Articles written about insurance and reimbursement can read like a foreign language text if one is not familiar with the terminology. Before managed care, there was indemnity (or traditional) insurance. Under indemnity insurance, the patient was free to see the health care provider of her choice. Then, after the medical visit, the patient would file her claim with her insurance company. The insurance company would send payment to the patient and she, in turn, would pay the health care provider. The insurer's payment was based on either the provider's billed charges, or on a UCR-based list of allowable fees per service. That was how indemnity, or traditional, insurance worked.
Things changed with the advent of managed care. The process changed, and so did the terminology. Instead of the patient having an unlimited choice of providers, managed care plans limit the patient' s choice to only those providers who are part of the insurer's network. Payments to that limited selection of providers are also more tightly controlled by the insurer. Regardless of the provider's fee, payments are limited to a set maximum allowable amount. Either the provider or the patient is responsible for the difference. If the managed care contract has a "hold harmless" clause, the provider is responsible for the remaining balance and cannot collect that money from the patient. If there is not a hold-harmless clause, the patient can be "balance billed" for the remainder.
Because of the many changes that managed care brought to the process, new terms came into use: gatekeeper, referral, coinsurance, capitation, etc. This brief glossary will explain some of the more common terms.
balance billing: the administrative practice of holding the patient financially responsible for the remainder of medical service charges, beyond the insurer's allowed amount. Does not apply when a managed care contract contains a "hold harmless" clause.
capitation: reimbursement method that pays the provider a set fee each month/quarter, based on the number of patients enrolled in the insurance plan. Usually measured in terms of per member per month (PMPM). Since the capitated payment will not vary according to the number of patients seen, under the payment method the health care provider (not the insurer) assumes all, or most, of the financial risk for providing care.
CMS: Centers for Medicare and Medicaid Services. Previously called the Health Care Financing Administration, or HCFA.
co-insurance: in indemnity, the monetary amount to be paid by the patient, usually expressed as a percentage of charges
compensation: refers to professional salary and associated benefits paid to the provider by her/his employer
co-payment: in managed care, the monetary amount to be paid by the patient, usually expressed in terms of dollars
CPT-4: Current Procedural Terminology, Fourth Edition. 5-character, numeric codes assigned to nearly every health care service.
deductible: the portion of medical costs to be paid by the patient before insurance benefits begin, usually expressed in dollars
denial: refusal by insurer to reimburse services that have been rendered; can be for various reasons
eligibility: the process of determining whether a patient qualifies for benefits, based on factors such as enrollment date, pre-existing conditions, valid referrals, etc.
fee for service: reimbursement method in which each health service is paid on an individual basis. Charges may be paid in full by the insurer but in most instances are paid on a percentage basis. Also called traditional or 80/20 insurance.
fee schedule: a pre-determined list of payment amounts for various services; may be based on UCR, RBRVS or other method
gatekeeper: in managed care, it refers to the provider designated as one who directs an individual patient's care. In practical terms, it is the one who refers patients to specialists and/or sub-specialists for care.
HCFA. See CMS.
HCPCS: Health Care Financing Administration Common Procedure Coding System. Also called Medicare's National Level II Codes. 5-character alphanumeric codes.
ICD-9: International Classification of Diseases, Ninth Edition. Numeric and alphanumeric codes for numerous diagnoses
IPA model HMO: independent practice association. An HMO comprised of a network of independent practicing providers; contracted to, but not employed by, the HMO
managed care: a method of providing health care, in which the insurer and/or employer (policyholder) maintain some level of control over costs and utilization by various means. Typically refers to HMOs and PPOs.
member: a term used to describe a person who is enrolled in an insurance plan; the term is used most frequently in managed care
payer: the party who actually makes payment for services under the insurance coverage policy. In the majority of cases, the payer is the same as the insurer. But, as in the case of very large self-insured employers, the payer is a separate entity under contract to handle the administration of the insurance policy
per diem: a negotiated, per-day fee for services. Usually seen in inpatient hospital and nursing facility settings.
policyholder: purchaser of an insurance policy; in group health insurance, this is usually the employer who purchases policy coverage for its employees
provider: one who delivers health care services within the scope of a professional license
RBRVS: Resource Based Relative Value System. Reimbursement method used by the US Health Care Finance Administration (HCFA) for its Medicare program. Values for each medical procedure are based on the amount of resources required to perform the procedure, then the values are weighed against each other to compute relative values.
reimbursement: refers to the payment by the patient (first-party) or insurer (third-party), to the health care provider, for services rendered
staff model HMO: an HMO whose health care providers are employed by the HMO; typically located at the same physical site
UCR: usual and customary rate
UR: utilization review. Retrospective review of a patient's course of treatment, to evaluate the appropriateness of care based on medical necessity.