NATIONAL CONFERENCE of STATE LEGISLATURES
FORUM for STATE HEALTH POLICY LEADERSHIP
Frequently Asked Questions…
Insurance and Managed Care
In this FAQ…
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What exactly are the different types of managed care— HMO, PPO, EPO, IPA, IDS,
PHO, POS, MCO—and how are they different from my insurance plan?
What is ERISA and why should it matter to state legislators?
How do mandates affect the cost, availability and value of insurance and managed
care?
What do “insurance reform” and “HIPAA” mean?
What are insurance tax subsidies, tax credits, refundable tax credits and defined care?
Does managed care save money?
What do physicians mean by “assuming risk” and “disease management,” and what
dangers do these present to consumers?
What is the patients’ bill of rights? Why can’t they pass one in Washington when it’s been
done in the states?
What is the relationship between health insurance and risk?
What is the insurance cycle? Will premium rates begin to increase more rapidly?
What exactly are the different types of managed care— HMO, PPO, EPO, IPA, IDS, PHO,
POS, MCO—and how are they different from my insurance plan?
Whether you know it or not, you probably are in some form of managed care —along with 181 million
other Americans. In 1998, managed care plans covered 90 percent of those who were commercially
insured, 61 percent of Medicaid enrollees and 25 percent of Medicare enrollees. This is a sharp increase
from 1992, when only about 70 million people were enrolled in managed care. Managed care both
provides and finances medical care. Unlike indemnity insurance, managed care usually limits which
providers are covered and involves the health plan in decisions about care. Concerns about these limits
have made managed care an important item on legislative agendas.
Twenty years ago, a “managed care” plan was a specific kind of plan, a health maintenance organization (HMO). It typically was a closed system of health care providers that offered all levels of
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care, from primary care through hospital. A typical plan contracted with employers to provide all
care to their enrollees for a prepaid, capitated price (a monthly payment per enrollee regardless of
what care the individual actually receives). A key feature of many HMOs is the use of a gatekeeper,
a primary care provider who coordinates care and must approve or make all referrals to specialists.
About 45 percent of managed care enrollees now are in HMOs.
Definitions have blurred over time, however, and managed care has come to mean any of a number of
systems that use a defined set of providers for a defined population and have some system for controlling
care or costs. Many—but not all—of these managed care organizations (MCOs) coordinate care; many—
but not all—negotiate discounts or capitation rates with providers; and most now have an option for
care outside the panel, although at a higher price. In regular (so-called indemnity) insurance, the
insurance company is responsible for all health care costs, a role called “assuming risk,” and health care
providers make medical decisions. Managed care plans reorganize the two roles—assuming risk and
making medical decisions—in a variety of different ways that, in theory, make the health system more
efficient. Table 1 lists some of the different types of health plans.
Table 1.
Types of Health Plans
Term
Indemnity
HMO
IPA
POS
PPO
Staff HMO
Translation
Traditional insurance
Description
Insurance plan reimburses providers (who
the enrollee chooses) on a fee-for-service basis.
Health maintenance
Any of a variety of types of health plans
organization
that contract with a defined group of pro
viders (usually on a capitated basis) to pro
vide health care to a defined population.
Independent practice (or
Group of physicians or other providers who
practitioner or provider)
form an entity to accept risk—either
through contracting with association man
aged care plan (s), or by marketing them
selves as a health plan.
Point-of-service
Hybrid plan with features of managed care
and insurance. Traditional HMO that also
partially reimburses care received outside
the plan.
Preferred provider
Discounted indemnity coverage. Health
organization
plan that offers full or high coverage for a
defined panel of providers (who accept discounted fees) and more limited coverage for
care outside the plan
Similar concepts:
Sometimes called a traditional HMO or a
Integrated delivery system, closed panel prepaid group practice. A
integrated health plan
single entity owns and hires or establishes
exclusive contracts with all providers, from
primary care through hospital care.
Source: National Conference of State Legislatures, January 2001
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Although physicians in the earliest HMOs often were salaried employees or members of a prepaid
group practice (PGP), individual practitioners soon joined together to form competing networks.
These independent practice associations (IPAs)—loosely affiliated physician groups organized to
accept risk—are likely to contract with managed care plans to provide a defined range of services at
a per capita rate. Although many are responsible for only part of the gamut of health care costs (for
example, all primary care), others form full-service plans and accept all risk themselves because
they believe they can better manage hospitalization and referral costs. IPA and network models
now dominate the managed care landscape.
Because many enrollees are concerned about being locked into a closed panel (a limited group of
physicians defined by the health plan), many managed care variants now allow individuals to
choose where they get care but provide financial incentives to use providers within the health plan
network. For example, a point of service plan (POS) resembles a traditional HMO but includes an
option for enrollees to obtain partially insured care outside the plan. These open plans cost more,
but enrollees seem more satisfied.
One criticism of managed care today is that it actually manages prices, not care, achieving cost
savings chiefly through negotiated discounts. This is particularly true of preferred provider organizations (PPO). These plans, which now enroll half of all participants in managed care, negotiate
fee-for-service discounts with a set of providers that enrollees can see without needing a referral
from a gatekeeper. PPOs also partially cover care from out-of-plan providers (typically reimbursing
50 percent of the negotiated rate, compared to 80 percent for in-plan care). In contrast with
PPOs, exclusive provider organizations (EPO) cover only care within the provider network and
may be more like traditional HMOs or IPAs.
When regulating managed care, lawmakers may want to pay particular attention to whether they
are addressing the insurance aspect of a plan—which may be preempted by federal law—or medical practices, where states have greater discretion. Thus, state laws related to drive-by deliveries
applied to all citizens when they were framed as regulations affecting hospitals, but were subject to
ERISA preemption in states that wrote them as insurance mandates.
What is ERISA and why should it matter to state legislators?
Sooner or later, most state health policymakers must deal with the Employee Retirement Income
Security Act of 1974 (ERISA). ERISA, which primarily deals with pension plans, also includes a
crucial paragraph (Section 514) that limits states’ ability to regulate employer-based insurance.
ERISA has three parts.
· Preemption: All state laws “relating to” employer benefit plans (including health plans) are
preempted under ERISA. That means that states can never tell an employer how to handle its
benefits.
· However, the savings clause preserves state insurance regulation. That means states continue
to regulate insurance companies and the business of insurance. Thus, although a state is not
allowed to tell an employer what insurance it must buy, it can tell insurance companies what they
are allowed to sell, how to sell it, and to whom.
· The deemer clause says that states may not treat self-insured employer plans as if they were
insurance. The difference between an insured and a self-insured plan may not be obvious. Key
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distinctions are 1) where the reserves are kept and 2) who is at risk. If it’s the carrier, the plan is
insured and can be regulated.
In practice, the only plans states can fully regulate are individual plans and state and local government health plans. States share jurisdiction with the federal government over employees in insured plans where coverage is purchased from an insurance company. However, self-insured plans,
which may be managed by insurance companies, are solely regulated by federal authorities. Under
ERISA, states can’t tell any employers to cover their workers, tax self-insured coverage as if it were
insurance, or pass a law that takes special aim at self-insured plans. Self-insured programs can’t be
required to comply with state mandated benefits laws. Table 2 shows how jurisdiction is divided.
Table 2.
ERISA Regulatory Jurisdiction by Type of Plan
Type of Plan
State
Individual coverage, state and local gov’t.
X
Insurance policy, “insured plan”
X
Employer policy, “self-insured plan”
Employer-purchased insurance
Federal
X
X
X
Source: National Conference of State Legislatures, January 2001
ERISA has large gray areas when insurance and services mix, as they do in managed care. According
to ERISA expert Patricia Butler, states can regulate hospital rates and tax health care services as long
as the rules are blind to whether or not a payer is a self-insured plan. Courts have either disagreed
or not yet ruled on whether ERISA applies in areas such as independent appeals and grievance
requirements for HMOs, employer pay-or-play, and provider service organizations accepting risk
from ERISA plans. Lawmakers who are developing policy for managed care are well advised to have
an ERISA expert work with them to make sure they conform with ERISA.
How do mandates affect the cost, availability and value of insurance and managed care?
Mandates probably increase the cost of insurance. Their effect on the cost of health is another matter. Many
mandates substitute one type of care for another, allow cheaper care, affect only a few people, or are inexpensive,
so their effect on overall cost is small or none. Consumer mandates in managed care often apply to all types of
insurance plans.
Most of the premium increases found in widely cited studies come from two mandates:
· The requirement to offer individuals who leave a plan an opportunity to continue to purchase coverage
(now federal law); and
· Mental health and substance abuse benefits, which raise private insurance costs but may lower public
spending (also now partly federal).
As these suggest, there are several kinds of mandates. Some require health plans to cover specific services (e.g.,
breast reconstruction after mastectomy), treat specific conditions (e.g., mental illness), or pay for particular
types of providers (e.g., chiropractors). Others require plans to cover certain groups of people (e.g., job-leavers,
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pregnant spouses, adopted children.) Recently, consumer mandates in managed care have prescribed how and
when certain types of care should be provided; for example, the length of a new mother’s hospital stay after
delivery. This is controversial because it reduces plan and provider flexibility, and these policies sometimes have
been based on anecdote rather than on science.
Mandates don’t make health care per se more expensive: they limit insurers to a richer packet of
benefits, raising the proportion of health care paid through insurance and possibly increasing the
amount of health care provided. In deciding whether a mandate is worthwhile, even if it raises
insurance costs, policymakers need to decide whether the enrichments are the equivalent of a
Cadillac’s tail-fins, or if they’re more like seatbelts.
Lawmakers will want to consider several factors when contemplating mandates: what good a mandate
does, who pays the bill if a service isn’t insured, and what effect the cost increase is likely to have. For
example, maternity coverage may be seen as generally beneficial to society. Mental health benefits may
raise premiums, but could save the state money, since insurance takes the place of public spending.
Although it has been argued that the cost of mandates erodes coverage, the actual effect of mandates on
coverage is disputed. Most self-insured plans are at least as generous, even though they are exempt from
mandates due to ERISA. Some states have allowed “bare bones” plans with few mandates to be offered
to new insurers, but there has been little market for such plans.
What do “insurance reform” and “HIPAA” mean?
During the 1990s, in response to fears that the people who most needed coverage wouldn’t be able to
get it, most states adopted some or all of a set of insurance market regulations collectively called health
insurance market reforms (see table 3). In 1996, after all but three states had enacted reforms, Congress
adopted the Health Insurance Portability and Accountability Act (HIPAA), which incorporated several
of these reforms and extended them to ERISA plans, which states could not regulate.
Table 3.
Health Insurance Market Reforms
Regulation
Description
Guaranteed issue
Insurer must sell coverage to all willing buyers.
Guaranteed renewal
Once covered, rates can’t rise disproportionately and coverage can’t be dropped
Portability, continuation,
Once insured, an individual can move to another plan
conversion
without a gap in coverage if other conditions are met.
Preexisting condition
Complete or partial denial of coverage based on prior
exclusions
health experience. Reforms usually limit the length of
the exclusion on first enrollment and ban their use altogether thereafter.
Community rating
The same premium rates for all, regardless of health or
demographics.
Modified community rating
Allows demographic, geographic and—sometimes—
health behavior (non-smoking) considerations in rates.
Rating class/NAIC rating
Limits premium variations among like groups according
to a system of groups of plans.
Source: National Conference of State Legislatures , January 2001
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State reforms usually require insurers to guarantee renewability and availability (sometimes through
guaranteed issue and sometimes through requiring each carrier to offer a standard and a budget
plan), limit preexisting condition exclusions to less than one year, and allow portability in small
group plans. HIPAA imposes some standardization on these state rules, including setting the size
of groups at two - 50. Most states enacted some sort of rating restriction as well—limiting the
variation in prices a carrier can charge similar groups—something HIPAA lacks altogether. About
half the states also had enacted individual market reforms for non-group coverage before HIPAA.
States and the federal government have enacted these rules in response to the concern that certain
features of the insurance market make it difficult for the people who most need coverage to obtain
and keep insurance. The problems revolve around how insurers set rates and how they pool risk
among the people they insure. Insurance plans that “experience-rate” charge different premiums
for different people depending on their expected costs, and sometimes refuse to sell at all to individuals or groups known to be at risk for expensive care. The process of estimating what to charge
and setting higher premiums based on experience or characteristics is called underwriting.
Insurance spreads costs across a group, known as a pool. The larger the pool, the more stable prices
will be. When people and groups with different risk profiles are put in different pools, the price for
one group can rise rapidly, effectively forcing people who most need coverage out of the insurance
market. Called risk segmentation, this is most likely to affect individuals, small groups and people
who are changing jobs. Historically, Blue Cross/Blue Shield plans selling community-rated policies dominated the small group and individual insurance markets in many states and created a
single pool that was large enough to be stable. Under competitive pressure from experience-rating
plans, however, many Blue Cross/Blue Shield plans stopped offering these guaranteed premiums
in the 1980s and 1990s and joined with commercial carriers to segment the market.
State insurance reforms and HIPAA are designed to improve the stability of insurance markets and
reduce risk segmentation. Although they make coverage more available for certain narrow groups
of people—job changers and people with high health care costs—they apparently have not had
much effect on the total number of people covered. Because HIPAA is a federal law, it applies to all
plans, ERISA and non-ERISA alike. State insurance reforms apply only to insured plans. HIPAA
has many other provisions, some of which are not insurance-related. Unlike state insurance reforms, HIPAA does not address premium rates. While ERISA is administered by the Department
of Labor, HIPAA is jointly administered by the departments of Labor, Health and Human Services,
and Treasury.
What are insurance tax subsidies, tax credits, refundable tax credits and defined care?
Unlike many other employee benefits, the value of insurance benefits is not federally taxed, and
employed individuals may make before-tax premium contributions. Premiums paid by self-employed individuals are partially deductible, phasing in to full deductibility in 2003. However
individual health insurance and medical expenditures are deductible only if they total more than
7.5 percent of an individual’s income. The value of this tax treatment is sometimes called a tax
subsidy, particularly by analysts who contrast the value of this benefit to the middle class and
wealthy workers with governmental spending on health care for low-income people. The tax
subsidy is worth more to higher earners.
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For several decades, health economists have speculated that this tax treatment of insurance induces
employees to buy more insurance than they would buy with after-tax dollars, and that this actually
leads people to overvalue health, thus driving up costs. Some current national health reform
proposals would restructure the tax subsidy. The elements of these proposals vary. All include
equal deductibility for individual or group coverage. Some include an individual mandate—
requiring all people to purchase coverage. Where expanded access is an objective, a cap on exclusion
or deductibility of premiums (for example, at the first $2,000 in value of the coverage) is sometimes tied to tax credits for people whose incomes fall below a certain level. HIPAA included a
demonstration project for the most developed policy model, Medical Savings Accounts (MSAs).
Sometimes called medical IRAs, MSAs allow individuals to carry tax-sheltered medical savings
forward from year to year.
A key distinction among proposals is how they treat individuals with low incomes. Some propose
using the increased revenue resulting from the cap to fund a refundable tax credit or voucher,
equivalent to the value of the tax subsidy, for those who earn too little to benefit from the tax
subsidy.
Defined care is a newly introduced term for defined contribution health plans, which allow employers to give workers a set contribution and offer a menu of options for spending it.
State tax laws generally follow federal laws, although a few states have experimented with tax
incentives ahead of federal changes. State offers of MSAs and tax credits for small employers had
few takers in the mid-1990s, suggesting that state-level changes in tax treatment of health care
spending are not very effective unless there also are changes in the larger federal tax incentives.
Given the growing gaps in employer-based coverage, legislators can expect more experimentation
with tax treatment of coverage in the future, at both the state and federal levels.
Does managed care save money?
Managed care has profoundly affected health care inflation, although not necessarily for the reasons that were predicted.
It’s worth remembering that managed care was the solution to yesterday’s problem: skyrocketing
costs. In the face of double digit health care inflation, corporate and government buyers encouraged insurance companies and health care providers to join together to form entities that would
contract to provide care while keeping costs down. Cost savings clearly have resulted from the
growth in managed care. However, these savings often are the result of price breaks negotiated in
a crowded market and care that is managed—some say rationed—by administrative systems that
frustrate both patients and providers.
The ideal of managed care—more efficient and effective care that is high quality and uses evidenced-based medicine—has been achieved at some centers of excellence but has been difficult to
replicate. Unlike discounting and rationing, which use business models to achieve their savings,
care management depends on medical professionals.
Depending on who you ask, the managed care market is now in the second, third or fourth generation. There seems to be agreement that the easy savings have been squeezed out through “managed
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cost” or “managed access.” Any future cost savings probably will result from changes in how health
care is provided. Administratively imposed restrictions have generated a substantial backlash.
Newer approaches to managed care rely more on physician decision-making to keep costs down.
In practice, this is done through two different paths: physicians assuming risk and disease management (see the next question). In the near future, insurance premium rate increases are expected
to outpace inflation again, as underlying cost pressures overtake the one-time savings achieved by
reorganizing systems of care.
What do physicians mean by “assuming risk” and “disease management”, and what dangers do
these present to consumers?
Physicians assume risk when they accept a capitated payment in exchange for providing and assuring a specific portion a patient’s care, not just managing it. The amount of risk assumed is equivalent to the expected value of the care that the physician has agreed to provide and assure. It may be
limited to certain kinds of care—such as ambulatory care alone—or may include not only care that
physicians themselves provide but all other care as well.
Cram-down is a negative term used when physicians assume risk unwillingly and sometimes at
prices set by a single, powerful buyer—usually because of a health plan’s dominant position in a
market. This can signal a conflict in which legislators will be invited to take sides. Antitrust laws
may be invoked and attorneys general may be asked to determine whether the market is working to
the benefit of the public in disputes between providers and plans. In some states, physicians are
lobbying for legislation to allow them to collectively bargain with plans.
Over the years, many physicians, hospitals and clinics have actively sought to assume more risk and
more control over how care is managed, because they believe that they will be able to manage costs
more efficiently than insurer-managed health plans. This is one reason so many managed care
variations exist. Physicians frequently complain about managed care administration which, they
claim, interferes with their clinical decisions. However, ethicists have expressed concern about the
potential for divided loyalty and loss of trust when physicians are both clinicians and their own
health plan managers.
Disease management involves identifying patients with chronic conditions and actively managing
their care, including pharmaceutical management and secondary prevention. A number of firms—
for example physician groups, pharmaceutical consultants, insurance specialists and marketing
goups— now are developing and marketing protocols to manage specific conditions such as asthma
and diabetes.
What is the patients’ bill of rights? Why can’t they pass one in Washington when it’s been done
in the states?
A patients’ bill of rights is a set of consumer-oriented managed care rules. According to NCSL’s
Health Policy Tracking Service, more than 40 states have adopted some version of a “patients’ bill of
rights.” These new laws address the entire range of managed care issues, including, but not limited
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to, provider access, bans on gag clauses, consumer grievance procedures, direct access, disclosure,
provider credentialing, medical records, insurer liability, solvency, drug formularies, certification
and, in some cases, a point-of-service option. However, ERISA may limit the applicability of some
of the rules to insured plans.
The most contentious element in similar federal proposals has been health plan liability: whether
people can sue their health plans, especially self-insured plans. Currently, ERISA limits liability of
employer plans to the value of services to be rendered. Thus, if a person is denied a diagnostic
procedure and later suffers irreversible harm as a result of the denial, the ERISA liability is limited
to the cost of the procedure. The distinction between health plan and medical liability depends
upon whether decisions are defined as insurance coverage rulings or medical treatment.
Supporters of creating greater liability say plans must be held to a standard of reasonable care,
which would render them liable for decisions that affect treatment. Many states have considered
such policies, and, as of late 2000, seven states had enacted laws allowing residents to sue their
health plans (three others used other approaches to hold plans liable). Twenty-three states also
banned “hold-harmless” clauses in contracts between plans and hospitals or physicians, leaving
plans responsible for services but not creating a new right to sue.
Opponents claim the only group that will benefit from expanded liability is trial lawyers. One
proposed federal compromise is to permit a narrow federal cause of action, allowing suits to be
brought to enforce the terms of the patients’ bill of rights itself. Until recently, states did not enact
such laws on the assumption that ERISA would preempt them. However, states are beginning to
enact laws in this area, starting with a Texas measure that was partially upheld. In a recent Supreme Court decision, Pegram vs. Herdrich, the court refers to state laws on health plan liability as
an alternative to judicial policymaking in this area.
What is the relationship between health insurance and risk?
When discussing insurance and managed care, insurers try to separate the two different things
being bought: the health care itself (services or managed care) and relief from uncertainty (insurance). Health care spending is quite skewed, with most people having no or low costs in a given
year. The top 1 percent spend 30 percent of all health care dollars, the top 10 percent spend 70
percent of dollars, while the bottom 50 percent spend 3 percent. Although some of this variation
is predictable, much of it is not. The larger a group, the more likely they are to have average costs
overall. Smaller groups—small businesses, small self-insurers, and small managed care companies—are at higher risk due to random fluctuations in the incidence of health and injury.
In its purest form, insurance is a system of paying average costs for something that varies considerably; expenses are shared with others who are willing to pay more than they might actually spend
in a given year to avoid the chance of much higher costs. In practice, policies tend to blur together
two different kinds of risk: the unknown risk of an expensive, unpredictable thing happening, and
the known risk—or hazard—due to a condition that is known or predictable. Community rating
puts together both kinds of risk when rates are set, while experience rating requires the insured to
pay the full cost of the second kind of risk and only protects against the first. Insurance depends
on statistical averages.
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Solvency, reinsurance and risk-based capital are terms that relate to buying certainty, not buying
health care. The need for protection against the risk of rare occurrence has tripped up physicians
and hospitals that are trying to shift from the business of care to the business of insurance by
creating IPAs, PHOs or other entities that assume some of the uncertainty inherent through riskbased contracts to provide care. Solvency means a company has sufficient reserves—money collected from premiums and their investment—to cover potential claims. Reinsurance is a sort of
insurance for insurers, covering the chance that total claims will exceed a certain level (sometimes
called the stop-loss). The lower that level, the higher the premiums since the reinsurer is assuming
a greater share of the uncertainty. Insurers often share this risk and form reinsurance pools. A
number of state-sponsored reinsurance pools were created in conjunction with insurance reforms
to guarantee issue enacted in the 1990s. Some small companies “self-insure” and then reinsure at
very low levels to avoid oversight by state insurance regulators. Courts have not finally ruled on
how ERISA interacts with state regulation of plans under these schemes.
Risk-based capital is important for provider groups that assume part of the risk for the cost of care
for a patient group. Many managed care arrangements now render the providers themselves at risk
for costs of care whether or not they provide it themselves. Insurance companies are in the business
of managing money, so they are required to guarantee their solvency by maintaining reserves that
are set by state insurance regulators based on their assessment of the market. Managed care plans
and provider groups assume risk but also are in the business of providing care. To the extent that
they actually can meet their obligations by providing services, they have argued that they should
not be required to maintain the same kinds of reserves as insurers, who have to pay others to assure
care. Risk-based capital requirements put this argument into action by basing the reserve requirements for providers on the level of their potential financial risk. Insurance regulators are concerned
that, without such requirements, essential community providers might accept levels of risk they
cannot meet, causing them to become insolvent and leaving people with no source of care.
What is the insurance cycle? Will premium rates begin to increase more rapidly?
The insurance—or underwriting—cycle is a three- to six-year cycle in which insurance premium
setting lags behind insurance claims and then rises more sharply than expected health cost increases. This happens because plans do not want to be the first to raise premiums in a competitive
market. When the claims paid out are more than the premiums collected, the rates continue flat
for a while as reserves are drawn down. Eventually, premiums increase sharply to compensate for
losses, exaggerating fluctuations in underlying health costs.
Recently, the health insurance cycle has been longer than usual, in part because managed care has
actually led to lower prices as providers accept discounted reimbursement rates. It now appears
that a cycle has ended. Premiums are likely to rise again, increasing faster than medical inflation as
sellers catch up with past increases.
Health care spending increases (and decreases) for a mixture of reasons:
· Prices—including changes in rates charged by physicians, hospitals and pharmaceutical companies;
· Utilization rates—for example, mammograms now are routinely given more frequently than in the
past;
· Technology—conditions can be treated and diagnostic tests performed in ways that simply
did not exist a decade ago;
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· Intensity—hospitals now care for patients who have more severe illnesses because more care is
provided on an outpatient basis; and
· Demographics—the aging of the population.
It is wise to bear in mind that most of the increase in insurance premiums represents an increase
in the amount of care provided—more people, more treatment, greater intensity per treatment—
rather than just higher prices. A major cost contributor is something called “the failure of success:”
we are able to keep people alive who would have died, and people live much longer today with
conditions that require continued and expensive care.
Glossary
Bare-bones plans. Defined basic insurance plans, usually with few mandates.
Capitation, capitated payment. A monthly payment per enrollee regardless of the care the individual actually receives.
Community rating. The same premium for all, regardless of health or demographics. Modified
community rating allows demographic rating but not health rating.
Cram-down. A negative term used when physicians assume risk unwillingly.
Disease management. Identifying patients with chronic conditions and actively managing their care.
Drug formularies.
Experience-rate.
Defined list of covered pharmaceuticals.
Different premiums are charged for different people, depending on their expected costs.
Gag clauses. Prohibition against discussing treatment alternatives that are not covered by plan or
that are beyond the standard protocol.
Gatekeeper. A primary care provider who coordinates care and must approve or make all referrals to
specialists.
HMO. Health maintenance organization. Any of a variety of health plans that contract with a
defined group of providers (usually on a capitated basis) to provide health care to a defined population.
Indemnity insurance. Traditional insurance plan that reimburses providers (chosen by the enrollee)
on a fee-for-service basis.
IPA. Independent practice (or practitioner or provider) association. Group of physicians or other
providers who form an entity to accept risk—either through contracting with managed care plan
(s), or by marketing themselves as a health plan.
MCOs. Managed care organizations. HMO, PPO. POS and other types of organizations.
Medical underwriting. Setting premiums based on experience or characteristics of the insured.
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MSAs. Medical Savings Accounts. Tax-free savings accounts that allow individuals to carry deductible medical savings forward from year to year.
Patients’ bill of rights. A set of consumer-oriented managed care rules.
Pool. Group that shares insurance risks.
POS. Point-of-service. Hybrid plan with features of managed care and insurance. Traditional
HMO that also partially reimburses care received outside the plan.
PPO. Preferred provider organization. Discounted indemnity coverage. Health plan that offers
full or high coverage for a defined panel of providers (who accept discounted fees) and more limited
coverage for care outside the plan.
Risk selection. Basing the decision to buy coverage on the expectation care will be needed.
Segmentation, risk segmentation. Groups with different risk profiles put in different pools, allowing
the price for one pool to rise rapidly.
Staff, group or closed panel HMO. Sometimes called a traditional HMO or a prepaid group practice. A single entity owns and hires or establishes exclusive contracts with all providers, from
primary care through hospital care.
Tax subsidy. The value of health insurance benefits that are not federally taxed.
Figure 1.
Enrollment in Employer-Sponsored Plans by Type: 1993-1998
INDEMNITY
48%
1993
1995
1997
1998
25%
29%
23%
15%
13%
POS
27%
37%
1994
1996
PPO
29%
31%
35%
40%
7%
15%
14%
19%
20%
18%
HMO
19%
23%
27%
27%
30%
29%
Source: William M. Mercer, National Survey of Employer-Sponsored Health Plans, 1998
http://www.wmmercer.com/usa/english/resource/resource_news_topic40.html
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Forum for State Health Policy Leadership
National Conference of State Legislatures
Figure 2.
States with Diabetes Coverage Requirements
Source: Health Policy Tracking Service, National Conference of State Legislatures, October 2000.
Figure 3.
States that Mandate a Point-of-Service Offering
(19 States)
Oregon: Groups with 25
or more employees
Montana: HMO’s with
at least 10,000 enrollees
Illinois: Dental only
South Carolina: Groups with
more than 50 eligible employees
Oklahoma: Groups with
50 or more employees
Source: Health Policy Tracking Service, National Conference of State Legislatures, June 2000.
Forum for State Health Policy Leadership
National Conference of State Legislatures
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Notes
1. Managed care regulation: http://www.ncsl.org/public/catalog/6642ex.htm
2. ERISA Preemption Manual for State Health Policymakers: http://www.statecoverage.org/erisa22000.pdf
3. Maternity coverage: http://www.agi-usa.org/pubs/journals/gr010405.html
4. Bare Bones plans: http://familiesusa.org/brbone.htm
5. NCSL analysis of mandates: http://www.ncsl.org/statefed/ur-smb.htm
6. NCSL summary of HIPAA: http://www.ncsl.org/statefed/HR3103.HTM
7. MSAs: http://www.heritage.org/library/backgrounder/bg1365.html; tax credits:
Jonathan Gruber and Larry Levitt, “Tax Subsidies For Health Insurance: Costs And Benefits” Health
Affairs, January/February 2000
http://www.projhope.org/HA/bonus/190105.htm
8. http://supct.law.cornell.edu/supct/html/98-1949.ZS.html
9. http://www.ncsl.org/programs/health/liable.htm; http://newfederalism.urban.org/html/
occa28.html
10. MSAs, catastrophic coverage and risk: http://www.urban.org/pubs/hinsure/winlose.htm Berk,
M.L. and A.C. Monheit, “The concentration of health expenditures: an update,” Health Affairs
11, no. 4(Winter 1992):145-149.
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Forum for State Health Policy Leadership
National Conference of State Legislatures
STAFF CONTACT: Kala Ladenheim
Program Manager
(202) 624-3557
OTHER SOURCES:
NCSL resources on liability, managed care, and HIPAA at:
http://www.ncsl.org/programs/health/healthmc.htm
NCSL summary of HIPAA: http://www.ncsl.org/statefed/HR3103.HTM
Bill of Rights and HMO liability: http://www.ncsl.org/programs/health/liable.htm
ERISA 101- links: http://www.ncsl.org/programs/health/forum/ac/e101links.htm
Industry sources:
Two national trade organizations dealing with managed care and insurance are
The Health Insurance Association of America: http://www.hiaa.org
The American Association of Health Plans: http://www.aahp.org
Managed care fact sheet: http://www.mcareol.com/factshts/factshet.htm
Employee Benefits Research Institute: http://www.ebri.org
For consumers:
Georgetown University Institute for Health Care Research and Policy consumer guides
for insurance in each state: http://www.healthinsuranceinfo.net/
Families USA carries out consumer advocacy in managed care and insurance:
http://www.familiesusa.org/managedcare/index.html
Think tanks:
The Urban Institute (http://www.urban.org)
Insurance reform: http://www.urban.org/pubs/hinsure/insure.htm
Patient protection: http://newfederalism.urban.org/html/occa28.html
The Heritage Foundation
MSAs: http://www.heritage.org/library/backgrounder/bg1365.html
The National Center for Policy Analysis
Defined contribution: http://www.ncpa.org/bg/bg154/bg154.html
Regulators:
ERISA Preemption Manual for State Health Policymakers:
http://www.statecoverage.org/erisa2-2000.pdf
National Association of Insurance Commissioners: http://www.naic.org
State insurance regulators: http://www.naic.org/1regulator/usamap.htm
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National Conference of State Legislatures
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