Glossary of Self-Funded Benefits Terms

Aggregate Attachment Point: The aggregate “deductible” or maximum employer expense that sets the point above which the stop loss insurance company begins reimbursing the employer. Aggregate attachment points are calculated by multiplying for each month, the single census times the single aggregate factor, plus the family census, times the family aggregate factor.

Aggregate Stop Loss: Insurance coverage to self-funded employers that provides a ceiling on the dollar amount of eligible expenses that an employer would pay, in total, during a contract period. Coverage is written on a paid claim basis, one year at a time. The carrier reimburses the employer after the end of the contract period for Aggregate claims.

ASO (Administrative Services Only): An ASO plan is a contract with an insurer to provide a fully self-insured employer with certain administrative services only; no insurance protection is provided.

Attachment Point: Same as Annual Aggregate Deductible. That point above which the liability of the stop loss carrier is attached.

Benefit Booklet: A booklet for the employee that contains a general explanation of benefits and related provisions of the health plan.

Employee Retirement Income Security Act of 1974 (ERISA): This federal legislation allows for and sets guidelines regarding a group’s ability to self-fund their benefits.

Expected Paid Claims: An estimate of the dollar value of claims to be paid during a plan year or contract period.

Exposure: The state of being exposed to the chance of loss (risk). The extent of exposure as measured by participation, proportion of female or male lives in a group, amounts or units of insurance at risk, etc.

Fiduciary:

  • Indicates the relationship of trust and confidence where one person (the fiduciary) holds or controls property for the benefit of another person. For example, the relationship between a trustee and the beneficiaries of the trust.
  • Under ERISA any person who (a) exercises any discretionary authority or control over the management of a plan or the management or disposition of its assets, (b) renders investment advice for a fee with respect to the funds or property of a plan, or has the authority or responsibility in the administration of a plan.
  • One who acts in a capacity of trust and who is therefore accountable for whatever actions may be construed by the courts as breaching that trust. Under ERISA, fiduciaries must discharge their duties solely in the interest of the participants and beneficiaries of an employee benefit plan. In addition a fiduciary must act exclusively for the purpose of providing benefits to participants and beneficiaries in defraying reasonable expenses of the plan.

IBNR: Incurred but not reported. Claims that have been incurred but have not been reported to the administrator as of some specific date.

Incurred Claims: Those claims (paid or unpaid) for which a liability (the insurer’s) has arisen under provisions of an insurance contract.

Lag: The usual delay between the actual occurrence of a claim and its payment. Made up of both incurred but unreported claims, as well as reported but not yet paid claims. A function of benefit design, geographic location and administrative efficiency as well as human procrastination.

Mandated Benefits: A specific coverage that an insurer or plan sponsor is required to offer by law. Mandated benefits in insurance contracts vary from state to state according to each state’s insurance laws.

Paid Claims: The dollar value of all claims paid, i.e., hospital, medical, surgical, etc., during the plan year, regardless of the date that the services were performed.

Plan Document: Explains the provisions of a plan, usually including the benefits provided by the plan and the rights of those who are covered under the plan.

Plan Participant: An employee or dependent covered by the health plan.

Plan Sponsor:

  1. The employer, in the case of an employee benefit plan maintained by a single employer.
  2. The employee organization, in the case of a plan maintained by an employee organization.
  3. The association, committee, joint board of trustees or other similar group of representatives of the parties involved, in the case of a plan maintained by one or more employers, and one or more employee organizations.

Policyholder: The employer, trust or other entity with which the insurance company has a contract to provide insurance coverage.

Specific Stop Loss: The form of excess risk coverage that provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific Stop Loss is also known as Individual Stop Loss.

Stop Loss Carrier: The insurance company that provides specific and aggregate protection for the Plan Sponsor. This carrier can be changed without disrupting to the health plan.

Stop Loss Insurance: Contract established between a self-insured group and insurance carrier providing carrier coverage if claims exceed specified dollar amount over a set period of time.

Summary Plan Description (SPD): The written statement of a plan required by ERISA. It must be provided in an easy-to-read form, including a statement of eligibility, coverage, employee rights and appeal procedure.

Third Party Administrator (TPA): The party to an employee benefit plan that may collect premiums, pay claims and/or provides administrative services. Usually an out-of-house professional firm providing administrative services for employee benefit plans.