
months.

Roth IRA: Is a nondeductible tax-free retirement plan established under the Tax Relief Act
of 1997. Developed for single people with income levels of $95,000 to $110,000, married
couples with a combined income of $150,000 to $160,000 or less. Maximum contribution
is $4000 (year 2005-2007) annually for an individual. Contributions are not tax deductible
as with a traditional IRA. Contribution period may exceed age 70 1/2.

Skilled Nursing Facility: A facility licensed by your State Health Services as a "Skilled Nursing
Facility" or any similar institution licensed under the laws of any other state, territory or foreign
country.

Urgent Care Facility: A licensed facility manned by a physician and staff. They may provide

medical services 24 hours 7 days per week. They may be a cost effective solution to an
Emergency Room for an unexpected illness or injury that is not life threatening but requires
immediate outpatient medical care that cannot be postponed.

Voluntary benefits: Plans offered to employees under Section 125 of the IRC also known
as Cafeteria Programs. Voluntary plans allows the employer to expand their employee benefit
programs without having to pay for it. The advantage are group rates, less underwriting, portable
coverage, and payroll deduction. Plans: Accident, Critical Illness, Cancer, Medical Bridge,
Short and Long-term Disability, Term & Universal Life, Long-term Care, Flexible

Spending Accounts, Health Savings Accounts, Dependent Care Accounts.

NUMERIC

401K retirement program: A type of profit-sharing plan under which participants are
given the option to receive their annual contribution in cash as currently taxable income
or have the contribution credited to the plan, in which case the contribution will not be
currently taxable as income.

Sources for glossary terms:
- SITS, California Long Term Care, Insurance of the 21st Century "A Second Look"
CTQ 2000, A.D. Banker & Company Insurance Education, 2001

- 2004 California Annuities, Sandi Kruise Insurance Training, 2004
- California Life & Health, 2300 Edition, A.D. Banker & Company Insurance Education,
UNLH2300, 2003
- Issues & Answers Vol. 121, December 11, 2003, The Council for Affordable Health Insurance's
- Aetna.com/help/glossary.html