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Contact Us Fall 2000; Volume 1, Number 1
Glossary of Health Care Terms
Compiled by Sheila Burke
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Adjusted Average Per Capita Cost (AAPCC): The estimated average cost of Medicare benefits for an individual in a county, based on the following factors: age, sex, institutional status, Medicaid, disability and end-stage renal disease status. HCFA uses the AAPCCs to make monthly payments to risk and cost contractors.

Adverse Selection: Insurance plan with disproportionate share of people who are more prone to suffer loss or make claims than the average person. It may result from the tendency for those who are older or sick to seek or continue insurance to a greater extent than do healthy people, or from the tendency for the insured to use the favorable options in insurance contracts.

Balanced Budget Act of 1997: Included the most substantial changes to Medicare since its inception as well as changes to Medigap rules, the Medicaid program, and the creation of a new children's health program.

Capitation: A method of payment for health services in which an individual or institutional provider is paid a fixed, per capita amount for each person served without regard to the actual number or nature of services provided to each person. Capitation is a common method of paying physicians in health maintenance organizations. If the cost for caring for the patient is less than the fee, the provider keeps the difference. If medical bills exceed the fee, the provider must absorb the extra cost.

Carve Out: An arrangement whereby an employer separates coverage for a specific category of services (e.g., vision care, mental health services and prescription drugs) and contracts with a separate set of providers for those services according to a predetermined fee schedule or capitation arrangement. Carve out may also refer to a method of coordinating dual coverage for an individual. Case: 1) The group purchasing insurance (i.e., an employer or union) and 2) a covered instance of sickness or injury.

Catastrophic Coverage/Illness: Benefits included in certain insurance plans to protect insured individuals from extraordinary expense incurred as a result of serious or prolonged illnesses or injuries. Many plans with catastrophic coverage place maximum dollar ceilings on how much the plan will pay during the individual's lifetime.

CHIP: The State Children's Health Insurance Program. Passed in 1997 as part of the Balanced Budget Act, the program provides federal funding to states to expand health insurance coverage to low income children.

Claim: A request for payment for benefits received or services rendered.

Coinsurance: An arrangement under which the insured person pays a fixed percentage of the cost of medical care. For example, an insurance plan might pay 80% of the allowable charge, with the insured individual responsible for the remainder.

Community Rating: A method of determining premiums for health insurance which ensures that all subscribers or a particular class of subscribers pay the same rate for the same level of benefits and that anticipated costs are spread evenly among all contracts; setting health insurance premiums based on the average cost of providing medical services to all people in a geographic area, without adjusting for each individual's medical history or likelihood of using such services.

Compulsory Health Insurance: A series of state and national health insurance reform proposals, beginning in the 1880's in Europe and in about 1912 in the United States. It also denotes a government requirement of universal coverage and is used to describe reform proposals in the 1930s and 1940s as well.

Copayment: A type of member cost sharing that requires a flat amount to be paid per unit of service or unit of time. This is usually a percentage of the charges but may also be a dollar amount for specified services.

Copayment Maximum: The limit on the total amount that a member might have to pay in copayments during any one calendar year, after which the health plan pays 100% of allowed charges up to specific benefit maximums.

Cost Containment: A set of strategies to reduce use of services and to encourage the substitution of more cost-effective services where appropriate. Some people also consider it to include efforts to reduce the unit price of medical services.

Cost Sharing: Provisions of a health insurance policy which require the insured or otherwise covered individual to pay some portion of covered medical expenses. Forms of cost sharing are deductibles, coinsurance and copayments.

Cost Shifting: A phenomenon occuring 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 unreimbursed costs. In the past, low reimbursement rates from government health care programs often led providers to raise prices for medical care to private insurance carries.

Deductible: An amount the insured person must pay before insurance payments for covered services begin. For example, an insurance plan might require the insured to pay the first $250 of covered expenses during a calendar year.

Defined Benefit Plan: A pension plan that pays retirees a fixed income based on years of service and salary. Participants make no investment decisions. Employers are obligated to fund the plan to pay projected benefits.

Dependent: Person (spouse or child) other than the subscriber who is covered in the subscriber's benefit certificate.

Devolution: The process of delegating power from the central or federal level to the state or local level of government.

Diagnostic Related Group (DRG): An inpatient or hospital classification system used to pay a hospital or other provider for their services and to categorize illness by diagnosis and treatment.

Differential: Refers to preferential rates charged by providers to insurers as compared to other insurers, in consideration of the benefits providers receive in terms of patient volume, comprehensiveness of coverage, and promptness and reliability of payment. Also referred to as "provider discount."

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