Health Finance Glossary

Activities of Daily Living (ADLs) - Common daily tasks that, when they are unable to be performed, can serve as a "trigger" to obtain benefits from a long-term care insurance policy. Common ADLs include bathing, dressing, toileting, continence, and eating.

Any-Occupation Disability Insurance - The most restrictive and least costly type of disability insurance policy that pays benefits only when the insured is unable to engage in any type of employment. Policyholders are not considered disabled unless there is no type of work they can do.

Basic Medical Coverage - A health insurance policy that covers expenses such as a hospital room, hospital services, surgical care, anesthetics, medical equipment and, sometimes, outpatient care. Medical expenses are covered as either a service (percentage) or indemnity (fixed sum) benefit. Basic health insurance policies generally consist of three parts in combination: hospital insurance, surgical insurance, and physician expense insurance.

Benefit Coordination - Clause in a health insurance contract designed to prevent people from collecting from two policies for the same expense. The total claim cannot exceed 100% of the cost and a secondary plan makes payment only after the primary plan has paid its portion.

COBRA - An acronym for the Consolidated Omnibus Reconciliation Act, a 1986 law that provides an option for continued health insurance upon separation from an employer. The only exception is workers who are fired for "gross misconduct." Employers with 20 or more workers must offer to continue health benefits for departing workers for up to 18 months. Workers may be required to pay up to 102% of the cost of premiums (the full cost plus a 2% administrative surcharge). Workers have 63 days from their date of separation to apply for COBRA benefits.

Consumer-Driven Health Plans (CDHPs) - Insurance plans designed to make users feel the effects of health-care expenses in order to contain costs. CDHPs typically consist of a high-deductible managed health care plan combined with either an employer-funded health reimbursement account (HRA) or a tax-deductible health savings account (HSA).

Coinsurance - The amount (usually stated as a percentage; e.g., 20%) of a claim that an insured person is expected to pay out-of-pocket up to the stop-loss limit. A common split found on health insurance policies is that the policy pays 80% of expenses with the insured paying (i.e., coinsuring) the remaining 20%.

Copayment - The amount (usually stated as a dollar amount; e.g., $5 or $10) that an insured person must pay out of pocket for a medical service (e.g., doctor's office visit) or prescription drug.

Cost-of-Living Adjustment (COLA) - Clause in an insurance policy that increases the benefit amount to keep pace with inflation.

Deductible - The amount (usually a flat dollar amount; e.g., $500) of a claim that an insured person must pay out-of-pocket before an insurance policy makes payment for the remainder of the loss. The higher the deductible on a policy, the lower the premium (inverse relationship).

Disability Insurance - Type of insurance that replaces lost earnings when someone is unable to work due to accident or illness.

"Dread Disease" Insurance (e.g., Cancer Policies) - Very narrowly defined health insurance policies that cover only one cause of death (e.g., cancer). Most financial experts consider single-disease policies to be a very poor value because the benefits are so limited. A much better option is major medical coverage with a high upper limit.

Elimination Period - The number of days (e.g., 30 days or 90 days), starting from the date of an insurable event, before benefits are paid on certain types of insurance policies (e.g., long-term care, disability).

Excess Major Medical Insurance - A type of health insurance policy designed to take effect when ordinary major medical coverage benefits have been exhausted. It is highly recommended for people with a low major medical policy upper limit of less than $250,000.

Exclusions - Risks that are not covered by an insurance policy.

Family and Medical Leave - Federal law that provides up to 12 weeks of unpaid leave per year for use during a medical crisis to care for oneself or a family member. Employees of companies with 50 or more workers are eligible and are guaranteed a return to their previous (or a similar) job and health benefits during the time that they are away.

Flexible Spending Accounts (FSAs) - They are also known as "cafeteria" or "125" plans, for Section 125 of the IRS tax code. FSAs allow workers to fund an account through salary reduction and withdraw the funds, as needed, for medical expenses. Any unspent funds left in an FSA at the end of each year are forfeited so it is important to carefully estimate the amount of money needed.

Group Health Insurance Plan - Health care coverage that is sold collectively to a group of people (e.g., employees of a company) rather than to individuals. Group coverage is generally less expensive than individual coverage because the costs and risks are spread over a large group.

Guaranteed Renewable - An insurance policy that will continue for life or until a certain specified age, assuming no lapse in premium payments. Premiums will not increase unless they are raised for everyone with the same type of policy.

Health Finance Literacy - The ability to understand topics such as health care costs and benefits, how health insurance works, and health coverage rules, policy exclusions, and enrollment options.

Health Insurance - Type of insurance that provides protection against financial losses resulting from an illness or injury.

Health Management Benefits - Benefits and incentives provided by employers and insurers to promote a healthy lifestyle. Examples include: cash payments for weight loss, health club memberships, use of exercise equipment, free pedometers, and weight control support groups.

Health Reimbursement Accounts (HRAs) - Money set aside by employers to reimburse workers for qualified medical expenses.

Health Savings Accounts (HSAs) - Tax-sheltered accounts, set up and funded by eligible individuals, that are earmarked to pay for medical expenses and are designed to be used in conjunction with high-deductible health plans. Account owners are free to spend the money on any type of medical service desired. Whatever amount is not spent each year can be carried forward.

High-Deductible Health Plan (HDHP) - As defined by federal legislation, a high deductible health plan has a deductible of at least $1,000 for individual coverage and $2,000 for family coverage.

Indemnity Benefit - Payment by a health insurance policy of a fixed amount toward the cost of covered medical expenses. An example is a policy that pays $350 per day for hospital charges. Most financial experts consider indemnity coverage to be a poor value because the benefits are only a fraction of typical charges. A much better option is major medical coverage with a high upper limit.

Long-Term Care Insurance - Type of insurance that covers the cost of support services (e.g., home health care and nursing home care) when someone is unable to perform basic activities of daily living such as bathing, eating, and dressing.

Major Medical Coverage- Health insurance protection above and beyond basic medical benefits. Upper limits provided by major medical coverage can range from a low $10,000 up to $1 million and some policies have no maximum. If the upper limit is $250,000 or less, an excess major medical policy is recommended to protect against catastrophic losses that exceed the maximum coverage limit.

Managed Care Health Insurance- Coverage provided by a health maintenance organization (HMO) or preferred provider organization (PPO) that emphasizes wellness and preventative care, controls the care that is provided, especially by specialists, and places limits on the selection of medical providers.

Medicaid- Combined federal and state health insurance program for eligible low-income persons.

Medicare - Federal health insurance program for people age 65 and older. Part A covers hospitalization and Part B covers treatment in a doctor's office or hospital outpatient department.

Medigap Insurance- Standardized policies (ranging from A to J, in order of increasing benefits) that are sold to persons age 65 and over to pay for expenses that are not covered by Medicare.

Noncancellable - An insurance policy that will continue for life or a certain age, without an increase in cost, assuming no lapse in premium payments.

Open Enrollment Period - The period of time each year, typically one full month, where participants in a group health insurance plan can begin or make changes in their coverage or switch among alternative plan providers (e.g., HMOs).

Own-Occupation Disability Insurance - The least restrictive and most expensive type of disability insurance policy that defines disability as the inability to work in the particular field or trade for which an insured policyholder is trained.

Policy Limit - The highest dollar amount that an insurance policy will pay.

Preexisting Condition Clause- Language in a health insurance policy stating that medical conditions existing at the time that the policy is purchased will not be covered for a specified time period.

Premium - The fee that is charged to pay for insurance coverage.

Residual (Partial) Disability Benefits - Disability insurance benefits that are designed for disabled workers who return to work part-time. Residual disability benefits cover the difference between an insured worker's full- and part-time earnings.

Service Benefit - Payment by a health insurance company of a percentage of each covered expense.

Short-Term Health Insurance - A relatively inexpensive policy, often with a high deductible and a number of coverage limits, that typically lasts from 30 days to six months and is purchased by people who are graduating from school or are in between jobs.

Spend-Down Rules - Government regulations that stipulate the amount by which someone or their spouse must spend down their assets in order to qualify for Medicaid. Specific asset tests vary from state to state and limit a healthy spouse's liability in the case of married couples.

State Health Insurance Program (SHIP) - An agency, often affiliated with state/county offices of senior services, that provides free information and counseling about senior health insurance options (e.g., Medigap policies).

Stop-Loss Limit - A limit on the amount that a policyholder must make in coinsurance and out-of-pocket payments per year on an insurance policy. Generally the stop-loss limit is stated as a flat dollar amount (e.g, $5,000). Once the stop-loss limit has been reached, the health insurance company picks up all remaining expenses for the year.

Tiered Copayments - A cost containment method that is increasingly being used to influence the behavior of health plan participants and reduce health care costs. Different premiums are charged for different categories of prescription drugs such as a higher premium for "nonpreferred" drugs than for generic brands.

Worker's Compensation Insurance - Insurance coverage, provided according to state law, that requires employers to pay benefits to workers injured on the job. Worker's compensation benefits include the cost of medical expenses, recuperative care, and replacement of lost income.


  1. Rutgers
  2. Executive Dean of Agriculture and Natural Resources
  3. School of Environmental and Biological Sciences