Healthcare reform glossary of terms
The debate about healthcare reform has coined
many new terms, as well as modified the meaning
of existing terms. Here are some of the key terms
being used in the debate about the future delivery
and financing of healthcare.
access: A patient's ability to obtain healthcare. Ease of
access is determined primarily by the availability of
healthcare services and the cost of care. Other factors influencing access include appointment waiting
times, geographic proximity, available transportation, and hours of operation.
accountable health plans (AHPs): Healthcare delivery
systems that integrate the financing and delivery of
healthcare for an enrolled population. Unlike traditional fee-for-service medicine, AHPs are accountable for the cost and quality of care they deliver.
Among existing healthcare systems, health maintenance organizations (HMOs) are closest to the AHP
model.
adjusted average per capita cost: Used in determining
Medicare capitation payments for HMOs or other
competitive health plans. The amount is calculated
from the cost of providing Medicare coverage to
beneficiaries not enrolled in such a plan, accurately
adjusted for age, sex, disability and geographic area.
adjusted community rating: The premium an individual HMO or competitive medical plan (CMP) would
charge to provide Medicare-covered services to its
non-Medicare enrollees, adjusted to reflect the higher utilization of services by Medicare enrollees.
administrative costs: Costs incurred by an entity, such as
an insurance company, for services such as healthcare claims processing, billing, and enrollment.
Administrative costs are traditionally expressed as a
percentage of premiums or claims costs and sometimes as a fixed cost per employee per year.
adverse selection: A situation where an insurance carrier or benefit plan has a disproportionate enrollment
of adverse risks, like an impaired or older population, with a potential for higher healthcare utilization than budgeted for an average population.
Adverse selection occurs when premiums do not
cover cost of providing services.
all-payer system: An approach to financing healthcare
that would allow for multiple payers (i.e., private
plans and insurers, as well as federal and state plans)
but would standardize provider fees for all. This approach precludes separate fee negotiation and costshifting.
alternative delivery system: An organization or arrangement that provides for the delivery and financing of
healthcare services as an alternative to traditional
fee-for-service, private practice. Examples include
HMOs, preferred provider organizations (PPOs)
February 1994/Vol. 62/No. 1
and CMPs.
balance billing: The practice of billing patients for
amounts beyond set fees recognized and reimbursed
by a healthcare plan, such as Medicare. Physicians
who do not accept Medicare assignment, for example, usually bill a Medicare eligible patient for
amounts that exceed the charges recognized by
Medicare, leaving a balance that the patient must
pay out-of-pocket (or through an employer-sponsored plan). The Omnibus Budget Reconciliation
Act of 1989 limits balance billing to a percentage of
the amount reimbursable by Medicare (115% of the
allowable nonparticipating physician fee in 1993).
beneficiary: Any person eligible as either a subscriber
or dependent for service in accordance with a contract.
benefits package: A listing of specific healthcare services provided by a plan to enrollees in exchange for
a premium fee.
capitation: A method of paying for health services
under which a provider receives a fixed dollar
amount (usually monthly) for each covered individual in a group health plan, regardless of the actual
number, nature, or value of services provided to
each individual. In contrast to fee-for-service
arrangements, this approach removes the incentive
to overtreat. Moreover, capitation shifts some financial risk to providers.
case management: A coordinated system of health assessment, treatment planning, referral and followup designed to ensure that patients receive appropriate services and continuity of care. Under this
approach, a case manager coordinates and approves
services provided to a patient. Case managers also
coordinate payment and reimbursement for care,
and can help reduce inpatient costs by facilitating
access to outpatient services (including community
resources) and by working with insurers or other
third-party payers to obtain benefit reimbursement
for alternative services and supplies beyond those
typically covered.
dosed panel plan: A health plan that contracts or employs providers who exclusively or primarily see only
the patients of that health plan.
coinsurance: Form of cost-sharing whereby an insured
individual pays a percentage of the cost of covered
services, such as 20 percent of the amount deemed
eligible for major medical benefits.
copayment: Form of cost-sharing whereby an insured
individual pays a specified flat dollar amount for a
specified service, such as $10 per office visit, while
the insurer pays the remaining cost. Unlike coinsurance, the actual dollar amount paid by the insured
individual does not vary with the cost of the service.
community rating: Setting health insurance premiums
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based on the average cost of paying for services for
all covered people in a geographical area, regardless
of their history of (or potential for) using health services. A method of calculating health insurance premiums that sets the same price for the same health
benefit coverage for all individuals in a pool of insureds and does not take into account such variables
as the group's claims experience, age, sex or health
status. Community rating helps to spread the cost of
illness evenly over all health plan enrollees (the
whole community), rather than charging the sick
more than the healthy for health insurance.
community rating by class: A modification of established community rating principles whereby individual groups can have different rates depending on
the composition by age, sex, marital status, and industry.
continuous quality improvement (CQI): A continuous
quality review and development process that identifies problems in healthcare delivery, tests solutions
to those problems, and monitors solutions for effectiveness on an ongoing basis.
corporate health alliance: Under President Clinton's
health reform proposal, an entity formed by companies with more than 5,000 employees that would have
to provide the federal guaranteed benefits package
to its employees. The entity could buy health coverage for its employees directly from health plans instead of through a regional health alliance.
cost-shifting: The practice which forces a healthcare
provider, such as a hospital, to raise prices for patients with insurance in order to make up for patients who cannot pay or have no insurance.
current procedural terminology (CPT): A list of codes
developed to categorize medical services and procedures performed by physicians and other providers.
deductible: Form of cost-sharing whereby an insured
individual pays a specific out-of-pocket amount, usually per year, before the insurance plan will pay for
covered services. Deductibles may be either fixed
dollar amounts, such as $500, or the value of specified services, such as two days of hospital care.
diagnosis-related groups (DRGs): A system of classifying inpatient hospital admissions based on diagnosis,
surgical procedures performed and presence of
complications, as well as the age and sex of the patient. Classification standards, like the DRG system,
provide incentives for more cost-effective care and
facilitate cost comparisons between providers.
dual choice: The opportunity for an individual within
an employed group to choose from two or more
types of healthcare coverage, such as an HMO and a
traditional insurance plan.
employee exclusion cap: A limitation on the amount of
employer-provided health benefits that may be received tax-free by an employee.
employer deduction cap: A health reform proposal that
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would limit the tax deduction for employers to no
more than a predetermined per capita cost for employee healthcare benefits.
employer mandate: A requirement that employers offer
health insurance to their employees and contribute
to the cost of employees' health benefit premiums.
exclusive provider organization: Derived from the term
"preferred provider organization." A type of managed care entity where the patient must use the PPO
providers for all services covered.
experience rating: Setting health insurance premiums
based on the average cost of actual or anticipated
healthcare used by various groups and takes into account such variables as previous claims experience,
age, sex, or health status. It is the most common
method of establishing premiums for health insurance in private programs.
fee-for-service: The traditional healthcare billing system in which a healthcare provider charges a patient
separately for each specific service versus a managed
care system. This allows patients to have freedom of
choice of providers.
fee schedule: A comprehensive listing of fee maximums used to reimburse healthcare providers on a
fee-for-service basis.
first-dollar coverage: Insurance or prepayment coverage under which the third-party payer assumes liability for covered services as soon as the first dollar of
expense for such services is incurred without requiring the insured to pay a deductible.
gatekeeper: Means of limiting a patient's freedom of
choice by limiting a patient to services from a selected group of primary care physicians. The primary
care physician group assumes responsibility for, reviews, and approves all medical care the patient receives, including care from specialty providers.
global budgeting: An overall budget limit on healthcare
services, regardless of where the funds originate.
Global budgets can take the form of a state or federal
maximum limit on total healthcare expenditures but
usually imply federal limits. In some contexts, global
budgeting has come to mean setting a limit on
spending within sectors (e.g., specific allocations for
physicians, advanced practice nurses, or hospitals).
group model HMO: A healthcare delivery model in
which the HMO contracts with one healthcare
provider group to provide services to members. The
health plan compensates the provider group for
contracted services at a negotiated rate and the
group is responsible for compensating its providers.
As with the staff model HMO, all services except hospital care are generally provided under one roof. A
group model plan is a "closed panel" plan where
providers in the group treat HMO patients exclusively or primarily.
guaranteed benefits package: The basic level of healthcare services that health plans would have to provide
Journalof the American Association of Nurse Anesthetists
to every American citizen and legal resident under
President Clinton's health reform proposal; health
plans could voluntarily expand services as a way to
attract enrollees.
health insurance purchasing cooperative (HIPC): A
HIPC, like a regional health alliance under
President Clinton's health reform proposal, pools
individuals for buying health insurance. A regional
health alliance would be quasi-governmental, but a
HIPC is a private, nonprofit organization.
health maintenance organization (HMO): This is a
health plan, like Kaiser Permanente, which provides
members comprehensive health services for a fixed
prepaid premium (often with copayments or deductibles that vary from service to service). HMO
healthcare providers are usually on salary, although
they can be on contract. Patients are assigned a
"gatekeeper" who decides when and what kind of
health services are needed. HMOs are both insurers
and providers of healthcare. There are four basic
HMO models: group model, individual practice association, network model, and staff model.
health plan: Under President Clinton's health reform
proposal, a state-certified health plan must provide
the federal guaranteed benefits package of services
to all eligible individuals. Health plan enrollees
would have the ability to change plans each year.
indemnity plan: A health benefit plan that provides for
reimbursement of some portion of incurred medical expenses. Employees are usually responsible for
submitting claims and can seek care from any healthcare provider. Expenses eligible for reimbursement
are billed by the provider on a fee-for-service basis.
Payments may be made to the individual incurring
the expense or, in many cases, directly to providers.
The important point is that the indemnity relates
only to a specific loss incurred by the insured person
after the fact.
individual practice association HMO: A type of HMO
that contracts with an individual practice association
consisting of a panel of healthcare providers practicing individually or in small groups in the community. The individual practice association in turn contracts with physicians, who continue in their existing
individual or group practices while working parttime for the HMO. Providers are usually reimbursed
individually on a fee-for-service or capitation basis.
in-network: Describes healthcare services received from
a contracted network healthcare provider. Under
point-of-service managed care programs, the benefit
plan pays employees more toward expenses incurred
for in-network services than for services received outside the network.
lock-in: Refers to a situation where the health plan enrollee must use designated providers for all covered
services.
managed care: An organized system for delivering
healthcare, such as an HMO, that incorporates ben-
February 1994/Vol. 62/No. 1
efit design features, financial incentives for
providers, controls on utilization, and emphasis on
providing quality healthcare in the most cost-efficient settings. Managed care networks, consisting of
different types of providers that agree to provide services to those covered under the plan, are usually organized by insurance carriers but also can be organized by employers, hospitals or hospital chains.
Payment is made on a fixed basis, which provides incentives to control costs.
managed competition: An economic theory that organizes healthcare delivery and financing in an attempt to combine the best elements of government
regulation and free-market competition. Insurance
companies and healthcare providers would create
health plans that would compete with other health
plans for large groups of consumers. This is a way to
give individuals and businesses bargaining power by
virtue of increased size, so that they can get the
healthcare they want at an affordable price. It requires the government to regulate health plans so
that no individual can be denied coverage.
medical individual retirement accounts: A method to
address coverage and cost problems by authorizing
the creation of individual health expense accounts
from which personal health expenses may be paid.
medically necessary: Describes a medical service or
treatment that is appropriate and consistent with the
diagnosis, and which, in accordance with accepted
standards of practice in the medical community that
delivers such services, could not have been omitted
without adversely affecting the patient's condition
or the quality of healthcare provided.
national health board: A seven-member board, appointed by the president and confirmed by the
Senate, that would have a key role in setting national
health policy under President Clinton's health reform proposal.
network model HMO: A type of HMO that involves a
direct contract between the health plan and usually
more than one multi-specialty group of providers to
provide services to members, i.e., there is no association acting as an intermediary between the health
plan and providers. The provider groups generally
are unrelated and are located in different geographical locations.
open enrollment: The annual period during which people can choose among the two (or more) health insurance options being offered.
open panel: A plan that contracts with healthcare
providers who continue to see other fee-for-service
or prepaid patients as well.
outcomes measurement: A process of systematically
tracking a patient's clinical treatment and responses
to that treatment including measures of morbidity
and functional status.
out-of-area benefits: Benefits that an HMO provides to
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its members when they are outside the HMO's geouse of in-network services by providing more attracgraphical area. The coverage is restricted to emertive benefits, such as reduced copayments and degency services.
ductibles, broader coverage of services, or simplified
claims processing. Providers usually furnish services at
out-of-network: Describes healthcare services received
lower than usual fees in return for prompt payment
from providers who do not participate in a managed
by the health insurance plan and a certain assured volcare program's contracted network of providers.
ume of patients. PPOs differ from HMOs in that they
Under point-of-service managed care programs, the
do not rely on gatekeepers to coordinate healthcare
benefit plan pays employees less toward expenses infor each covered individual, e.g., individuals generally
curred for out-of-network services than for services rehave open access to all specialty care from network
ceived inside the network.
providers.
outlier: A case that has an unusually long length of stay or
unusually high cost compared to other cases in the premium: The money paid to an insurer for an insurance
policy guaranteeing the payment of specific benefits.
same categories. For Medicare, the category is the
Often, both employers and employees pay a portion
DRG.
of the premium.
participating providers: Providers who have contracted
primary
care providers: Providers who provide basic or
to
healthcare
services
with a health plan to provide
general healthcare, usually defined to include pediacovered individuals; also referred to as network
tricians, internists, general practitioners, family pracproviders.
titioners, and (sometimes) obstetricians/gynecolophysician hospital organization (PHO): A legal entity
gists. They are specifically trained to promote health
formed by a hospital and a group of physicians for the
and prevent disease, assess common symptoms, manpurpose of negotiating and obtaining payer contracts.
age common medical conditions, coordinate other
Under this arrangement, physicians maintain ownerhealth services necessary for a patient's care, and refer
ship of their practices and agree to accept enrollees
patients to specialists as appropriate. They serve as
in managed care programs according to the terms of a
gatekeepers into a managed care program and paprofessional services agreement with the PHO.
tients must work through them to receive in-network
play-or-pay: An approach to increasing insurance coverspecialty care services and any other care not provided
age by requiring employers to make a contribution toby the primary care provider.
ward covering workers and their families. They may
choose either to "play" by buying private insurance for prior authorization: Approval required before actually
providing a particular service. Generally, prior authotheir workers or "pay" a set amount, usually a perrization is required for non-emergency services which
centage of payroll, into a government program to subare expensive (involving a hospital stay, for example)
sidize the cost of health coverage for all individuals
or are likely to be overused or abused.
without employer-sponsored coverage.
provider:
A CRNA, physician, hospital, nursing home,
point-of-service managed care plan: A health benefit
pharmacy,
or any individual or facility that provides
plan that allows covered individuals to choose to rehealthcare
services.
ceive services from participating or nonparticipating
providers each time they need healthcare rather than provider network: Providers (including individual practitioners, organizations or facilities) under contract to
choosing only once a year (as under traditional "lockprovide healthcare services to a defined group of pain" HMO or indemnity plan options). The plan entients.
courages in-network utilization by providing more attractive benefits for in-network services.
quality assurance (QA): An approach to measure the
level of outcome achieved by a level of treatment. QA
preadmission certification: A review of the need for inincludes assessing quality and taking action to remedy
prior
to
an
actual
adpatient hospital care conducted
any deficiencies identified in the quality of direct pamission. Established review criteria are used to detertient care, administrative services, and support sermine the appropriateness of inpatient care. Also
vices. Employers usually include an evaluation of QA
called "precertification," this approach to cost control
procedures in selecting and monitoring HMOs and
is one of the earliest forms of utilization management.
networks for their managed care programs.
preexisting condition: A physical condition, including an
injury or disease, that was contracted or occurred regional health alliance: Under President Clinton's
prior to enrollment in the health plan. Insurers often
health reform proposal, this is a quasi-governmental
choose not to cover such a condition, at least for a peentity that would pool consumers into a large purriod, or may raise rates because of it.
chasing group, then bargain with health plans for lowpreferred provider organization (PPO): A health benefit
cost care. Most consumers in a given region would seplan that allows covered individuals to choose to relect their health plan through a list provided by the
ceive services from participating or nonparticipating
alliance. Employers, employees, and others would pay
providers each time they need healthcare, rather than
their premiums to the alliance; the alliance in turn
would pass the money to the health plans based on
choosing only once a year. The plan encourages the
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Journal of the American Association of Nurse Anesthetists
the number of subscribers.
resource-based relative value scale (RBRVS): A healthcare classification system used by Medicare as a
mechanism for reimbursing healthcare providers.
The system bases provider payments on the relative
value of a given service as measured by the time,
training, and skill required to perform that service.
Adjusting for overhead costs, geographical differences, and services rendered, RBRVS is intended to
redress the fee-for-service system's tendency to overpay for such services as surgery and diagnostic tests
and to underpay for primary care services that involve examining and talking with patients. The
RBRVS payment system became effective January 1,
1992.
retrospective review: A method of determining medical necessity and/or appropriate billing for health
services that have already been rendered.
risk contract: A legal agreement that exposes the
provider to uncertainty of financial loss or expense.
This uncertainty is due to the provider agreeing to
provide healthcare services for which the extent and
cost are unknown.
risk pool: A financial arrangement that spreads the risk
of utilization and cost among the participants - generally the HMO, the hospital, and the providers. The
pool may insure against unusually high utilization
and costs. The pool also may provide incentives for
controlling utilization. The following three types of
pools are common: (1) A surplus sharing pool provides incentives to participants by sharing savings
when actual expenses are below budgeted expenses, (2) A loss sharing pool penalizes overutilization
by sharing losses due to actual expenses exceeding
budgeted expenses, and (3) A combined risk sharing pool provides incentives and penalties by spreading both savings and losses.
self-insurance: Payment of employees' healthcare expenses through the use of a special fund established
by an employer, rather than by arranging for an insurer to provide such coverage. The employer directly assumes the normal functions, responsibilities,
and liabilities of an insurer, although an employer
may arrange for any entity (e.g., insurer) to handle
the administrative tasks associated with running the
plan.
single-payer system: A health system that designates one
entity (usually the government) to function as the
only purchaser and payer of healthcare services.
There is no role for insurance companies under this
system because the government sets prices and administers reimbursement to providers.
specialty care providers: Providers who provide care
other than primary care, such as surgeons and anesthesia providers. In most managed care programs,
in-network specialty care is provided only upon re-
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ferral from the primary care provider.
staff model HMO: A type of HMO that hires its own
providers. The staff model is very much like the
group model HMO, except that the providers are
employees of the HMO. As with the group model
HMO, all services except hospital care are provided
under one roof.
technology assessment: Evaluation of medical equipment/procedures and surgical techniques in terms
of medical efficacy and safety, combined with economic impact. As medical technology continues its
rapid advance and costs continue to rise, this type of
cost/benefit analysis has become a critical component of healthcare management.
third-party payer: An institutional payer like an insurance company, HMO, PPO, or governmental agency
responsible for paying the provider for covered services received by insured parties. In the healthcare
industry, there is generally a separation between the
individual receiving the service (the first party), the
individual or institution providing the service (the
second party), and the organization paying for the
service (the third party).
total quality management (TQM): A structured, systematic process for creating organization-wide participation in planning and implementing continuous quality improvement (CQI) programs. TQM
embodies a set of principles that include customer
focus, prioritizing quality over cost, understanding
and improving processes, employee involvement,
cross-functional management, continuous improvement, and standardization.
trend: Measures the rate of increase in per capita
healthcare expenses for the population covered
under a medical plan. Trend is comprised of not
only the change in prices for the current set of services (price inflation) but also includes increases in
utilization of services and the introduction of new
technology. The effect of cost-shifting, malpractice
costs, and catastrophic claims are reflected in trend
as part of the price or utilization components.
universal coverage: A cornerstone of President
Clinton's health reform proposal which would give
all eligible individuals actual coverage for their
healthcare needs, not just access to the healthcare
system.
utilization: The extent to which a given group uses specified services in a specific period of time, usually expressed as the number of services used per year per
1,000 persons eligible for the services. Utilization
rates may be expressed in other types of ratios, for
example, per eligible persons covered.
utilization review: A formal review of the appropriateness and quality of healthcare services provided to
patients on a prospective, concurrent or retrospective basis.
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