Cutting Through Insurance Jargon
CEO's and chief financial officers can get lost in insurance jargon. Here's some useful terminology:
* Experience rating. These are statistical assessments, drawn up by the insurer, of the kinds of health risks -- and thus, foreseeable medical costs -- that exist within any group. For small companies with even one employee in a high-medical-risk category, experience ratings can spell financial disaster and should be played down during insurance negotiations.
* OOPs. Short for out-of-pocket maximums, these are limits on the total amount that employees will have to pay out of their own pockets for medical expenses during a given year. Once employees pay more than a set threshold, which is usually in the range of $500 to $1,000, insurers reimburse at 100%. Here's why it makes sense to watch OOPs closely: during policy-renewal negotiations, employers can generally lower insurance costs by raising their OOPs' thresholds.
* Self-funding. An increasingly popular arrangement in which employers try to cut costs by buying less coverage from insurers. Here's the logic: employers figure that using company dollars to reimburse most employees' health-care claims is cheaper than buying full-scale insurance protection.
* Utilization review. An attempt to control health-care costs by having a third party (independent medical and insurance practitioners, for example) evaluate medical-procedure recommendations for appropriateness, necessity, and quality.
For more definitions, as well as some sound financial advice about alternative approaches to containing health-care costs, see Holding Down Health-Care Costs: A Guide for the Financial Executive. The 78-page book is available for $12.50 from the American Institute of Certified Public Accountants (800-334-6961).
-- Jill Andresky Fraser* * *