Glossary of Terms

Actively at Work - A requirement of many insurance policies stipulating that if a given employee is not actively at work on the day the policy goes into effect, medical coverage will not be provided until that employee returns to work.

Actuary - A person in the insurance field who decides insurance policy rates and reserves dividends as well as conducts various other statistical studies.

Acute Care - Treatment for a short-term or episodic illness or health problem.

Adjudication - Processing a claim through a series of edits to determine proper payment.

Administrative Costs - The costs assumed by a managed care plan for administrative services such as claims processing, billing, and overhead costs.

Ambulatory Care - Health services delivered on an outpatient basis. If the patient makes a trip to the doctor's office or surgical center without an overnight stay, it is considered ambulatory care.

Artificial Intelligence – A computerized decision process attempting to replicate the complexity of human intelligence.

At Risk - Term used to designate financial liability in compensation/reimbursement arrangements. A provider may be "at risk" for additional costs, for example, if the expense of caring for a particular panel of patients exceeds the provider's capitation payment.

Average Wholesale Price (AWP) - The average cost of pharmaceuticals charged to a pharmacy provider by a large group of pharmaceutical wholesale suppliers.

Authorization - As it applies to managed care, authorization is the approval of care, such as hospitalization. Preauthorization may be required before admission takes place or care is given by non-HMO providers.

Beneficiary - A person who is eligible to receive insurance benefits.

Benefit - Another name for coverage.

Benefit Package - Services an insurer, government agency, health plan, or employer offers under the terms of a contract.

Brand-name Drugs – Prescription drugs that are sold under a trademarked brand name.

Cafeteria Plan - A corporate benefits plan under which employees are permitted to choose among two or more options that consist of cash and certain qualified benefits. Cafeteria plans are also called flexible benefits plans or flex plans.

Calendar Year - The period of time from January 1 of any year through December 31 of the same year, inclusive. Most often used in connection with deductible amount provisions of major medical plans providing benefits for expenses incurred within the calendar year.

Carve Out - To separately purchase services that are typically part of a managed care package. For example, an HMO may "carve out" the vision care benefit and select specialized vendor to supply these services on a stand-alone basis.

Case Management - The process whereby a health care professional supervises the administration of medical or ancillary services to a patient, typically one who has a catastrophic disorder or who is receiving mental health services. Case managers are thought to reduce the costs associated with the care of such patients, while providing high-quality medical services.

Case Manager - An experienced professional (usually a nurse, physician, or social worker) who handles catastrophic or high-cost cases as a member of a utilization management team. Case managers work with patients, providers, and insurers to coordinate all health care services.

Center of Excellence - A network of health care facilities selected for specific services based on criteria such as experience, outcomes, efficiency, and effectiveness. For example, an organ transplant managed care program wherein members access select types of benefits through a specific network of medical centers.

Certificate of Coverage - A description of the benefits included in a carrier's plan. The certificate of coverage is required by state law and represents the coverage provided under the contract issued to the employer.

Chemical Equivalents - Those multiple source drug products containing essentially identical amounts of the same active ingredients, in equivalent dosage forms, and that meet existing physical/chemical standards.

Chronic Case - A patient who has one or more medical conditions that persist over long periods of time.

Claim - Information submitted by a provider or covered person to establish that medical services were provided to a covered person, from which processing for payment to the provider or covered person is made.

Clinical - Health data that has been observed by physicians using instruments, devices or laboratories.

Co-insurance - The percentage of the costs of medical services paid by the patient. This is a characteristic of indemnity insurance, POS, and PPO plans. The coinsurance is usually about 20% of the cost of medical services after the deductible is paid.

Congestive Heart Failure (CHF) - A condition where the heart muscle weakens and can’t pump blood efficiently throughout the body.

Consolidated Monibus Budget Reconciliation Act (COBRA) - A law that requires employers to offer continued health insurance coverage to employees who have had their health insurance coverage terminated because of a change in employment.

Co-payment - A kind of cost sharing where you pay a pre-set, flat amount for each service. In a Part D plan, for example, you might pay $10 for each prescription you receive and the plan would pay the remaining cost of the drug.

Coronary Artery Disease (CAD) - A build-up of fatty material in the wall of the coronary artery that causes narrowing of the artery and deprivation of oxygen to the heart muscle.

Customary Charge - The typical amount charged by a provider for a particular service. Payers typically pay the provider a percentage of this amount.

Deductible - A fixed amount of health care dollars of which a person must pay 100% before his or her health benefits begin. Most indemnity plans feature a $200 to $500 deductible, and then pay up to 100% of money spent for covered services about this level.

Dependent - An individual who receives health insurance through a spouse, parent, or other family member.

Diagnosis - The identification of a disease or condition through examination.

Disease Management - System of coordinated health care interventions and communications for populations with a variety of conditions in which patient self-care efforts are significant.

Disenrollment - The procedure of dismissing individuals or groups from their enrollment with a health carrier.

Dispensing Fee - A charge levied by pharmacists and added to the price of a drug, which covers both their pharmaceutical expertise and the cost involved in the prescription.

Doughnut Hole - Another name for the step in a Standard Part D plan in which you pay all of your expenses for eligible drugs, until you have spent $2,850.

Electronic Medical Record - A computer entered and stored record of a patient’s medical chart from the doctor’s office.

Eligible Dependent - A dependent of a covered employee who meets the requirements specified in the group contract to qualify for coverage.

Eligible Employee - An employee who meets the eligibility requirement specified in the group contract to qualify for coverage.

Employee Retirement Income Security Act of 1974 (ERISA) - A law that mandates reporting and disclosure requirements for group life and health plans.

Evidence Based Medicine - Medicine that is in accordance with “best practices” as defined by scientific societies incorporating what is known of the patient’s condition, that is, the “evidence” of that condition in the chart.

Expert System - A computerized system that assesses data (evidence) in order to produce a recommendation.

Fee Schedule - A comprehensive listing of fees used by either a health care plan or the government to reimburse physicians and/or other health care providers on a fee-for-service basis.

Flexible Benefit Plan - A benefit program that offers employees a number of benefit options, allowing them to tailor benefits to their needs.

Formulary - An approved list of prescription drugs that managed care plans may provide to their members. Drugs contained on the formulary are generally those that are determined to be both cost effective and medically effective.

Generic Drugs - Prescription drugs that have the same active ingredient formula as a brand name drug. Generic drugs usually cost less than brand name drugs and are rated by the Food and Drug Administration (FDA) to be as safe and effective as brand name drugs.

Generic Substitution - In cases in which the patent on specific pharmaceutical product expires and drug manufacturers produce generic versions of the original branded product, the generic version of the drug (which is theorized to be the exact same product manufactured by a different firm) is dispensed even though the original product is prescribed. Most MCOs and Medicaid programs mandate generic substitution because of the generally lower cost of generic products.

Health Maintenance Organization (HMO) - A form of health insurance in which its members prepay a premium for health services, which generally includes inpatient and ambulatory care. For the patient, it means reduced out-of-pocket costs (i.e., no deductible), no paperwork (i.e., insurance forms), and only a small co-payment for each office visit to cover the paperwork handled by the HMO.

Intranet - A small Internet-type network usually set up within one organization, which allows a small group of people to have access to specific information.

Mail Order Pharmacy - A method of dispensing medication directly to the patient through the mail. Mail order drug distributors can purchase drugs in larger volumes than retail or wholesale outlets.

Managed Health care -The sector of health insurance in which health care providers are not independent businesses run by, for example, the private practitioner, but by administrative firms that managed the allocation of health care benefits. In contrast with conventional indemnity insurers who do not govern the provision of medical services and simply pay for them, managed care firms have a significant say in how services are administered so that they may better control health care costs. HMO and PPOs are examples of MCOs.

Medicare - An entitlement program run by the Health care Financing Administration of the federal government through which people aged 65 years or older receive health care insurance. Medicare part A covers hospitalization and is a compulsory benefit. Medicare part B covers outpatient services and is a voluntary service.

Medicare Advantage (MA) Plan – Medicare Advantage is an expanded set of options for the delivery of health care under Medicare. While all Medicare beneficiaries can receive their benefits through the original fee-for-service program, beneficiaries entitled to Medicare Part A and enrolled in Part B can choose to participate in a Medicare Advantage Plan.

Medicare Beneficiary – A person who is 65 and older, people with disabilities, and people of all ages with End-Stage Renal Disease, who qualify for a federal health insurance program.

Medicare Modernization Act – A law that brings the most dramatic and innovative changes to the Medicare program since it began in 1965. The plan aims to bring more affordable health care, prescription drug coverage to all people with Medicare, expanded health plan options, improved health care access for rural Americans, and preventive care services. The Act was passed by the U.S. Congress and signed into law by the President in December, 2003. Many if its provisions become operative in January, 2006, including Medicare Advantage Special Needs Plans and the prescription drug benefit.

Medicare Part D Prescription Drug Plans – Insurance plans offering prescription drug coverage that meet the standards established by Medicare. Other names for these plans include Part D prescription drug plans, PDPs, or MA-PDs. However, not all private insurance plans offering prescription drug coverage are Part D plans. You’ll want to pay close attention to whether a plan is an approved Part D plan.

Network - The group of physicians, hospitals, and pharmacies that a managed care plan has contracted with to deliver medical services to its members.

Nonparticipating Provider - A health care provider who has not contracted with the carrier or health plan to be a participating provider of health care.

Open Enrollment - A period during which an MCO allows persons not previously enrolled to apply for plan membership.

Out-of-Pocket Costs - The share of health service payments made by the enrollee.

Over-the-Counter (OTC) Drug - A drug product that does not require a prescription under federal or state law to obtain it.

Per Member per Month (PMPM) - A unit of measurement related to each enrollee for each month.

Pharmacy and Therapeutics (P&T) Committee - A group of physicians, pharmacists, and other health care providers from different specialties, who advise a managed care plan regarding safe and effective use of medications. The P&T Committee manages the formulary and acts as the organizational line of communication between the medical and pharmacy components of the health plan.

Physician Assistant - A health care professional certified to perform certain duties such as history taking, diagnosis, drawing blood samples, urinalysis, and injections under the supervision of a physician.

Preexisting Condition - Any medical condition that has been diagnosed or treated within a specified period before the member's effective date of coverage under the group contract.

Preferred Providers - Physicians, hospitals, and other health care providers who contract to provide healthy services to persons covered by particular health plan.

Preferred Provider Organization (PPO) - PPOs are managed care organizations that offer integrated delivery systems (i.e., networks of providers) that are available through a vast array of health plans and are readily accountable to purchasers for cost, quality, access, and services associated with their networks. They use provider selection standards, utilization management, and quality assessment techniques to complement negotiated fee reductions as an effective strategy for long-term cost savings. Under a PPO benefit plan, covered individuals retain the freedom of choice of providers but are given financial incentives (i.e., lower out-of-pocket costs) to use the preferred provider network. Preferred provider organizations are marketed directly to employers as well as to insurance companies and TPAs, who then market the network to their employer clients.

Preventive Care - Health care emphasizing priorities for prevention, early detection, and early treatment of conditions, generally including routine physical examinations, immunizations, and well-person care.

Primary Care Network - A group of primary care physicians who have joined together to share the risk of providing care to their patients, who are members of a given health plan.

Provider - Any supplier of health care services, i.e., physician, pharmacist, case management firm, etc.

Quality-of-Life Measures - An assessment of the patient's perceptions of how they deal with their disease or every-day life when suffering from a particular condition. Although it is subjective, it has been in the health care literature for at least 25 years. It has been tapped in the area of pharmaceuticals most recently in the last seven or eight years. Through statistical means, the indices that have been developed to measure the various quality-of-life aspects have been validated over time, and these measures are reliable and reproducible.

Risk - The possibility that revenues of the insurer will not be sufficient to cover expenditures incurred in the delivery of contractual services.

Risk Analysis - The process of evaluating expected medical costs for a prospective group and determining what product, benefit level, and price best meets the needs of the group and the carrier.

Risk Pool - A defined patient population and geographic location from which revenue and expense are determined. A risk pool seeks to define expected claim liabilities of a given defined account as well as required funding to support the claim liability.

Self-Funding - Also known as self-insurance, self-funding is a health care plan funded entirely by employers who do not purchase insurance. Self-funded plans may be self-administered, or the employer may contract with an outside administrator for an administrative services-only arrangement.

Step Therapy - A prescription protocol used by HMOs and PPOs to utilize the most cost-effective drug therapy for selective diagnoses. If the patient does not respond satisfactorily, progressively more advanced therapy is prescribed as needed.

Stop-Loss - Insuring with a third party against a risk that the plan cannot financially manage. For example, a health plan can self-insure hospitalization costs or it can insure hospitalization costs with one or more insurance companies.

Special Needs Plan – Section 231 of the Medicare Modernization Act allows Medicare Advantage organizations to offer plans that serve special needs individuals: institutionalized individuals (as defined by the Secretary), those entitled to Medical Assistance under a State Plan under Title XIX (Medicaid)—“dual eligibles,” and other high risk groups of chronically ill or disabled individuals who would benefit from enrollment in this type of plan.

Stroke – A sudden loss of brain function due to decreased blood flow to an area of the brain.

Third-Party Administrator (TPA) - An organization that is outside of the insuring organization that handles the administrative duties and sometimes utilization review. Third-party administrators are used by organizations that fund the health benefits but do not find it cost effective to administrate the plan themselves.

Trending - A calculation used to anticipate future utilization of a group based on past utilization by applying a trend factor; the rate at which medical costs are changing because of various issues, including prices charged by health care providers; changes in the pattern of utilization; and the use of expensive medical equipment.

Underwriter - Usually refers to a company that receives premiums and accepts responsibility to fulfill the health insurance policy contract. Can also apply to an insurance company employee who decides whether or not the carrier should assume a risk or the agent who sells the policy.

Usual, Customary and Reasonable (UCR) - Fee-for-service payment to physicians based on the usual and customary fee for the same service in the area where the practice is located or on some other judgment of reasonableness.

Utilization Review - Performed by the health plan to discover if a particular physician-provider is spending as much of the health plan's money on treatment, or any specific portion thereof, (e.g., specialty referral, drug prescribing, hospitalization, radiological or laboratory services), as his or her peers. This study helps determine if a physician will obtain any of the money in the withhold fund at the end of the health plan's fiscal year.

Value-Added Services - These services, such as handling complicated paperwork and reimbursement forms, are offered by pharmaceutical manufacturers or drug wholesalers to enhance their competitive edge.

Waiver - An agreement attached to an insurance policy that exempts certain disabilities or injuries from coverage normally covered by the policy.