Glossary of Health Care Terms

Source: AARP.org | August, 2009

ACUTE CARE - Medical services provided to treat an illness or injury, usually for a short time. Contrast with Chronic Care.

ADVERSE SELECTION - When a disproportionately high number of individuals in poorer than average health enroll in a health plan.

ASSOCIATION HEALTH PLAN (AHP) - Health insurance arrangement sponsored by business coalitions and trade and professional associations. AHPs operate under states’ insurance laws and regulations. Recent legislative proposals would regulate AHPs primarily under federal law.

BLOCK GRANT - A lump sum of money given to a state or local government to be spent for certain purposes. Normally, it is based on a formula, the objectives are broadly defined and the grant’s source places relatively few limits on the money’s use.

CATASTROPHIC HEALTH INSURANCE - Health insurance which provides protection against the high cost of treating severe or lengthy illnesses. Such policies may cover all or most of approved medical expenses above a relatively high specified deductible amount.

CHERRY PICKING - The practice of insurance companies taking only those businesses of individuals that are good health risks and avoiding businesses or people that have higher health risks. Also called Skimming.

CHRONIC CARE - Medical services provided to those with chronic conditions. Contrast with Acute Care.

CHRONIC CONDITION - A condition that that lasts a year or longer or recurs, and may result in long-term care needs. Some examples of chronic illnesses include Alzheimer’s disease, arthritis and diabetes.

COINSURANCE - A portion of the bill for a medical service, that is not covered by the patient’s health insurance policy and therefore must be paid out of pocket by the patient. Coinsurance refers to a percentage, e.g., 10 percent of the total charge up to a specified maximum. Contrast with Copayment, which is stated as a flat amount, e.g., $5 per office visit.

COPAYMENT - See Coinsurance

COST SHARING - Any out-of-pocket payment the patient makes for a portion of the costs of covered services. Deductibles, coinsurance, copayments and balance bills are types of cost sharing.

COMMUNITY RATING - A method for setting premiums using the average cost of actual or anticipated health services for all subscribers within a specific geographic area. The premium does not vary for different groups or subgroups of subscribers to reflect their specific claims experience or health status. Under modified community rating (the most common form), rates may vary based on subscribers’ specific demographic characteristics (such as age and gender), but rate variation based on individuals’ health status, claims experience, or policy duration is prohibited. “Pure” community rating prohibits rate variation based on demographic as well as health factors, and all subscribers in an area pay the same rate.

CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985 (COBRA) –
This law includes one part which entitles former employees of companies with 20 or more employees to continue to receive coverage under the group plan for up to 18 months after leaving, if they pay the full cost of the coverage.

CROWD-OUT -  A phenomenon whereby public programs or expansion of public programs designed to extend coverage to the uninsured encourage some employers to drop health coverage, urging their employees instead to take advantage of the expanded public subsidy.

DEDUCTIBLE - The amount of health care expenses you must pay before your health plan or Medicare begins to pa for costs associated with a medical service. These amounts can change every year.

DEFINED BENEFIT - A health insurance model used by an employer or government program where specified health services covered under the plan are standardized and guaranteed. The cost of providing the standard benefits may fluctuate. One example of a defined benefit plan is Medicare.

DEFINED CONTRIBUTION - A health benefit model used by employers or government programs where health services covered may fluctuate based on choice of plan, but the employer or government contributes a set amount (percentage or dollar amount) towards the purchase of the selected health plan. A defined contribution plan limits the financial liability of employers or the government because the contribution is defined. An example of a defined contribution plan is the State Children’s Health Insurance Benefit.

"EMPLOYER MANDATE" or EMPLOYER CONTRIBUTION REQUIREMENT - Requirement that employers either provide health care benefits to their workers or pay a fee that contributes to the cost of covering their workers under a public (state) plan. Such proposals are also called "pay or play".

EXPERIENCE RATING - Process of determining insurance premiums based wholly or partially on that particular group or subscriber’s past use of services and expenses incurred. Contrast with Community Rating.

FEE-FOR-SERVICE - A method of paying health care providers a fee for each medical service rendered, rather than - paying them salaries or capitated payments.

FIRST DOLLAR COVERAGE - Insurance plans that provide benefits without first requiring payment of a deductible.

FORMULARY - A list of drugs covered by a plan.

GENERIC DRUG - A copy of a brand-name drug that is regulated by the Food and Drug Administration to be identical in dosage, safety, strength, how it is taken, quality, performance and intended use (definition from the U.S. Food and Drug Association).

GROUP INSURANCE - Health insurance offered through business, union trusts or other groups and associations. The policy holder is generally the employer or other entity. This system of health insurance is the most common in the United States.

GUARANTEED ISSUE - A requirement that health plans cannot reject coverage for an applicant based on medical history. For example, under federal law, small employers that purchase health insurance cannot be denied coverage for sick workers. However, plans can adjust premiums based on medical history or other factors.

GUARANTEED RENEWAL - A requirement that an insurer cannot refuse to renew a policy for a group or individual. Guaranteed renewal is intended to prevent insurers for dropping coverage for a group or individual because they have incurred medical expenses over the previous year. At renewal, insurers can adjust premiums within allowed rating rules.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA) -
A 1996 federal law that provides some protection for employed persons and their families against discrimination in health coverage based on past or present health. Generally, the law guarantees the right to renew health coverage, but does not restrict the premiums that insurers may charge. HIPAA does not replace the states’ role as primary regulators of insurance. HIPAA also requires the collection of certain health care information by providers and sets rules designed to protect the privacy of that information.

HEALTH INSURANCE PURCHASING COOPERATIVE (HIPC) - A health insurance purchasing cooperative is an entity that purchases health insurance for individuals as well as employers. By belonging to a cooperative, individuals and employers are provided access to more affordable health insurance as a result of the HIPC’s increased purchasing power. By definition, the HIPC is a pool of individuals and/or employers. Hence, the underwriter is able to spread the risk among a greater number of people, resulting in reduced premiums. Because the insurer can deal uniformly with a large group, this creates economies of scale and reduced administrative costs. The larger the risk pool, the greater the purchasing power, resulting in the ability to lower rates for covered health services.

HIGH-RISK POOL - A subsidized health insurance pool organized by many states as a source of coverage for individuals who have been denied health insurance because of a medical condition, or whose premiums are significantly higher than the average due to health status or claims experience.

INSURANCE - A way of responding to the risk of an adverse event, such as having to pay large health care expenses, by spreading those risks among many people. Insurance provides a way to substitute a small, predictable payment (a premium) for the risk of having to make a large payment in the event of an uninsured accident or illness.

LOSS RATIO - The ratio of money paid out by an insurer for claims divided by premiums collected for a particular type of insurance policy. Low loss ratios indicate that a small proportion of premium dollars was paid out for benefits, while a high loss ratio indicates that a high percentage of the premium dollars was paid out.

MANDATE - Used in two senses in health policy discussions. (1) Employer or individual mandate, in which the government imposes a requirement on some or all employers to help pay for insurance coverage for their workers (and perhaps their families), or on individuals to obtain coverage, (2) State mandate, a requirement imposed by state on insurance companies to include, as part of any health insurance policy they sell, coverage for a specific service, such as well baby care, or provider, such as psychologists or optometrists.

MEDICAID - Public health insurance program that provides coverage for an estimated 60 million low income persons for acute and long-term care. It is financed jointly by state and federal funds (the federal government pays at least 50 percent of the total cost in each state), and is administered by states within broad federal guidelines.

PAY OR PLAY - See Employer Mandate

PORTABILITY -  A means of preventing "job lock" -  a condition where workers stay in a job they would prefer to leave just to protect their health coverage by exempting people who have had continuous health care coverage from pre-existing condition exclusions when they obtain a new policy.

PRE-EXISTING CONDITION - A physical or mental condition for an individual which is known to the individual before an insurance policy is issued. Insurers may choose not to cover treatment for such a condition. At least for a period, may raise rates because of it, or may deny coverage altogether.

PREMIUM - The cost of health plan coverage, not including any required deductibles or copayments.

PREVENTIVE HEALTH SERVICE - Services aimed at preventing a disease from occurring, or preventing or minimizing its consequences. This includes care aimed at warding off illnesses (Immunizations), at early detection of disease (Pap smears), and at stopping further deterioration (cholesterol-lowering medication).

PUBLIC HEALTH INSURANCE OPTION - There is varying opinion about a single definition or model of public health insurance options. Broadly defined, this is a plan run or sponsored by the federal or state government (much like Medicare).

PURCHASING POOL - A group of people, businesses or associations who come together to enhance their bargaining power and negotiate lower premiums from health insurance plans than they could on their own, while also pooling risks across sick and healthy individuals.

RATING - The process of evaluating, or underwriting, a group or individual to determine a health insurance premium rate relative to the financial risk of needing healthcare the person or group presents. Key components of the rating formula include age, sex, location and plan design.

RATING BANDS - Amounts by which insurance rates for a specific class of insured individuals may vary. All states have laws regulating insurer rating practices, and many states periodically update these laws with small group market reform proposals to restrict or loosen allowable variations.

RISK - The probability of financial loss, relative to the probability of having to provide services to a patient or patient population at a cost that exceeds the payments received. Under capitation payment systems providers share the risk that is borne by insurers.

RISK ADJUSTMENT -  Increases or reductions in payment made to a health plan on behalf of a group of enrollees to compensate for health care expenditures that are expected to be higher or lower than average.

RISK SEGMENTATION - Disproportionate numbers of persons with higher than average risk of health problems being congregated in particular risk pools.

SINGLE PAYER SYSTEM – a health care system in which a single entity, typically a government-run organization, acts as the administrator (or "payer") to collect all health care fees, and pay out all health care costs. Single-payer health care does not necessarily mean that the government or some government agency delivers or controls health care services. It may pay for health professionals and services that are delivered in either private or public sector settings according to the needs and wishes of the patient and his or her doctor. Medicare is an example of a single payer system.

SMALL GROUP MARKET REFORM - Generally refers to laws, regulations and proposals that are designed to simplify rules for small employers (50 workers or fewer) purchasing health insurance. While most regulation of health insurance is done at the state level, the 1996 Health Insurance Portability and Accountability Act made some key reforms.

STATE CHILDREN’S HEALTH INSURANCE PROGRAM (SCHIP) -  A program enacted by Congress in 1997 that provides up to $40 billion in federal matching funds for states to spend on health coverage for uninsured children. The program is designed to reach uninsured children whose families earn too much money to quality for Medicaid but are too poor to afford private coverage.

STATE MANDATE - State coverage laws requiring private insurers to cover specific services (such as well baby care) or reimbursement for specific providers (such as psychologists).

THIRD PARTY PAYER - Organization, public or private, that pays or insures medical expenses on behalf of enrollees. An individual pays a premium, and the payer organization pays providers’ actual medical bills on the individual’s behalf. Such payments are called third-party payments and are distinguished by the separation among the individual receiving the service (the first party), the individual or institution providing it (the second party), and the organization paying for it (the third party).

UNCOMPENSATED CARE - Care rendered by hospitals or other providers without payment from the patient or a government-sponsored or private insurance program. It includes both charity care, which is provided without the expectation of payment, and bad debt, for which the provider has made an unsuccessful effort to collect payment due from the patient.

UNDERINSURED - People with public or private insurance policies that do not cover all necessary heath services, resulting in out-of-pocket expenses that often exceed their ability to pay.

UNDERWRITING –The process by which health insurers decide whether or not to accept an individual’s application for insurance, and, if the applicant is accepted, what conditions to apply. Underwriting is also applied to small employers. If the insurer decides that a particular individual or group poses greater than normal financial risks, it might charge higher premiums, offer more limited benefits, or refuse to pay for service relating to a particular “pre-existing” condition.

UNIVERSAL HEALTH CARE (or Universal Health Coverage) – Is a broad concept for health care coverage that can be implemented in a variety of ways. The common denominator for such programs is some form of government action aimed at extending access to health care as widely as possible. Most governments implement universal coverage through a combination of legislation, regulation, and taxation. Many countries use a mix of public-private systems to deliver universal health care.

VOUCHER – In various health reform proposals, a certificate or fixed dollar amount that is provided to low or moderate-income persons, which is used to pay all or part of the cost of health insurance services.