What It All Means

Adverse selection

A situation in which people with more serious and costly illnesses apply for membership in particular health insurance plans, resulting in those plans having higher medical costs than groups that have healthier members.

Allowable expenses

The necessary, customary and reasonable expenses that an insurer will cover.

Alternative treatment plan

Provision in managed-care arrangements for treatment outside of a hospital.

Ambulatory care

Medical care provided on an out-patient (non-hospital) basis.

Average length of stay

Measure used by hospitals to determine the average number of days patients spend in their facilities. A managed care firm will often assign a length of stay to patients when they enter a hospital and will monitor them to see that they don’t exceed it.

Capitation

Method of payment for health services in which the insurer pays providers a fixed amount for each person served regardless of the type and number of services used. Some HMOs pay monthly capitation fees to doctors, often referred to as per-member, per-month amount.

Case management

A managed care technique in which a patient with a serious medical condition is assigned an individual who arranges for cost-effective treatment, often outside a hospital.

Coinsurance or co-payment

An amount a health insurance policy requires the insured to pay for medical and hospital service, after payment of a deductible.

Community rating

A method, based on geographical area, of calculating health insurance premiums for which employer groups and individuals pay the same rates.

Concurrent review

A managed care technique in which a representative of a managed care firm continuously reviews the charts of hospitalized patients to determine if they are staying too long and if the course of treatment is appropriate.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Federal law that requires employers with more than 20 employees to extend group health insurance coverage for at least 18 months after employees leave their jobs. Employees must pay 102% of the premium.

Cost containment

An attempt to reduce the higher-than-necessary costs surrounding the allocation and consumption of health care. These costs may arise from inappropriately used services and from care that can be provided in less costly settings without harming the patient.

Cost shifting

A phenomenon occurring in the U.S. health care system in which providers are reimbursed for their costs and subsequently raise their prices to other payers in an effort to recoup costs. Low reimbursement rates from government health care programs often cause providers to raise prices for medical care to private insurance carriers.

Deductible

An amount of covered expenses that must be paid by the insured before the insurance company begins to pay benefits.

Diagnosis-related groups (DRGs)

A method of reimbursing providers based on the medical diagnosis for each patient. Hospitals receive a set amount determined in advance based on the length of time patients with a given diagnosis are likely to stay in the hospital. Also called prospective payment system.

Employee Retirement Income Security Act (ERISA)

Federal law that establishes uniform standards for employer-sponsored benefit plans. Because of court decisions, law effectively prohibits states from experimenting with alternative health-financing arrangements without waivers from Congress.

Exclusions

Medical conditions specified in a policy for which the insurer will provide no benefits.

Exclusive provider organization (EPO)

A health care payment and delivery arrangement in which members must obtain all their care from doctors and hospitals within an established network. If members go outside, no benefits are payable.

Experience rating

A method of calculating health insurance premiums for a group based entirely or partly on the risks the group presents. An employer whose employees are unhealthy will pay higher rates than another whose employees are healthier.

Fee for service

A method doctors use to charge for their services, setting their own fees for each service or procedure they perform.

Fee schedule

Maximum dollar amounts that are payable to health care providers. Medicare has a fee schedule for doctors who treat beneficiaries. Insurance companies have fee schedules that determine what they’ll pay under the policies.

First dollar coverage

A health insurance policy with no required deductible.

Gatekeeper

Term given to a primary care physician in a managed care network who controls patient access to medical specialists.

Gatekeeper PPO

A health care payment and delivery system consisting of networks of doctors and hospitals. Members must choose a primary care physician, use doctors in the network, or face higher out-of-pocket costs.

Health Insurance Purchasing Cooperative (HIPC)

A large group of employers and individuals functioning as an insurance broker to purchase health coverage, certify health plans, manage premiums and enrollment, and provide consumers with buying information. Also called health insurance purchasing group, health plan purchasing cooperative, and health insurance purchasing corporation.

Health maintenance organization (HMO)

A health care payment and delivery system involving networks of doctors and hospitals. (See story on page S10, for comprehensive definitions of HMOs, fee-for-service plans and preferred provider organizations [PPO]).

Hospital pre-authorization

A managed care technique in which the insured obtains permission from a managed care organization before entering the hospital for nonemergency care.

Hospital-surgical policy

A type of health insurance policy that pays specific benefits for hospital services, including room and board surgery.

Independent Practice Assn. (IPA)

An HMO in which doctors are usually paid fees for their services, and controls over services may be less stringent than in other types of HMOs.

Long-term care

A continuum of maintenance, custodial and health services to the chronically ill, disabled or retarded.

Managed care

A term that applies to the integration of health care delivery and financing. It includes arrangements with providers to supply health care services to members, criteria for the selection of health care providers, significant financial incentives for members to use providers in the plan, and formal programs to monitor the amount of care and quality of services.

Managed competition

A method for controlling health care costs by organizing employers, individuals, and other buyers of health care into large cooperatives that will purchase coverage for their members. Insurance companies and managed care organizations will compete to supply coverage for the lowest cost.

Major medical policy

A type of health insurance policy that provides benefits for most medical expenses, usually subject to a high maximum benefit, deductibles, and coinsurance.

Mandated benefits

Certain coverages, such as prenatal care, mammographic screening, and care for newborns that states require insurers to include in health insurance policies. Sometimes called state mandates.

Medicaid

A state-federal program that pays the health care bills for those people, regardless of age, who have insufficient income and assets to pay the costs themselves.

Medicare

Federal program under the Social Security Act that provides hospital and medical coverage to those 65 and older and to certain disabled individuals regardless of age.

Medicare-supplement policy

A type of health insurance policy that provides benefits for services Medicare does not cover.

Medicare HMO

A type of contract Medicare enters into with health maintenance organizations to provide benefits to HMO members. Members receiving benefits under this arrangement are “locked in”; that is, they must receive all their care from the HMO, or Medicare will not reimburse them.

Open enrollment period

Time during which uninsured employees may join a health care plan or insured employees can switch plans without proving they are healthy.

Point of service

A term that applies to certain health maintenance organizations and preferred provider organizations. Members in a point-of-service HMO or PPO can go outside the network for care, but their reimbursement will be less than if they had remained inside.

Preexisting condition

A physical or mental condition that an insured has prior to the effective date of coverage. Policies may exclude coverage for such conditions for a specified period of time.

Preferred risks

People with few, if any, medical problems whom insurance companies like to insure because they present little likelihood of filing claims in the near future.

Prepaid Health Care Act

Federal law passed in 1973 that sets standards for federally qualified health maintenance organizations. Among the standards are minimum benefits and formal grievance procedures.

Preferred Provider Organization (PPO)

A health care payment and delivery system with networks of doctors and hospitals. System may place looser restrictions on doctors than HMOs. Members are not always required to choose a primary care physician, and can go outside the network for care, but they receive lower reimbursement.

Primary care

Basic care including initial diagnosis and treatment, preventive services, maintenance of chronic conditions, and referral to specialists.

Primary care physician

Physician in a managed care network who supervises medical care for members and makes referrals to specialists if needed.

Rationing

The allocation of medical care by price or availability of services.

Second opinion review

A managed care technique in which a second physician is consulted regarding diagnosis or course of treatment. Thought to be of questionable effectiveness in reducing costs.

Shadow pricing

Tendency of health insurers not to price their services at the same or nearly the same level as indemnity insurance plans.

Usual, customary and reasonable (UCR)

Amounts charged by health care providers that are consistent with charges from similar providers for the same or nearly the same services in a given area.

Utilization

Patterns of usage for a particular medical service such as hospital care or physician visits.

Utilization review

A managed care technique in which the managed care firm or insurance company attempts to reduce the length of hospital stays and the number of unnecessary hospital admissions.

Waiver

A provision in a health insurance policy in which specific medical conditions a person already has are excluded from coverage.