Key Terms

Actuarial Certification
A health plan’s stated reason or explanation as to why a proposed rate increase is needed. The certification includes information such as (1) a statement of the qualifications of the actuary issuing the certification, (2) a statement of opinion that the proposed rates are actuarially sound in aggregate for the particular market segment (i.e. individual or small group), (3) a complete description of the data, assumptions, rate factors and methods used to determine the premium, and (4) a statement of opinion on whether the rate increase is reasonable or unreasonable.

Actuarial Value
The percentage of total average costs for covered health care services that are paid by the health plan. For example, if a plan has an actuarial value of 70 percent, on average, an individual would be responsible for 30 percent of the costs of all covered health care services.

Adjusted Community Rating
Beginning in 2014, the Affordable Care Act (ACA) limits the factors that health plans offering non-grandfathered coverage can use to determine premiums in the individual and small group markets. This is known as Adjusted Community Rating. Specific allowed factors are: age, family size, geographic rating area, and tobacco use.

Administrative Expenses (per 45 CFR 158.160)

Business expenses associated with general administration, agents and brokers fees and commissions, direct sales salaries, workforce salaries and benefits, loss adjustment expenses, cost containment expenses, and community benefit expenditures.

Affordable Care Act (ACA)

The Affordable Care Act (ACA) is a comprehensive federal health care reform law enacted in March 2010. The law was enacted in two parts: The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act. The name Affordable Care Act is used to refer to the combined version of the law.

After-tax Profit Margin

A financial performance ratio used to determine profitability. It is calculated by dividing net profit after taxes by revenue.  Net profit after tax is defined as total revenue less total costs (claims, administrative, selling, and taxes).

ACA Insurer Fee

Effective January 1, 2014, the Affordable Care Act (ACA or health care reform) imposes a new annual fee on health insurance providers based on their market share of net premiums written, or the sum of premiums earned from all policies, during the previous year.

Adverse Selection 

The tendency for sicker people to purchase health coverage and healthier people to opt-out. When adverse selection occurs, health plans charge higher premiums to cover the health care costs of the entire insured group.


Capitation is also referred to as population based payment models, where a provider is paid a fixed amount to care for a population over a specified time period.  Capitation based models often include fixed per member per month payment or percentage of premium payment.  Under this arrangement, the provider assumes the full risk for the cost of contracted services without regard to the type, value or frequency of services provided. For purposes of this definition, capitated basis includes the cost associated with operating staff model facilities.

Claims Experience

Historical claim and capitation payments from the 12-month (usually) base experience period used to develop future premium rates.

Covered California

Covered California is the state marketplace established under the Affordable Care Act that connects Californians to accessible, quality health coverage.

Covered California for Small Business

Covered California operates a specific program that offers new health insurance choices to small businesses and their employees. The program is designed specifically for employers with 100 and fewer eligible employees to give them unprecedented opportunities to offer a variety of health insurance plans to their employees. Through Covered California, employers and their employees can choose the plans that fit their needs and their budgets.

Essential Health Benefits (EHB)
The comprehensive set of benefits that the ACA requires all health plans to include for products sold on or after January 1, 2014.
EHBs include, but are not limited to:

  • Ambulatory patient services (such as doctor visits or outpatient surgery)
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder services, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including dental and vision care

A new health coverage marketplace in which individuals and small businesses will be able to shop for and purchase competitively priced qualified health plans. California’s Exchange market place is known as Covered California.

Exchange User Fee

This fee is to cover the administrative costs of running California’s Exchange, Covered California. This fee is paid to Covered California by qualified health plans (QHP) participating in the Exchange. QHP issuers will recover their exchange user fee from policyholders in the form of premium increases.

Exclusive Provider Organization (EPO)
An exclusive provider organization (EPO) plan is a network of individual medical care providers, or groups of medical care providers, who have entered into written agreements with an insurer to provide health insurance to enrollees. As a member of an EPO, you can use the doctors and hospitals within the EPO network, but cannot go outside the network for care.

FFS Claim

Fee for Services Claims is a method in which doctors and other health care providers are paid for each service performed.

Geographic Rating Areas
The geographic regions across which health plans can vary premiums. Beginning in 2014, the ACA allowed non-grandfathered health plans to vary the premiums they charge based only on the following factors: age, geographic rating area and whether it is coverage for an individual or a family. State law has created 19 geographic rating areas California.

Grandfathered Health Plan
A health plan that an individual was enrolled in prior to March 23, 2010. Grandfathered plans are exempt from most of the changes required by the ACA as long as there are no significant changes made to the plan. New employees may be added to grandfathered group plans and new family members may be added to all grandfathered plans.

Health Maintenance Organization (HMO)
An HMO is a kind of health insurance that has a list of providers, such as doctors, medical groups, hospitals, and labs. You must get all of your health care from the providers on this list. This list is called a network.


Incurred But Not Paid –refers to an unpaid claim liability or claim reserve established by the health plan for healthcare services that have been rendered by the provider but not yet paid by the plan.

Income Tax

Tax imposed on individuals or corporations (taxpayers) that may vary with the income or profits (taxable income) of the taxpayer. Details vary widely by jurisdiction (e.g. federal, state).

Individual Market
Health coverage offered to individuals who purchase it on their own rather than as part of a group (i.e., through an employer). In the individual market, health plans update premium rates annually, usually on January 1st of each year. Health plans must notify consumers of any change in what they will be charged at least 60 days before the change takes place.

Large Group Market
Health coverage offered to businesses with more than 100 employees.  In the large group market, health plans generally update premium rates annually. Large group employers that purchase coverage are charged a consistent rate for a period of at least 12 months.  Health plans must notify businesses of any change in what they will be charged at least 60 days before the change takes place. Health plans are also required to notify businesses of how their average rate increases compares to both Covered California and CalPERS products.


The federal government approved the state’s specialized tax on Managed Care Organizations (MCO) in an effort to help California fund Medi-Cal, a government health insurance program which provides needed health care services for low-income individuals and families.

Medical Loss Ratio (MLR)
Medical Loss Ratio (MLR) is the percentage of premiums that a health plan spends on medical services and care quality improvement. Health plans in the individual and small group market must spend at least 80 percent of premiums on medical services and care quality improvement. Health plans in the large group market must spend at least 85 percent of premiums on medical services and care quality improvement. Plans may use the remaining 15-20 percent of premiums to pay administrative costs to keep the plan running and to generate a profit, or contribution to surplus if the health plan is not-for-profit. Administrative costs may include the cost of employees, such as salaries and benefits, as well as office and marketing expenses, taxes, and other fees.


Medi-Cal offers free or low-cost health coverage for California residents who meet eligibility requirements.  Most applicants who apply through Covered California and enroll in Medi-Cal will receive care through managed health plans.

Medical Trend

The growth or change in medical costs per member measured over a defined period of time. Medical claim cost trends are generally considered to be composed of two major components – a trend in price (unit cost) and a trend in utilization. Medical trends may be analyzed by aggregate benefit category such as inpatient hospital, outpatient hospital, and professional services.  

Metal Category
Refers to the four coverage tiers available through Covered California. A health plan's metal category indicates the percentage of total costs for covered health care services that are paid by the health plan. Covered California’s metal levels are: Bronze, Silver, Gold or Platinum. As the metal category increases in value, so does the percent of medical expenses that a health plan covers. This means the Platinum plans cover the highest percentage of health care expenses. These expenses are usually incurred at the time of health care services — when you visit the doctor or the emergency room, for example. The health insurance plans that cover the greatest percentage of health care expenses also usually have higher premium payments.

Morbidity Change

Any adjustment made to the experience period claims to account for anticipated changes in the average health status (i.e. frequency or severity of disease or illness) of the issuer’s covered population from the experience period to the projection period.

Non-Grandfathered Health Plan
Any new health plan sold after March 23, 2010. All non-grandfathered health plans must comply with all provisions of the ACA.


The Patient-Centered Outcomes Research Trust Fund fee is a fee on issuers of specified health insurance policies and plan sponsors that help to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute will help, through research, patients, clinicians, purchasers and policy-makers, in making informed health decisions by improving the quality and relevance of evidence-based medicine.

Under a group plan, the policyholder is typically the employer that purchases the coverage. Under an individual or family plan, the policyholder is the person who purchases the coverage.

Preferred Provider Organization (PPO)
A PPO is a preferred provider organization. A PPO contracts with participating doctors and hospitals to create a network. You pay less if you use doctors and hospitals that belong to the plan's network. You can use doctors, hospitals and others outside the network for an additional cost.

A premium is the monthly payment you or your employer pays for health coverage.  The premium rate is the term for a health plan’s base rate from which a specific premium is calculated. The base rate is adjusted by age, whether it is coverage for an individual or a family and geographic location to determine the unique premium you would pay for health care coverage.


Per member per month.  A calculation used by health plans to determine the average amount (e.g. premium, claim cost) for each member per month. For example, the average monthly premium can be determined by dividing total premiums received by a plan over a specified period of time (e.g. year) by the total member months during the year.

Qualified Health Plan (QHP)
A health plan that is sold through an Exchange such as Covered California. The ACA requires Exchanges to certify that Qualified Health Plans meet certain minimum standards.

Rate Review

The DMHC reviews proposed health plan rate changes and asks health plans questions about their changes to make sure health plans are providing detailed information to the public to support any rate increases. While the Department does not have the authority to deny rate increases, its rate review efforts hold health plans accountable, ensure consumers get value for their premium dollar, and saves Californians money.

The Department’s premium rate review program has saved Californians millions of dollars by negotiating lower premium increases or no premium increases when increased rates aren't supported.

Rating Factors
Certain characteristics that health plans are allowed to use to vary the premium rates charged for coverage. Beginning in 2014, non-grandfathered health plans sold in California may consider only age, geographic area, and whether it is coverage for an individual or a family as rating factors. While tobacco use is an allowable rating factor under the ACA, this factor is not used as one of the rating factors in California.

An amount paid by a health plan to a policyholder when the health plan does not spend at least 80-85% (percentage depends on whether the health plan is in the individual, small group, or large group market) of the premiums it collects on medical services or activities that improve quality. If a health plan spends less than 80-85% of premiums on these areas, the health plan must return the portion of premium dollars that are below the minimum threshold to its policyholders. This is commonly known as the Medical Loss Ratio (MLR) rule. (See Medical Loss Ratio)

Reinsurance Contribution

The Affordable Care Act (ACA) requires all health insurance issuers and third-party administrators on behalf of self-insured group health plans to make contributions under the Transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals (payment-eligible issuers). The Transitional Reinsurance Program is a temporary program that operates for benefit years 2014 through 2016.

Risk Adjustment Fee

This fee is intended to cover the administration of the ACA’s risk adjustment program. The program is intended to transfer funds from insurers with a relatively low-risk enrollee population to insurers with a relatively high-risk enrollee population, with a goal of reducing incentives for insurers to avoid high-risk enrollees.

Risk Adjustment Payment (Receipt)

The ACA’s risk adjustment program is intended to reinforce market rules that prohibit risk selection by insurers. The program accomplishes this by transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees. The goal of the risk adjustment program is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees.

Risk Pool
Groups of individuals whose medical costs are combined and averaged and used by health plans to calculate health coverage premiums.

Rx Trend

The growth or change in prescription drug costs per member measured over a defined period of time. Pharmacy claim cost trends are generally considered to be composed of two major components – a trend in price (unit cost) and a trend in utilization (prescriptions). Pharmacy trends may be analyzed by drug tier – generic, preferred brand, non-preferred brand, and specialty.

Selling Expenses

Costs incurred by the sales department within health plan organization. These costs typically include the following: sales commissions, sales administrative staff salaries and wages.

Single Risk Pool

To determine the members of a single risk pool, a health insurance issuer must consider the claims experience of all enrollees in all health plans (other than grandfathered health plans), subject to section 2701 of the Public Health Service Act and offered by such issuer in the individual or small group market, including those enrollees who do not enroll in such plans through the Exchange.

Small Group Market
Health coverage offered to small businesses that have 1 to 100 employees. In the small group market, health plans generally update premium rates quarterly. Small businesses that purchase coverage are charged a consistent rate for a period of at least 12 months. Health plans must notify small businesses of any change in what they will be charged at least 60 days before the change takes place. 


The Unified Rate Review Template is a federal form that is required for any rate increase in a single risk pool compliant plan. This template may also be used for compliance with applicable state requirements. Additionally, it is intended to capture information needed to review rate increases of health insurance coverage offered through and outside an Exchange, and ensure compliance with the single risk pool methodology, including allowable market level index rate adjustments to reflect risk adjustment payments and charges, and other Federal rating requirements.

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