REIM INTRODUCTION

Insurance Defined
Study Guide
Introduction
This Study Guide can be used to aid learners in understanding of the material in
Reimbursement Introduction, a part of Reimbursment University. This guide can emphasize
the important concepts to be learned or competencies to be acquired during the course and
can be reviewed as needed.

Table of Contents
COMMERCIAL PLAN TYPES ............................................................................................ 3
PHARMACY BENEFIT MANAGER – HOW IT WORKS ...................................................... 4
MEDICARE PLANS ........................................................................................................... 5
MEDICARE PART D: DONUT HOLE ................................................................................. 5
TRICARE PLANS .............................................................................................................. 6
REIMBURSEMENT TERMINOLOGY .................................................................................. 7
Commercial Plan Types
Pharmacy Benefit Manager – How it works
Medicare Plans

Medicare Part D: Donut Hole

Tricare Plans
Reimbursement Terminology

Term Definition

Alternate Funding Provides financial assistance with medication and other aspect of the
patient's medical treatment. This could range from another insurance the
patient can enroll in or a copay assistance foundation that offsets the out of
pocket costs of a patient's medication.

Allowable Amount The pre-determined amount an insurance company will reimburse for a
service/procedure.

Annual Maximum A set dollar amount that will be paid for covered medical expenses in a
calendar year. The Insurance Carrier will deny any charges that exceed this
dollar amount. Also known as a CAP.

Appeal Sometimes necessary for an insurance plan to consider coverage of a

medication or service if a Prior Authorization has already been denied.

Assignment of Benefits (AOB) A form that the insured signs which directs the insurance carrier to pay any
benefits directly to the provider of service.

Average Wholesale Price Price set by First Databank and others to represent a “list” price of drugs.
(AWP)

Bank Identification Number The payer specific identifier for electronic claims submission. A BIN can be
(BIN) considered like a telephone number. You must dial the correct number in
order to reach the correct person.

Benefits Investigation (BI) Process used to obtain patients MM and PBM coverage.

Benefit Year Any yearly period without regard to the calendar year. This may also be
referred to as a fiscal year.
Brand vs. Generic Medication A brand name of a medication is the name given by the company that makes
the drug. The generic name, is the name of the active ingredient and is
usually cheaper.

Calendar Year The period beginning January 1 of any year through December 31 of the
same year.

Claim A demand to the insurance by or on behalf of an insured person for the

payment of benefits under a policy.
Term Definition

CMS-1500 The most widely used billing form that insurance companies accept.

Coinsurance (COINS) A percentage an insured person must pay per medical service and/or
product. The member pays a percentage and the plan pays the remaining
percentage for eligible medical expenses after the deductible is met.

Copay A flat dollar amount an insured person must pay toward each medical service
and/or product. Usually once the copay is paid, the remaining medical
expenses are paid by the plan.

Cost Exceeds Maximum The plan sponsor has put a ceiling dollar amount on claims. If they go over
this dollar amount, the claim would need to be reviewed. Many times we are
looking to make sure the pharmacist has billed with the correct package size
(quantity).

Current Procedural Governs and categorized professional services performed by a Provider.

Terminology (CPT) Code

Deductible (DED) The dollar amount that an insured person must pay each year toward
medical services and/or products before their plan starts paying any benefits.

Diagnosis (Dx) The determination of the nature, causes, and circumstances of a disease and
the differentiation among diseases.

Effective Date The date on which insurance coverage goes into effect.

Eligibility Refers to whether a patient has current, active coverage. Payers will provide
a patient’s effective date, or the date the patient’s plan became active. If
coverage has terminated, the payer may also provide a termination date. A
member must be active in order for claims to be reimbursed.

Exclusive Provider A more restrictive type of preferred provider organization plan under which
Organization (EPO) employees must use providers from the specified network of physicians and
hospitals to receive coverage.

Explanation of Benefits (EOB) Statement from the insurance carrier to a subscriber and/or provider
showing the action taken on a claim that has been submitted for payment.

Formulary A list of prescription drugs for which the client has agreed to pay part (when
the drug is prescribed for a patient who belongs to the client's plan).
Formularies also help determine the copayment for each prescription. In
most cases, the patient will pay a lower copayment for generic formulary
drugs. Patients are not prevented from getting a non-formulary prescription;
Term Definition
however, they will have to pay the total cost of the prescription in most
cases.

Group Contract An insurance plan which a group of employees (and their eligible
dependents) or other group is insured under a single policy issued to their
employer with individual certificates given to each insured individual or
family unit.

HCFA-1500 The most widely used billing form that insurance companies accept.

Health Care Common Procedural codes that are linked to an individual’s products and/or services
Procedure Code System and are used to determine payment.
(HCPCS)

Health Maintenance Organization that provides for a wide range of comprehensive health care
Organization (HMO) services for a specified group at a fixed payment amount.

A type of medical plan that reimburses the patient and/or provider as

Indemnity
expenses are incurred.

A coverage policy an individual purchases directly from a health plan or

Individual Contract through a health insurance exchange (online marketplace) for themselves or
their family.
The International Classification of Diseases (ICD) is the standard diagnostic
tool for epidemiology, health management and clinical purposes. This
includes the analysis of the general health situation of population groups. It
is used to monitor the incidence and prevalence of diseases and other health
problems. It is used to classify diseases and other health problems recorded
on many types of health and vital records including death certificates and
International Classification of health records. In addition to enabling the storage and retrieval of diagnostic
Diseases (ICD) information for clinical, epidemiological and quality purposes, these records
also provide the basis for the compilation of national mortality and morbidity
statistics by World Health Organization Member States. It is used for
reimbursement and resource allocation decision-making by countries.

Note: The number after ICD indicates which revision is in use. UBC uses ICD-9
diagnosis codes at this time.

A code used by Major Medical plans to identify a product or service. Used to

J-Code (aka Procedure Code)
determine coverage.

A set dollar amount that will be paid for covered medical expenses during a
Lifetime Maximum
patient’s lifetime.
Term Definition

A method of receiving medications from a pharmacy by mail. Usually

Mail Order
dispensed in 90- day supplies.

A provision of protection against illness which covers a broad scope of

Major Medical (MM) services, such as, hospital nurses, home, and office medical care, in some
cases prescription drugs.

Organization that combines the functions of health insurance, delivery of

Managed Care Organization care, and administration. Examples include the independent practice
(MCO) association, third-party administrator, management service organization, and
physician-hospital organization.

This plan provides comprehensive health services to their members, and

Managed care plans offer financial incentives for patients to use the providers who belong to the
plan.

State programs of public health assistance, which aid persons who cannot
Medicaid
afford healthcare.

The dollar amount the patient must pay toward the cost of their treatment,
Medicaid Spend Down
before the insurance carrier will pay benefits.

Federally sponsored program under the Social Security Act that provides
Medicare (CMS) hospital benefits, supplementary medical care, and catastrophic coverage to
the elderly and disabled.

Medicare Part A Provides coverage for hospital & skilled nursing care services.
Provides coverage for doctor services, outpatient hospital care, and other
medical services that Part A does not cover.
Medicare Part B
Note: Patients must be enrolled in Medicare Part A before enrolling in
Medicare Part B.

Medicare + Choice - Program increases the number of health care options in

Medicare Part C
addition to those that are available under Part A and Part B.
A voluntary, highly subsidized, guaranteed enrollment, prescription drug
insurance plan administered by private health insurance companies offered
to Medicare eligible recipients.
Medicare Part D
Note: Patients must be enrolled in Medicare Part A before enrolling in
Medicare Part D.
Term Definition

National Association Board of

Number assigned to each licensed pharmacy.
Pharmacy (NABP) Number

National Council for

Prescription Drug Programs The format used for the electronic submission of claims.
(NCPDP) Format
The group of physicians, hospitals and other medical care providers that a
specific managed care plan has contracted with to deliver medical services to
its members.
Network In-Network: a list of the doctors, other health care providers, and hospitals
that a plan has contracted with to provide medical care to its members.
Out-of-Network: the doctor or facility providing care does NOT have a
contract with the health insurance company.

National Drug Code (NDC) Number assigned to each FDA approved drug.

National Provider Identifier

A unique ten-digit identification number issued to health care providers.
(NPI)

Medical expenses that an insured person must pay before the insurance
Out of Pocket (OOP)
payer begins paying at 100% (in the calendar year or benefit year that
Maximum
expenses are incurred).
Provide medication at a reduced price or even free of charge. The patient
must usually qualify for the program based on their income, although each
Patient Assistance Program
program has different criteria to qualify. These types of programs are usually
(PAP)
developed by drug manufacturers themselves and administered by third
parties.
General term that applies to all insurance plans, Major Medical and
Payer
Prescription Benefits Managers.

Pharmacy Benefits A term used to describe a payer of prescriptions; usually this is a separate
Management (PBM) benefit from the health plan. Typically, claims are submitted electronically.

A managed care process in which a service must be pre-approved as

Prior Authorization (PA)
medically necessary before the service is approved for payment.
A process used to determine if a product and/or service is a covered benefit
Precertification
under the patient's plan (contract).
A process used to determine the maximum dollar amount that the plan will
Predetermination
pay for a covered product and/or service before treatment is provided.
Protected health information is any personal health information held by
Protected Health Information
covered entities that belongs to a patient. Sharing this information without
(PHI)
patient consent is a HIPAA violation.
Term Definition
A POS plan is sometimes referred to as an "open-ended" HMO when offered
by an HMO. POS plans resemble HMOs for in-network services. Services
Point of Service (POS) Plan
received outside of the network are usually reimbursed in a manner similar
to conventional indemnity plans.
An indemnity plan where coverage is provided to participants through a
network of selected health care providers (such as hospitals and physicians).
Preferred Provider
The enrollees may go outside the network, but would incur larger costs in
Organization (PPO)
the form of higher deductibles, higher coinsurance rates, or non-discounted
charges from the providers.
A monthly fee paid to an insurance company or health plan to provide
Premium
medical coverage.
Provided through the plan of which they are a member (such as the spouses
both covered through their respective employment - the primary coverage is
provided under the plan provided by the employer of each spouse) or the
Primary coverage plan under which the member has been a participant for the longest time
period. Primary insurance gets billed first. It takes the bulk of the claim. The
primary insurance will pay the copay, to a particular extent depending on
your plan.
The process by which a healthcare provider (HCP), such as a physician,
pharmacist, hospital, or outpatient clinic, receives payment for a product
Reimbursement (REIM) and/or service. It can be as simple as a patient paying the entire bill or it may
involve payment by third-party payers (i.e., insurance company, employer
group, or MCO).
A referral is sometimes necessary to see a specialist other than the primary
care physician, if the patient wants the service to be covered under the
Referral health insurance plan. The term can refer to both the act of sending the
patient to another doctor, or specialist, and to the actual paper authorizing
the visit.
A method of receiving medications from a brick-and- mortar pharmacy.
Retail Pharmacy
Usually dispensed in 30- day supplies.
Insurance coverage that is available in addition to any primary policy that an
insured may carry. It is often used to supplement existing policies or to cover
Secondary coverage any gaps in insurance coverage. It may also be present when two spouses
have coverage through different employers. When coverage overlaps, there
are methods available to determine how it will apply.
A type of pharmacy that provides access and support for specialty drugs that
Specialty Pharmacy (SP)
are high cost, high touch.
If a patient has Medicaid whose income exceeds the Medicaid income limit,
they still may qualify if they have medical bills that equal or are greater than
Spend Down
their “excess” income. The process of subtracting those medicals bills from
the individual’s income over a 6 month period.
A process to ensure that patients receive the most clinically appropriate
Step Therapy medication for their condition. In some cases, a plan will require the use of
first line prescription drugs, drugs known to be safe and effective, before the
Term Definition
plan will cover second line prescription drugs. Step Therapy is a program that
requires the patient to use a generic or lower cost brand drug prior to a more
expensive brand drug. Prescriptions under this program reject with for Prior
Authorization Required with secondary messaging.
Test claims proactively check coverage of claims before they're actually
Test Claim
submitted as claims.
An individual or firm hired by an employer to handle claims processing, pay
Third Party Administrator
providers, and manage other functions related to the operation of health
(TPA)
insurance. The TPA is not the policyholder or the insurer.
The total amount spent on Medicare Part D medications by all payers,
Total Drug Spend (TDS) including the beneficiary; it represents the actual cost of the drugs
purchased, factoring in any Medicare discounts.
True Out of Pocket (TrOOP) Represents the amount of their own money that the patient has paid.