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B Glossary and Acronyms Adverse Selection The disproportionate enrollment of individuals with poorer than average health expectations in certain health plans. Over time, as plan premi- ums rise as a result of higher enrollee health care costs, the plan becomes less attractive to relatively healthy potential enrollees, disproportionately attracting relatively sicker enrollees in successive enrollment cycles, which results in spiraling costs. Affinity Group A group of people with a common organizational interest or membership, other than for the purchase of health insurance, for example, mem- bership in a professional society. Benefit The particular services covered by a health plan and the amount payable for a loss under a specific insurance coverage (indemnity benefits) or as the guar- antee of payment for certain services (service benefits). Charity Care Generally, physician and hospital services provided to persons who are unable to pay for services, especially those who are low income, uninsured, and underinsured. A high proportion of the costs of charity care is derived from services for children and pregnant women (e.g., neonatal intensive care).* *Adapted from the Academy for Health Services Research and Health Policy glossary at: http:// www.academyhealth.org/publications.glossary.pdf. Accessed February 4, 2002. 172
APPENDIX B 173 Coinsurance The percentage of a covered medical expense that a beneficiary must pay, after any required deductible is met. Community Rating Calculating premiums based on the average costs of all of an insurerâs subscribers rather than on the experience of a subgroup or of indi- viduals. Copayment A fixed payment per service (e.g., $15 per office visit or procedure) paid by a health plan member. Cost Sharing The portion of health care expenses that a health plan member must pay directly, including deductibles, copayments, and coinsurance, but not including the premium. Cost Shifting Transfer of health care provider costs that are not reimbursed by one payer to other payers through higher charges for services. Cross-Subsidization Payments made for services rendered to one individual or group that are used to cover shortfalls in individual payments for services rendered to another individual or group. Crowd-Out, Substitution A phenomenon whereby new public programs or expansions of existing public programs designed to extend coverage to the unin- sured prompt some privately insured persons to drop their private coverage and take advantage of the expanded public subsidy.* Deductible The amount of loss or expense that must be incurred by an insured or otherwise covered individual before an insurer will assume any liability for all or part of the remaining cost of covered services. Deductibles may be either fixed- dollar amounts or the value of specified services (such as 2 days of hospital care or one physician visit). Deductibles are usually tied to some reference period over which they must be incurred (e.g., $100 per calendar year, benefit period, or spell of illness).* Dependent An insuredâs spouse (not legally separated from the insured) and unmarried child(ren) who meet certain eligibility requirements and are not other- wise insured under the same group policy. The precise definition of a dependent varies by insurer or employer. Disproportionate Share Adjustment, Hospital (DSH) A payment adjust- ment under Medicareâs prospective payment system or under Medicaid for hospi- tals that serve a relatively large volume of low-income patients.*
174 INSURING AMERICAâS HEALTH Entitlement A legal obligation on the federal government to make payments to a person, business, or unit of government that meets the criteria set in law. Congress generally controls entitlement programs by setting eligibility criteria and benefit or payment rulesânot by providing budget authority in the appropriation act (CBO, 2002). Equity Concerning fairness and justice, the idea of balancing legitimate, compet- ing claims of individuals in society in a way that is seen as impartial or disinter- ested. Distributional equity, which concerns the fair distribution of some good or service of interest, has been the dominant equity concern both of normative economic analysis and of health policy makers (Hurley, 2000). Experience Rating Setting health insurance premiums based in whole or in part on past claims history of a particular group or its anticipated future claims. Federal Poverty Level (FPL) One of two federal poverty measurements; also known as âpoverty guidelines.â Issued annually in the Federal Register by the U.S. Department of Health and Human Services; it applies to persons of all ages in family units. The guidelines are a simplification of the poverty measurements for administrative purposes, such as determining financial eligibility for certain federal programs. In 2003, the FPL for a family unit of one was $8,980; for a family unit of three, $15,260; and for a family unit of four, $18,400 (see Appendix A, Table A.1) (DHHS, 2003). Fee-for-Service An approach to billing for health services in which providers charge a separate price or fee for each service provided or patient encounter. Under fee-for-service, the level of expenditures for health care depends on both the levels at which fees are set and the number and types of services provided.* Global Budget A budget set in advance to contain costs among a group of hospitals, where each hospital accepts an aggregate cap on its annual revenues.* Gross Domestic Product (GDP) The total market value of goods and services produced domestically during a given period. The components of GDP are con- sumption (both household and government), gross investment (both private and government), and net exports (CBO, 2002). Guaranteed Issue Insurance coverage that does not require the insured to pro- vide evidence of insurability. Alternatively, it is the requirement that insurers offer coverage to groups or individuals during some period each year.* Health Capital The present value of a personâs health over the course of their lifetime (Cutler and Richardson, 1997).
APPENDIX B 175 Health-Related Quality of Life A research construct developed by the Centers for Disease Control and Prevention to help monitor progress in achieving national health objectives. Its core element consists of four questions that encompass gen- eral self-reported health status, the number of unhealthy days within a recent time period (e.g., the month before the interview) for both physical and mental dimen- sions, and restricted activity days. High-Risk Pool A subsidized health insurance pool organized by a state as a subsidized alternative for individuals who have been denied health insurance because of a medical condition or whose premiums are rated significantly higher than the average due to health status or claims experience. It is commonly operated through an association composed of all health insurers in a state. The Health Insurance Portability and Accountability Act allows states to use high-risk pools as an âacceptable alternative mechanismâ that satisfies the statutory require- ments for ensuring access to health insurance coverage for certain individuals. Individual Market, Nongroup Market The insurance market for products sold to individuals rather than to members of groups. Typically each state regulates its own nongroup market. Integrated Delivery System, Integrated Services Network A group of health care providers and institutions that delivers services across the continuum of care to a target population and is accountable for the financial and clinical out- comes of the services delivered.* Job Lock A distortion in job mobility attributed to employer-provided health insurance when employees keep jobs they would rather leave for fear of losing coverage (from Madrian, 1994). Maintenance of Effort The requirement that states, local governments, employ- ers, individuals, or other organizations continue spending their own funds at previous levels to support a particular purpose or program after reform. Medical Savings Account A vehicle through which individuals can accumulate funds to pay for health care or insurance premiums, subject to federal income taxation but tax exempt in some states.* Medical Underwriting An insurance practice of determining whether to accept or refuse individuals or groups for insurance coverage (or to adjust coverage or premiums) on the basis of an assessment of the risk they pose and other criteria (e.g., insurerâs business objectives). Nongroup Market See definition for individual market.
176 INSURING AMERICAâS HEALTH Out-of-Pocket Expenses Payments made by an individual or family for medical services that are not reimbursed by health insurance. They can include payments for health plan deductibles, coinsurance, services not covered by the plan, pro- vider charges in excess of the planâs limits, and enrollee premium payments. Portability of Benefits A guarantee of continuous coverage without waiting periods (e.g., for a preexisting health condition) for persons moving between plans.* Preexisting Condition A physical or mental condition that exists prior to the effective date of health insurance coverage. Premium, Total The purchase price of a health insurance policy. Out-of- Pocket Premium or Employee Share Most workers enrolled in employment- based policies do not pay the total premium for their coverage but only a part of it, with the remainder subsidized by the employer. Risk-Adjusted Premium The price or amount of the premium reflects the expected utilization of the policy holder or group of enrolled persons and thus the financial liability for the insurer, often estimated according to the gender, age, and health status of the insured. Purchasing Pool A group of people who purchase health insurance jointly. Quality of Care The degree to which health services for individuals and popu- lations increase the likelihood of desired health outcomes and are consistent with current professional knowledge (IOM, 1990). Reinsurance The spreading of the costs to an insurer of underwriting health insurance coverage by reselling insurance products in the secondary market.* Risk Pool A group of people whose actuarial risk is considered together. Self-Insurance Funding of medical care expenses, generally by an employer, in whole or part through internal resources rather than through transfer of risk to an insurer. Small-Group Market The insurance market for products sold to groups that are smaller than a specified size, typically employer groups. The size of groups included usually depends on state insurance laws and thus varies from state to state, with 50 employees the most common size.*
APPENDIX B 177 Social Insurance Old-age, disability, health, or other insurance that is mandated by statute for defined categories of individuals or the entire population, usually financed by payroll and other taxes. Spillover Effect A direct effect, either positive or negative, on a personâs or institutionâs welfare or profit developing as a byproduct of some other personâs or firmâs activity. Also referred to as an economic externality. Supplemental Coverage In the case of Medicare, private health insurance de- signed to cover expenses not paid for by Medicare, often designated as Medigap policies. Tax Credit, Refundable, Advanceable, Assignable An amount subtracted from the tax bill to be paid (tax liability). In contrast to a credit, an exemption subtracts some amount from income on which the tax is computed. If the credit is refundable, the taxpayer should receive a refund for the amount by which the credit exceeds the tax liability. An advanceable credit can be used by the taxpayer for up to a year before the filing date for taxes, for example, to subsidize monthly premium payments. An assignable credit can be used by the taxpayer to direct payment of the credit to another party, for example, to an insurer as a premium payment. Tax Expenditure The loss of federal tax revenue due to a special exclusion, exemption, or deduction from gross income in federal tax law, the provision of a special credit or a preferential tax rate, or a deferral of tax liability (U.S. Congress, 1974). Tax Incidence The distribution of the final burden of taxation across a popula- tion, taking into account all shifts in tax payments, for example, the shift in tax burden from a producer of goods to the consumer by means of a higher price for the goods. Uncompensated Care Service provided by physicians and hospitals for which no payment is received from the patient or from third-party payers. Some costs of these services may be covered through cost shifting. Not all uncompensated care results from charity care. It also includes bad debts from persons who are not classified as charity cases, but who are unable or unwilling to pay their bills.*
178 INSURING AMERICAâS HEALTH ACRONYMS AALL American Association for Labor Legislation COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 EMTALA Emergency Medical Treatment and Labor Act of 1986 ERISA Employee Retirement Income Security Act of 1974 FPL Federal Poverty Level (see Appendix A, Table A.1) HIPAA Health Insurance Portability and Accountability Act of 1996 SCHIP State Childrenâs Health Insurance Program TA Trade Act of 2002