Glossary

Health System Reform Glossary
With health system reforms now underway at the state and Federal level, it will be important to follow the discussions as closely as possible. This glossary defines the terms and concepts that are most likely to be used in reform proposals.  Most of the definitions are adapted for Utah from Community Catalyst’s A Consumer Guide to State Health Reform, Families USA’s Glossary of Health Care Terms andwww.healthcare.gov.  Also see Robert Wood Johnson Foundation’s Glossary of Health Care Quality Terms.

PLEASE NOTE: This Glossary is designed as an interactive, ‘work-in progress.’   We are happy to define additional terms or concepts: just send your request using the form provided below.

Adjusted or modified Community Rating does not allow underwriting on health status (see also medical underwriting) but case characteristics can be used (within limits) to underwrite enrollees.  For example, states may choose to underwrite according to age, so that as you grow older your premiums increase (but they are lower when you are younger).

Adverse Selection
The problem or trend that arises when people only purchase insurance when they are sick and thus find themselves with significant expenses. Or, the separation of healthier individuals into some plans and sicker individuals into other plans.

Benefit Package 
A group of guaranteed services provided by a health plan to its members.

Case Characteristics
Case characteristics include things such as age, gender, industry, geography, family size and group size.  States can choose what case characteristics insurers are allowed to use when underwriting an individual or group for an insurance policy.

COBRA 
The Consolidated Omnibus Budget Reconciliation Act of 1985. A provision of this federal law requires that certain employers permit former workers and their dependants to remain in the employee health plan for a specified period of time. Employees must pay the full cost of the premium, including the share formerly paid by the employer.

COBRA update: Workers who are involuntary laid off between September 1, 2008 and December 31, 2009 may qualify for a subsidy to pay up to 65% of the COBRA premium.  More information is available here.

Community Rating
Pure community rating does not allow underwriting on health status (medical underwriting) or case characteristics.  This means insurers are required to rate everyone the same within a community, i.e. all community members pay the same premiums.

Defined Contribution Health Plan 
A payment structure for a benefit plan in which a benefit sponsor, such as an employer or the government, pays a specified amount of a benefit’s costs on behalf of each covered individual. The individual is responsible for charges above that defined amount. In employer-sponsored plans, employees receive a fixed dollar contribution from an employer to choose among various plans. Those who are sicker or older and who expect to need health care services may opt for plans with more comprehensive benefits, but they will also need to contribute a significant amount of their own money in addition to the employer’s contribution. Those choosing bare-bones health plans contribute less of their own money.

Employer Mandate
A law requiring all employers to provide health insurance.

ERISA (Employee Retirement Income Security Act of 1974)
A federal law governing employee benefit programs. As it relates to health insurance, ERISA includes general protections about benefits, appeals, and the disclosure of information to employees enrolled in the plan. ERISA also prevents states from regulating health insurance if the employer (typically large employers are ERISA plans) “self insures.”

Fully Underwritten
Fully underwritten does not set limits on the amount an insurer can vary premium.  The insurers are allowed to rate up an insurance policy without limits based on the insured’s case characteristics and health status.

Guaranteed Issue
A requirement that insurers sell insurance policies to anyone who seeks one, regardless of health, income, age or other factors.

Health Information Technology (“H.I.T.”)
The use of electronic technology, such as computerized medical records, to provide comprehensive management of medical information and its secure exchange between health care consumers and providers; In the context of reform, HIT refers to the set of tools and technologies that are known to streamline health care delivery and thus control costs.

Health Insurance Exchange
A health insurance exchange (also called a ‘connector’ or ‘portal’) is a clearinghouse or 1-stop shop that facilitates enrollment of individuals, families, and small businesses in private (or public programs and premium assistance options) health coverage that meets certain standards. It creates a common marketplace where consumers can compare their health coverage options and shop for the best value at the lowest cost. It may also play an educational role, for example by helping employers establish Section 125 plans, which make it possible for employers and employees to pay for premiums and medical expenses with pre-tax dollars.

Individual Mandate 
A law requiring all residents to obtain health insurance. Currently, Massachusetts is the only state with an individual mandate.

Medical Loss Ratio (MLR) - A term used by the insurance industry and actuaries to describe the portion of premium dollars that goes to pay for medical claims. For example, if an insurance company shows an overall medical loss ratio of 84.63, it pays out nearly 85 cents in claims. The other 15 cents represents the costs of running a business—administrative overhead, marketing, facilities and operating margin (or profits, in the case of for profit plans). From a consumer perspective, the higher the medical loss ratio, the more an insurance company is spending on actual health care. This gives the consumer reassurance that premium increases are due to increases in healthcare costs rather than insurance companies padding their bottom line. Under the Patient Protection and Affordable Care Act, health insurers will be required to pay a minimum percentage of premiums back out in actual medical costs -85% for large-group plans and 80% for small groups and individual plans.

Medical Home
A medical home provides a coherent system of care wherein a primary care provider works with patients, families, and other health care professionals to help patients identify and access all needed medical services. It focuses on preventive care and the management of chronic illnesses, thus reducing the need for costlier care such as emergency room visits and hospitalizations. The American Academy of Pediatricsdefines a medical home as “a partnership between families and physicians to provide primary care which is accessible, continuous, comprehensive, family-centered, coordinated, compassionate, and culturally effective.”

Medical Underwriting
Medical underwriting is the practice that allows insurance carriers in the market to decide whom to sell coverage to, what benefits to offer, and what premiums to charge based on a number of criteria, including health status, prior medical claims, age, gender, and other factors.  Medical underwriting is common in the individual insurance market, but is prohibited in some states.  Many states have some restrictions on medical underwriting, or provide other options, such as high risk pools, to individuals turned down for insurance.

Note: For more details on underwriting laws in Utah, see our recent report, How are Insurance Rates Regulated?: A Guide to Underwriting Laws in Utah & Policy Recommendations 

Patient Protection and Affordable Care Act (PPACA) - Federal Health Care Reform law signed on March 23, 2010. The law includes a large number of health-related provisions to take effect over the next four years, including expanding Medicaid eligibility, subsidizing insurance premiums, providing incentives for businesses to provide health care benefits, prohibiting denial of coverage/claims based on pre-existing conditions, establishing health insurance exchanges, and support for medical research. The costs of these provisions are offset by a variety of taxes, fees, and cost-saving measures, such as new Medicare taxes for high-income brackets, taxes on indoor tanning, cuts to the Medicare Advantage program in favor of traditional Medicare, and fees on medical devices and pharmaceutical companies. It also includes a tax penalty for citizens who do not obtain health insurance (unless they are exempt due to low income or other reasons). The Congressional Budget Officeestimates that the net effect (including the reconciliation act) will be a reduction in the federal deficit by $143 billion over the first decade.

Portability
A characteristic of health insurance to ensure continuity so that the insured does not lose coverage due to any change in health or personal status, such as employment, marriage, or divorce.

Preexisting Condition Exclusion 
A policy of excluding certain people from obtaining insurance or treatment due to a preexisting medical condition/health status. This happens through the process ofmedical underwriting.

Preexisting Condition Insurance Plan (PCIP) - New Program under reform to make health insurance available if you have been denied coverage by private insurance companies because of a pre-existing condition. PCIP will cover a broad range of health benefits, including primary and specialty care, hospital care, and prescription drugs.  All covered benefits are available, even if it’s to treat a pre-existing condition.

This plan will become active as of August 1, 2010.  Please check back for more details.

Public Health Insurance Plan (“Public Plan Option”)
A health insurance plan that is self-insured by the government, meaning the plan is publicly owned and financed.  If claims outpace premiums in a given year, the government pays and is at risk for the difference just like an insurance company would be.  This proposal was NOT incorporated into the federal reform package.

Purchasing Pool 
With respect to health insurance coverage, this is a group of people brought together to enhance their bargaining power as well as to pool risks across individuals from the sickest to the healthiest. All purchasing pool members pay the same premium for a given plan regardless of their health status, although some pools may vary premiums by age or other factors.

Rate bands
Rate bands allow medical underwriting but within limits (“bands”) on the amount an insurer can vary premiums.  In general, insurers set an average premium rate, known as an index rate.  The rate band then sets a floor and a ceiling for the index rate, limiting the amount an insurer can vary premiums for the healthy and sick within the given rate band.  People can be denied health insurance in a rate-banded system.

Reinsurance
Reinsurance is insurance for insurance companies. A primary insurance company transfers risks of high cost claims to another private carrier or to a government-sponsored program. The insurer or government-sponsored program then assumes this risk and pays for some or all of these high cost claims. There are two types of reinsurance programs: in one, the government pays for some or all of the claims through general revenues; in the other, state law establishes an association of insurance companies and requires these companies to pool their resources to pay high cost claims.
See UHPP’s recent proposal for a reinsurance plan.

Risk Pooling 
Under this process, risk for all individuals—including the healthy and the sick—is combined into one risk pool or group, and the group’s total expected claims are evaluated. This is used to try to calculate the required funding (raised through premiums and/or other subsidies) to support the payment of all expected claims for all members of the risk pool.

Self-Insured Health Plan
Also called ERISA plans, a health plan in which the employer assumes the actuarial  (and financial) risk of covering its employees, paying medical claims from its own resources.  Most large employers are self-insured.

Section 125 Plans
An employee benefit arrangement allowed by IRS Code Section 125, under which employees are allowed to pay for certain employee benefits on a pre-tax rather than an after-tax basis.   Also called “cafeteria” plans.

Single Payer
An approach to health care financing with only one source of payment for health care providers. The scope may be national (like the Canadian System), statewide (like Dr. Joseph Q. Jarvis’ proposal for the Utah Health Cooperative), or community-based. The payer may be a governmental unit or perhaps a nonprofit entity.

Tax Credits 
A dollar-for-dollar reduction in the amount of taxes an individual owes. Some tax credits are “refundable,” meaning that if an individual owes less in taxes than the amount of the credit, he or she receives a refund and benefits from the full amount of the credit. The Earned Income Tax Credit is an example of a well-known federal program that works in such a manner. Conservatives will often recommend tax credits as a solution for the crisis of the uninsured that emphasizes personal responsibility.

Uncompensated Care Funds
Funds used to pay for physician or hospital services when no payment is received from the patient or from insurance. Some states have established further guidelines for uncompensated care funds.

Underinsured
People whose insurance does not cover their necessary health care services, leaving them with out-of-pocket expenses that exceed their ability to pay.

This Glossary is designed as an interactive, ‘work-in-progress.’ We are happy to define additional terms or concepts. Please fill out and submit your suggestions in the form below.