Health insurance plans and common terms

Most health plans include prescription benefits as long as the medication is included in the health plan’s formulary. Medications not in the formulary (an approved list of medications specified by a health plan) are either not covered at all or cost more.

RxBIN or BIN number: A bank identification number or BIN number is a unique six-digit number used to identify the insurance provider and plan. It is printed on the prescription insurance card and stored in a national database that can be accessed by pharmacies and third-party processors, such as pharmacy benefit managers, during insurance processing.

RxPCN number: The Rx processor control number (PCN) is a unique identifier number that further specifies the insurance provider and plan and helps pharmacies accurately route a claim to the correct insurance provider and member.

Rx Group: The Rx group number is used to process prescription benefits.

Member ID and group number: A member ID is a unique number assigned to a specific plan member. The group number identifies the specific plan chosen and is seen in employer-provided health plans. Each plan varies regarding the network of providers, fees, charges, etc.

Person code: The person code specifies the primary member and dependents on the plan. The primary member of a family plan or an individual plan is denoted by the digits 00 or 01. Dependents include spouses and children, and their person codes vary with insurance providers.

Coordination of benefits (COB): Coordination of benefits, or COB, comes into play when a patient has multiple insurances. It determines which plan will pay the claim and each plan’s payment responsibilities. Typically, one of the insurances will be deemed the primary payer, and the remaining balance is paid by the secondary payer. COB prevents overpayment for prescription benefits.

Adjudication: Pharmacy claim adjudication is the process of evaluating a pharmacy claim. Pharmacy benefit managers, or PBMs, commonly do it. During the adjudication process, the software program checks whether the prescription is covered by insurance, whether cost-saving options are available, whether drug safety issues exist, and whether prior authorization is required. Ultimately, the claim is approved, withheld for more information, or rejected.

NCPDP or National Council for Prescription Drug Programs: NCPDP is a non-profit organization that develops and promotes standards for the electronic exchange of healthcare information related to pharmacy services. It sets standards across various pharmacy operations, such as SCRIPT, which facilitates e-prescribing, standards for drug labeling, dosing instructions, and patient counseling to improve patient safety, an NCPDP ID for each pharmacy, and a pharmacy directory. NCPDP issues reject codes, which are standard codes referred by insurers and processors to indicate the reasons for the rejection of a claim.

Table showing common NCPDP reject codes (M/I means missing information)

Types of health and prescription insurance: Various health insurance plans are available, like employer-provided health insurance, private or self-employed health insurance, and individual and family health insurance. Apart from these, government-provided health insurance, known as Medicare and Medicaid, is available. Insurance plans are of different types, such as health maintenance organizations or HMOs, preferred provider organizations or PPOs, point of service organizations or POSs, and exclusive provider organizations or EPOs. HMO is the least flexible; the network is limited, and referrals are needed for specialists, but the premium and out-of-pocket costs are lower. PPOs are the most flexible. Referrals are not required, but premiums are higher. EPO and POS are hybrid models with higher costs than HMO.

TRICARE is health insurance for current and retired uniformed service members and their families. It covers prescription drugs as well as doctor and hospital visits. Military hospitals and clinics, as well as TRICARE-authorized civilian providers, are available under the TRICARE network.

Medicare: Medicare is federal health insurance for people aged 65 years and above. It also covers people younger than 65 years of age with certain disabilities or health conditions like end-stage renal disease. Original Medicare includes Part A and B.

Part A or hospital insurance covers inpatient care in hospitals, skilled nursing facilities, hospice, and home health care. Part B or medical insurance covers outpatient care, services provided by physicians and other health care providers like nurse practitioners and physician assistants, home health care, durable medical equipment like blood sugar meters and test strips, wheelchairs, nebulizers, walkers, etc., and preventive services like screenings, vaccines, and wellness checkups. To get prescription drug coverage, in addition to the original Medicare plan, either a Medicare Advantage Plan with drug coverage or an additional Medicare drug plan is needed. Part D covers prescription drugs, including recommended vaccines. Medicare Advantage is also known as Part C. It is a Medicare-approved private plan that can be used instead of Original Medicare. It differs from Original Medicare in terms of provider network, out-of-pocket costs, premiums, and benefits.

Medicaid: Medicaid is a program jointly administered by Federal and State governments that covers medical costs for eligible people with limited income and resources. Medicaid helps to pay for health expenses like Medicare Part B monthly premiums, part A premiums, deductibles, coinsurance and copays. Some people are dually eligible for Medicaid as well as Medicare. In that case, Medicare pays first and Medicaid pays last.

Workers’ compensation: It provides disability compensation and health insurance to workers who are injured at work and who develop occupational diseases. Each State has a Workers’ Compensation Board that handles processing of claims. Federal employees are provided workers’ comp through the Department of Labor.

Common terms associated with health insurance

Co-payment: A fixed, predetermined amount that is paid for a covered health care service. For example, if a specialist visit copay is $50, then the insured pays $50 for each approved specialist visit in addition to other charges like deductibles and out-of-pocket expenses.

Co-insurance: It represents the insured’s share of the cost and is a fixed percentage e.g. 20% co-insurance means for every $100 cost the insured pays $20.

Deductible: It is the amount that the insured pays out of pocket before the insurance plan starts paying for covered services, e.g., if the deductible is $5000, the insurance does not pay anything until $5000 worth of cost has been met.

Premium: The cost of health insurance is paid regularly, either monthly, quarterly, etc., to keep the plan membership active.

Network: The providers, facilities, and pharmacies that are available in a health insurance plan.

Preauthorization or prior authorization: Also known as precertification, it is a process of getting approval from the insurance company before using certain services like surgery, specialist visits, brand-name drugs, certain procedures, etc. The insurance company determines if the requested service is medically necessary or not and suggests other available alternatives that typically cost less, e.g. instead of brand name drug insurance may suggest generic versions.