A REPORTER'S TOOLKIT: HEALTH CARE COSTS

An Alliance for Health Reform Toolkit -
Produced with support from the Robert Wood Johnson Foundation

This toolkit will help you understand trends in U.S. health spending, and some of the reasons why spending is going up. We also cover some ideas for restraining health care costs. In addition, this resource offers story ideas, selected experts with contact information, selected websites, and a glossary.

This toolkit was compiled and written by Laura Covington. Updated Aug. 2008 by Sam Takvorian and Sanjay Mohanty.

Key Facts

  • Total health spending in the U.S. reached $2.1 trillion in 2006-$7,026 per capita. 1
  • By 2016, total health spending is projected to rise to $4.2 trillion. 2
  • Between 2005 and 2006, total health spending increased 6.7 percent, more than double the rate of overall economic growth (2.9 percent). 3
  • Total health spending remained relatively constant at approximately 16 percent of the gross domestic product from 2003-2006,4 but is projected to increase to 19.5 percent by 2017. 5
  • Spending for home health care increased at a faster pace between 2005 and 2006 (9.9 percent) than any other category of health spending, though its impact is limited because it accounts overall for a small share of total health spending (2.5 percent). 6
  • In 2006, yearly prescription drug spending growth accelerated to 8.5 percent from a recent low of 5.8 percent in 2005, in part because of full implementation of the Medicare Part D drug benefit. 7
  • Between 2006 and 2007, premiums for health coverage offered by employers increased 6.1 percent. This was the fourth straight year of declines in the rate of premium growth, from a peak of 13.9 percent in 2003. Even so, this was more than twice the rate of growth in the Consumer Price Index. 8
  • Of every dollar spent on health services in the U.S. in 2006, 46 cents came directly from government sources. 9
  • Costs for program administration and the net cost of private health insurance were about 7 percent of total health spending in the U.S. in 2006, and grew 8.8 percent, a marked increase over the 3.6 percent rise in 2005. 10

Selected Articles

Please email info@allhealth.org if you find that any of the links mentioned in this toolkit no longer work.

Health Spending Basics

Spending Trends

Causes of Heath Cost Increases

Effects of Spending Growth

  • "Squeezed: Why Rising Exposure to Health Care Costs Threatens the Health and Financial Well-Being of American Families"
    Sara R. Collins and others, The Commonwealth Fund, September 14, 2006
    www.commonwealthfund.org/publications/publications_show.htm?doc_id=402531

    This article, produced for The Commonwealth Fund, examines the effects of rising out-of-pocket costs and deductibles, along with reduced employer-based coverage and health plan quality on non-elderly adults. It highlights the unaffordability of insurance for many people trying to buy individual coverage.

  • "Universal, Effective and Affordable Health Insurance: An Economic Imperative"
    Jason Furman and Robert E. Rubin, The Brookings Institution, 2007
    www.brookings.edu/views/papers/furman/200707rubin.htm

    As part of the Hamilton Project, Jason Furman and Robert E. Rubin discuss the interrelation of "the problems of uninsurance and expensive or ineffective care." They note the overarching consequences of rising health care costs and a growing number of uninsured on the economy as a whole.

  • "Should We Be Worried About High Real Medical Spending Growth In The United States?"
    Mark V. Pauly, Health Affairs Web Exclusive, January 8, 2003
    http://content.healthaffairs.org/cgi/content/full/hlthaff.w3.15v1/DC1

    In this article, Mark Pauly challenges the idea that health spending is growing too quickly. In the private sector, rising costs for health insurance should be offset by smaller raises, he argues. He also suggests ways to reduce long-term cost trends.

Some Ways to Curb Spending

Story Ideas

  • Contact the large employers in your community and find out how many are offering employees high-deductible health plans (HDHPs) and health savings accounts (HSAs). How many employees are signing up and how is this influencing employer and employees costs? If some large employers have not chosen to offer the HDHP/HSA option yet, why not?
  • Explore the impact that health plans with high cost-sharing may be having on providers' economic situations. Speak to hospitals, physician associations and community health centers to determine if a growing number of patients are having difficulties paying their share of the bill. Is there any evidence that patients with high deductibles are refusing tests or treatments that they would have to pay for out of pocket? Are community health centers seeing more patients with private insurance who want to avoid potentially larger out-of-pocket costs at higher priced providers?
  • Speak to providers and their representatives about the impacts that consumer-directed health care may be having on patient behavior. Are patients seeking more information about the costs and quality of care before they agree to undergo tests or receive treatments? What types of questions do patients seem most interested in getting answered? Has this changed in recent years?
  • Interview officials at major hospitals, representatives of physicians and health plan managers in your community to find out what new technologies (equipment, procedures or drugs) are coming online. Ask if insurers decided to cover this service and what factors they took into account in making this decision. Try to determine if this new technology has replaced some previous medical service or if it is being provided in addition to existing technologies (e.g., a new diagnostic test).
  • Interview officials at local health plans to determine how they perceive high costs may be influencing the type of care patients receive. Are patients more likely to use in-plan providers? Is there any evidence that elective surgery is becoming less prevalent? Are there fewer non-urgent emergency room visits? Has the frequency of visits for chronic conditions, such as diabetes, gone down? Or is expanding service use still a major reason for the growth in health care costs?
  • Talk to a sample of small and large employers to determine how high health care costs are affecting the benefits they offer or the way they run their businesses. Are there plans to drop health insurance as a fringe benefit for their regular employees? Is there an effort to use more contract or part-time employees who would not be eligible to enroll in the company-sponsored health plan?
  • Are state and local officials and managers of publicly subsidized health care facilities finding it increasingly difficult to meet the community's health care needs with available tax revenues? Is there a concern that public health problems could develop or spread more quickly than they otherwise would because the cost of maintaining an adequate health care safety net is too high?

Selected Experts

Drawn from the Alliance for Health Reform's Find-an-Expert Service for reporters. Descriptions in quotes are written by the experts themselves. Credentialed reporters can see full profiles for these and other experts, including after-hours contact numbers, by going to www.allhealth.org/reporter_enroll.asp

  • HENRY J. AARON
    Senior Fellow, Brookings Institution
    Washington DC 20036
    202-797-6128
    haaron@brookings.edu
  • JOSEPH ANTOS
    Wilson H. Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute
    Washington DC 20036
    202-862-5938
    jantos@aei.org
  • KATHERINE BAICKER
    Professor of Health Economics, Harvard School of Public Health
    Boston MA 02115
    617-432-4434
    kbaicker@hsph.harvard.edu
  • ROBERT BERENSON
    Senior Advisor, AcademyHealth
    Washington DC 20016
    202-292-6727 or 202-686-2727
    berenson@ahsrhp.org
  • JOHN BERTKO
    VP and Chief Actuary, Humana Inc.
    Flagstaff AZ 86004
    502-580-3885
    jbertko@humana.com
  • BRIAN BILES
    Professor, Department of Health Policy, George Washington University
    Washington DC 20006
    202-416-0066
    hsmbbb@gwumc.edu
  • DAVID BLUMENTHAL
    Director, Institute for Health Policy, Massachusetts General Hospital
    Boston MA 02114
    617-726-5212
    dblumenthal@partners.org
  • RICHARD BRINGEWATT
    President, National Health Policy Group
    801 Pennsylvania Ave, NW Suite 245
    Washington, DC 20004
    202-624-1516
    rbringewatt@nhpg.org
  • STUART BUTLER
    Vice President, Economic and Domestic Policy Studies, The Heritage Foundation
    Washington DC 20002
    202-546-4400
    butlers@heritage.org
  • MICHAEL CANNON
    Director of Health Policy Studies, Cato Institute
    Washington DC 20001
    202-842-0200
    mcannon@cato.org
  • TANISHA CARINO
    Vice President, Avalere Health
    Washington DC 20036
    202-207-3677
    tcarino@avalerehealth.net
  • GARY CLAXTON
    Vice President, Director, Health Care Marketplace Project, Henry J. Kaiser Family Foundation
    Washington DC 20005
    202-347-5270
    gclaxton@kff.org
  • DAVID COLBY
    Vice President, Research and Evaluation, Robert Wood Johnson Foundation
    Princeton, NJ
    609-627-5754
    dcolby@rwjf.org
  • WILLIAM CUSTER
    Professor, Georgia State University
    Atlanta GA 30302
    404-651-3041
    WCuster@gsu.edu
  • DAVID CUTLER
    Professor of Economics, Harvard University
    Cambridge MA 02138
    617-496-5216
    dcutler@harvard.edu
  • KAREN DAVIS
    President, The Commonwealth Fund
    New York NY 10021
    212-606-3825
    kd@cmwf.org
  • ALLEN DOBSON
    Sr. VP Director of Health Care Finance, The Lewin Group
    Falls Church VA 22042
    703-269-5590
    al.dobson@lewin.com
  • JUDY FEDER
    Professor and Dean of Public Policy, Georgetown University
    Washington, D.C. DC 20007
    202-687-8397
    federj@georgetown.edu
  • ELLIOT S. FISHER
    Professor of Medicine and of Community and Family Medicine, Dartmouth Medical School
    603-653-0803
    Elliott.S.Fisher@Dartmouth.edu
  • TED FRECH
    Professor of Economics, Economics Department, University of California-Santa Barbara
    Santa Barbara CA 93106
    805-893-2124
    frech@econ.ucsb.edu
  • ROBERT FRIEDLAND
    Director, Center on an Aging Society, Georgetown University
    Washington DC 20057
    202-687-1287
    rbf4@georgetown.edu
  • PAUL FRONSTIN
    Director, Health Research Program, Employee Benefit Research Institute
    Washington DC 20037
    202-775-6352
    fronstin@ebri.org
  • ALAN GARBER
    Director, Center for Health Policy, Stanford University
    Stanford CA 94305
    650-723-0920
    garber@stanford.edu
  • THOMAS GARTHWAITE
    Director & Chief Medical Officer, LA County Dept of Health Services
    Los Angeles CA 90012
    213-240-8101
    tgarthwait@aol.com
  • ANNE GAUTHIER
    Senior Policy Director, The Commonwealth Fund
    Washington DC 20006
    202-292-6700
    ag@cmwf.org
  • MARTIN GAYNOR
    E.J. Barone Professor of Economics and Health Policy, Carnegie Mellon University
    Pittsburgh PA 15213
    412-268-7933
    mgaynor@cmu.edu
  • PAUL GINSBURG
    President, Center for Studying Health System Change
    Washington DC 20024
    202-264-3484
    acassil@hschange.org
  • BOB GOLDBERG
    Vice President, Center for Medicine in the Public Interest
    Springfield NJ 07081
    973-379-4029
    bobgoldberg@yahoo.com
  • JOHN C. GOODMAN
    President, National Center for Policy Analysis
    Dallas TX 75251
    972-308-6472
    jcgoodman@ncpa.org
  • WARREN GREENBERG
    Professor of Health Economics, George Washington University
    Washington DC 20006
    202-416-0062
    wggw@gwu.edu
  • ROBERT HELMS
    Resident Scholar, Health Policy Studies, American Enterprise Institute
    Washington DC 20036
    202-862-5877
    rhelms@aei.org
  • EDWARD F. HOWARD
    Exec V-P, Alliance for Health Reform
    Washington DC 20005
    202-789-2300
    edhoward@allhealth.org
  • KAREN IGNAGNI
    President & CEO, AHIP
    Washington DC 20036
    202-778-3203
    kignagni@aahp.org
  • CHRIS JENNINGS
    President, Jennings Policy Strategies, Inc.
    Washington DC 20001
    202-879-9344
    ccj@jenningsps.com
  • CHIP (CHARLES) KAHN
    President, Federation of American Hospitals
    Washington DC 20004
    202-624-1534
    ckahn@fah.org
  • KALA LADENHEIM
    Program Director, National Conference of State Legislatures; Forum for State Health Policy Leadership
    Washington DC 20001
    202-624-3557
    kala.ladenheim@ncsl.org
  • SCOTT LEITZ
    Director, Health Economics Program, Minnesota Department of Health
    St. Paul MN 55101
    651-282-6361
    scott.leitz@state.mn.us
  • JEFF LEMIEUX
    SVP, Center for Policy and Research, America's Health Insurance Plans
    Washington DC 20004
    202-778-3277
    jlemieux@ahip.org
  • LARRY LEVITT
    Vice-President, Kaiser Family Foundation
    Menlo Park CA 94025
    650-234-9226
    larryl@kff.org
  • TRUDI MATTHEWS
    Associate Director for Health Policy, The Council of State Governments
    Lexington KY 40578
    859-244-8157
    tmatthews@csg.org
  • TOM MILLER
    Resident Fellow, American Enterprise Institute
    Washington DC 20036
    202-862-5886
    tmiller@aei.org
  • ALICIA MITCHELL
    Vice President, Media Relations, American Hospital Association
    Washington DC 20004
    202-626-2339
    amitchell@aha.org
  • MARILYN MOON
    Vice President and Health Program Director, American Institutes for Research
    Silver Spring MD 20901
    301-592-2101
    mmoon@air.org
  • JOSEPH NEWHOUSE
    John D. MacArthur Professor of Health Policy and Management, Harvard University
    Boston MA 02115
    617-432-1325
    Joseph_Newhouse@harvard.edu
  • LEN NICHOLS
    Director of Health Policy Program, New America Foundation
    Washington DC 20009
    301-801-3356
    lnichols@newamerica.net
  • MARK PAULY
    Professor, Wharton School of Business
    Philadelphia PA 19104
    215-898-5411
    pauly@wharton.upenn.edu
  • KIP PIPER
    President, Health Results Group LLC
    Washington DC 20006
    202-558-5658
    piper@healthresultsgroup.com
  • RON POLLACK
    Executive Director, Families USA
    Washington, D.C. DC 20005
    202-628-3030
    rpollack@familiesusa.org
  • UWE REINHARDT
    Professor of Economics and Public Affairs, Princeton University
    Princeton NJ 08540
    609-258-4781 (-1456 sec)
    reinhard@princeton.edu
  • ROBERT REISCHAUER
    President, The Urban Institute
    Washington DC 20037
    202-261-5400
    rreischa@ui.urban.org
  • SARA ROSENBAUM
    Chair, Department of Health Policy, George Washington University
    Washington DC 20006
    202-530-2343
    sarar@gwu.edu
  • DIANE ROWLAND
    Executive Vice President, Kaiser Family Foundation
    Washington DC 20005
    202-347-5270
    drowland@kff.org
  • DALLAS SALISBURY
    CEO, Employee Benefit Research Institute (EBRI)
    Washington DC 20037
    202-659-0670
    salisbury@ebri.org
  • MATT SALO
    Director of Health Legislation, National Governors Association
    Washington DC 20001
    202-624-5336
    msalo@nga.org
  • CATHY SCHOEN
    Senior Vice President, Commonwealth Fund
    New York NY 10021
    212-606-3864
    cs@cmwf.org
  • GAIL SHEARER
    Director, Health Policy Analysis, Consumers Union
    Washington DC 20009
    202-462-6262
    sheaga@consumer.org
  • JOHN SHEILS
    Vice President, The Lewin Group
    Falls Church VA 22042
    703-269-5610
    john.sheils@Lewin.com
  • HENRY SIMMONS
    President, National Coalition on Health Care
    Washington DC 20005
    202-638-7151
    rbarnes@nchc.org
  • BRUCE STUART
    Professor and Director, The Peter Iamy Center on Drug Therapy and Aging
    Baltimore MD 21201
    410-706-5389
    bstuart@rx.umaryland.edu
  • JAMES R. TALLON
    President, United Hospital Fund
    New York NY 10118
    212-494-0777
    jtallon@uhfnyc.org
  • KEN THORPE
    Professor and Chair, Dept Health Policy Mgt, Emory University
    Atlanta GA 30322
    404-727-3373
    kthorpe@sph.emory.edu
  • REED TUCKSON
    Senior Vice President of Consumer Health and Medical Care Advancement, UnitedHealth Group
    Minnetonka MN 55343
    952-936-1256
    reed_v_tuckson@uhc.com
  • ALEXANDER VACHON
    President, Hamilton PPB
    Washington DC 20008
    202-667-1193
    avachon@hamiltonppb.com
  • JOHN E. WENNBERG
    Peggy Y. Thomson Professor (Chair) for the Evaluative Clinical Services, Dartmouth Medical School
    603-653-0876
    John.Wennberg@dartmouth.edu
  • DALE YAMAMOTO
    Principal, Hewitt Associates
    Lincolnshire IL 60069
    847-295-5000
    dale.yamamoto@hewitt.com

Selected Websites

Glossary on the Uninsured

CAPITATION - Method of payment for health services in which a health care provider is paid a fixed amount for each person on the provider's patient roster, regardless of the actual number or nature of services provided to each person.

CARRIER - An entity which may underwrite or administer a range of health benefit programs. May refer to an insurer or a managed health plan.

CARVE-OUTS - A payer strategy in which an HMO or insurance company isolates ("carves out") a benefit and hires another organization to provide this service. Common carve-outs include behavioral health and prescription drugs. The technique is intended to allow the insurer to better control its costs.

CASE MANAGEMENT - A process where a health plan identifies covered persons with specific health care needs, then devises and carries out for them a plan to achieve the best patient outcome in the most cost-effective manner.

COINSURANCE - A portion of the bill for a medical service, that is not covered by the patient's health insurance policy and therefore must be paid out of pocket by the patient. Coinsurance refers to a percentage, e.g., 10 percent of the total charge up to a specified maximum. Contrast with "copayment."

CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985 (COBRA) - This law includes one part which entitles former employees of companies with 20 or more workers to continue to receive coverage under the group plan for up to 18 months after leaving, if they pay the full cost of the coverage. For more information, see www.dol.gov/ebsa/newsroom/fscobra.html.

CONSUMER-DIRECTED OR CONSUMER-DRIVEN HEALTH PLAN - Includes plans that establish health spending accounts into which employers or individuals contribute pre-tax dollars to be used for health care purchases. These mechanisms aim to change employees from receivers of health care into purchasers by participating more fully in health care and cost decisions. Also see "Health Reimbursement Arrangement" and "Health Savings Account."

CONSUMER PRICE INDEX (CPI) - A statistical measure of the annual change in cost to workers of purchasing a market basket of goods and services. It is expressed as a percentage of the cost of these goods and services during a base period. CPI is also known as retail price index or cost-of-living index.

COPAYMENT - A flat dollar amount that a patient must pay out of pocket for a medical service, e.g. $5 per office visit.

COST SHARING - Any out-of-pocket payment the patient makes for a portion of the costs of covered services. Deductibles, coinsurance, copayments and balance bills are types of cost sharing.

COST SHIFTING - The practice by which a seller of a health service, such as a hospital, increases charges for some payers to offset losses due to uncompensated or indigent care or lower payments from other payers.

DEDUCTIBLE - A fixed amount, usually expressed in dollars in the form of an annual fee, that the beneficiary of a health insurance plan must pay directly to the health care provider before a health insurance plan begins to pay for any costs associated with the insured medical service.

DEFENSIVE MEDICINE - The practice of health care providers ordering tests that may not be necessary to over-protect themselves from potential malpractice lawsuits. Said to be a major cause of high health care costs.

DEFICIT REDUCTION ACT OF 2005 (DRA) - The DRA made significant changes to the Medicaid program - for example, allowing states to increase premiums and cost sharing for families and to base benefits on private plans. The law also tightened long-term care asset transfers and capped home equity at $500,000. A DRA provision effective July 1, 2006, requires Medicaid beneficiaries to show proof of citizenship upon applying for or renewing their benefits. For more information, see www.kff.org/medicaid/7465.cfm.

DEFINED BENEFIT - A health insurance model used by an employer or government program where specified health services covered under the plan are standardized and guaranteed. The cost of providing the standard benefits may fluctuate. One example of a defined benefit plan is Medicare. Contrast with "defined contribution."

DEFINED CONTRIBUTION - A health benefit model used by employers or government programs where health services covered may fluctuate based on choice of plan, but the employer or government contributes a set amount (percentage or dollar amount) towards the purchase of the selected health plan. A defined contribution plan limits the financial liability of employers or the government, because the contribution is defined, or fixed. An example of a defined contribution plan is the State Children's Health Insurance Program. Contrast with "defined benefit."

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) - Enacted in 1974, ERISA was primarily designed to secure workers' pension rights. The law established federal reporting and disclosure requirements for most private employee health plans. Under ERISA, companies that pay for their workers' health benefits directly (e.g. by self-insuring and assuming all or most financial risk) are exempt from state insurance regulations and taxes. ERISA also limits workers' ability to sue their insurer. For more information, see www.dol.gov/dol/topic/health-plans/erisa.htm.

EMPLOYER CONTRIBUTION REQUIREMENT OR "EMPLOYER MANDATE - A requirement that employers either provide health care benefits to their workers or pay a fee that contributes to the cost of covering their workers under a public (state) plan. Such proposals are also called "pay or play."

EVIDENCE-BASED MEDICINE - The use of current best clinical evidence in making decisions about the care of individual patients, often with the assistance of information technology. Patient preferences are considered along with clinical expertise.

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM (FEHBP) - Health care plans offered to federal civilian employees who can annually choose among a number of approved, community-rated private health insurance plans. The federal government pays a major portion of the cost of the coverage (on average 72 percent). For more information, see www.opm.gov/insure/health.

FEDERAL POVERTY GUIDELINES - Income amounts set each February by the U.S. Department of Health and Human Services used to determine an individual's or family's eligibility for various public programs, including Medicaid and the State Children's Health Insurance Program. Sometimes called Federal Poverty Level/Line (FPL). (The poverty guidelines are different from the U.S. Census Bureau's "poverty thresholds," which are used for Census statistical purposes.) For the 2007 poverty guidelines, see http://aspe.hhs.gov/poverty/07poverty.shtml

FEE-FOR-SERVICE (FFS) - A method of paying health care providers a fee for each medical service rendered, rather than - paying them salaries or capitated payments.

FIRST-DOLLAR COVERAGE - Insurance plans that provide benefits without first requiring payment of a deductible.

FISCAL YEAR (FY) - The 12-month period used for calculating annual fiscal spending, which parallels the federal government's annual budget cycle. The U.S. government fiscal year runs from October 1 of the previous year to September 30 of the calendar year for which the fiscal year is numbered. States' fiscal years do not always correspond to the federal fiscal year.

FORMULARY - A list of selected pharmaceuticals and their appropriate dosages created by health insurance plans, which are usually intended to include a broad array of prescription drugs that are also cost-effective for patient care. Physicians are often required or urged to prescribe from the formulary developed by the insurance plans, pharmacy benefit managers or health maintenance organizations with which they are affiliated.

GATEKEEPER/CARE MANAGER - A health care professional, usually a primary care physician, who coordinates, manages, and authorizes all health services provided to a person covered by a health plan. Unless an emergency exists, the gatekeeper generally must pre-authorize referrals to specialists, hospitalizations and lab and radiology tests.

GROUP INSURANCE - Health insurance offered through business, union trusts or other groups and associations. The policy holder is generally the employer or other entity. This system of health insurance is the most common in the United States.

GROUP-MODEL HMO - A health maintenance organization (HMO) that contracts with a single multi-specialty medical group to provide care for HMO members. The HMO compensates the group for contracted services at a negotiated rate, and that group is responsible for compensating its physicians and contracting with hospitals for care of their patients. Also see "health maintenance organization," "staff-model HMO" and "network-model HMO.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA) - A 1996 federal law that provides some protection for employed persons and their families against discrimination in health coverage based on past or present health. Generally, the law guarantees the right to renew health coverage, but does not restrict the premiums that insurers may charge. HIPAA does not replace the states' role as primary regulators of insurance. HIPAA also requires the collection of certain health care information by providers and sets rules designed to protect the privacy of that information. For more information, see www.hhs.gov/ocr/hipaa.

HEALTH MAINTENANCE ORGANIZATION (HMO) - A managed care plan that combines the function of insurer and provider to give members comprehensive health care from a network of affiliated providers. Enrollees typically pay limited copayments and are usually required to select a primary care physician through whom all care must be coordinated. HMOs generally will not reimburse all costs for services obtained from a non-network provider or without a primary care physician's referral. HMOs often emphasize prevention and careful assessment of medical necessity. See "group-model HMO," "network-model HMO" and "staff-model HMO."

HEALTH OPPORTUNITY ACCOUNT (HOA) - A type of health savings account for Medicaid beneficiaries created by the Deficit Reduction Act of 2005. States may deposit annual sums of up to $2,500 per adult and $1,000 per child into the account, to be used to pay for medical expenses not covered by the high deductible health plan with which the account is coupled. Beginning January 1, 2007, as many as 10 states can initiate HOA demonstration projects. Compare to "health reimbursement arrangement."

HEALTH REIMBURSEMENT ARRANGEMENT (HRA) - A type of health insurance plan also known as "health reimbursement account" or "personal care account," HRAs are tax-preferred accounts with funds established by employers to reimburse employees for qualified medical expenses; often HRAs are paired with a high-deductible health plan. An HRA may be used by an employee to pay for medical coverage until funds are exhausted. Once the deductible is reached, normal coverage begins. Any unused funds are rolled over at the end of the year, but do not follow the employee once he or she changes jobs. Compare to "health savings account."

HEALTH SAVINGS ACCOUNT (HSA) - A type of health insurance plan similar to HRAs (see above), but which is owned by workers. An HSA is a tax-preferred savings account and is paired with a high-deductible health plan. Any employer can offer an HSA (or a self-employed individual can set one up on his or her own), and both employers and employees can contribute to it. The worker must pay for all services until the amount of the deductible is reached (in 2006, a minimum of $1,050 for an individual and $2,100 for family coverage). The worker can withdraw money from the HSA to pay for medical services under the deductible. Once the deductible is reached, normal coverage begins. Any unused funds are rolled over at the end of the year. Unlike HRAs, HSAs follow an employee when he or she changes jobs. Also see "health reimbursement arrangement" and "medical savings account."

INDEMNITY INSURANCE - A health insurance plan that pays providers on a fee-for-service basis for delivering health care. Consumers face very few restrictions on provider selection, but may have greater financial liability in the form of deductibles and coinsurance than in many managed care plans.

LOSS RATIO - The ratio of money paid out by an insurer for claims divided by premiums collected for a particular type of insurance policy. Low loss ratios indicate that a small proportion of premium dollars was paid out for benefits, while a high loss ratio indicates that a high percentage of the premium dollars was paid out.

MANDATE - Used in two senses in health policy discussions. (1) Employer or individual mandate, in which the government imposes a requirement on some or all employers to help pay for insurance coverage for their workers (and perhaps their families), or on individuals to obtain coverage. (2) State mandate, a requirement imposed by states on insurance companies to include, as part of any health insurance policy they sell, coverage for a specific service, such as well baby care, or provider, such as psychologists or optometrists.

MEDICAL SAVINGS ACCOUNT (MSA) - A health insurance option consisting of a high-deductible insurance policy coupled with a tax-preferred savings account. MSA policies, enacted in 1996, have been largely replaced by health savings accounts.

MEDICALLY NECESSARY - Description of services or supplies required to preserve and maintain the health status of a patient in accordance with the area standards of medical practice. Whether or not medically necessary services are being denied to patients enrolled in some public and private managed care plans can be an issue of contention. To resolve these issues, many plans have appeals and grievance processes.

MULTIPLE EMPLOYER WELFARE ASSOCIATION (MEWA) - A group of employers who band together for purposes of purchasing group health insurance, often through a self-funded approach MEWAs are sometimes exempt from state benefit mandates, taxes and other regulations.

NETWORK-MODEL HMO - A health maintenance organization (HMO) that contracts with more than one independent physician group to provide health services. The providers may see patients who are not members of the HMO. Also see "health maintenance organization," "group-model HMO" and "staff-model HMO."

OUT-OF-POCKET CAP/MAXIMUM - An annual limit on how much the patient has to pay in deductibles, coinsurance and copayments.

PARTIAL CAPITATION - An insurance arrangement where the payment made to a health plan is a combination of a capitated premium and a payment based on actual use of services. The proportions specified for these components determine the insurance risk faced by the plan. Sometimes called "ambulatory capitation."

PAY FOR PERFORMANCE (P4P) - A method of paying health care providers differing amounts based on their performance on measures of quality and efficiency. Payment incentives can be in the form of bonuses or financial penalties.

PAY OR PLAY - See "employer contribution requirement"

PAYROLL TAX - A flat percentage tax collected on salaries and wages. A payroll tax of 7.65 percent on both employers and employees finances Social Security cash benefits and Medicare Part A hospital services. Of that 7.65 percent, 1.45 percent each, or a total of 2.9 percent of payroll with both employer and employee contributions, is allocated for Medicare.

POINT-OF-SERVICE PLAN (POS) - A managed care plan that combines features of both prepaid and fee-for-service insurance. POS plan enrollees decide whether to use network or non-network providers at the time care is needed, but usually are subject to reduced coverage and larger copayments for using non-network providers.

PREFERRED PROVIDER ORGANIZATION (PPO) - A health care delivery system through which a number of providers contract to serve health plan enrollees on a fee-for-service basis at discounted fees. Providers agree to PPO discounts in the hope of gaining more patients. Patients may use any provider without a referral, in network or out, but have a financial incentive - for example, lower coinsurance payments - to use doctors on the preferred list.

PREMIUM - The cost of health plan coverage, not including any required deductibles or copayments.

PREMIUM ASSISTANCE - The use of federal funds available through public health coverage programs - especially Medicaid and the State Children's Health Insurance Program (SCHIP) - to purchase or help purchase private insurance.

PROVIDER - Any health care professional or institution that renders a health service or provides a health care product. Major providers are hospitals, nursing homes, physicians and nurses.

REFUNDABLE TAX CREDIT - A way of providing a tax subsidy to an individual or business, even if no taxes are owed. If a person owes no tax, the government sends the person (or a third party) a check for the amount of the refundable tax credit.

REIMPORTATION - The process by which individuals or groups purchase pharmaceuticals from other countries that were originally produced in the U.S. and exported for consumption abroad. Because many other countries have lower drug prices than the U.S., this process can save consumers money on drugs for personal use. Reimportation can occur either by traveling to another country to purchase drugs (e.g., driving to Canada), or by purchasing drugs over the Internet or by mail from foreign pharmacies. Though traditionally not the subject of law enforcement, most reimportation violates U.S. federal drug safety laws.

RELATIVE VALUE SCALE (RVS) - An index that assigns weights to each medical service; the weights represent the relative amount to be paid for each service. To calculate a fee for a particular service, the index for that service is multiplied by a constant dollar amount (known as the conversion factor). Medicare uses an RVS to calculate payments to physicians.

RISK SHARING - A method by which the financial risk of covering a group of enrollees is shared by plan sponsors and purchasers, typically managed care organizations and states. In contrast, indemnity plans assume all risk of providing care paid for through insurance premiums which belong solely to the insurance company.

SELF-EMPLOYED DEDUCTION FOR HEALTH INSURANCE - Self-employed taxpayers and their families can deduct all their payments for health insurance, including insurance premiums, when figuring their annual income for tax purposes, to the extent these payments exceed 7.5 percent of adjusted gross income.

SELF-INSURANCE - Large and medium-size companies often assume all or most financial risks of providing health insurance to their workers, as opposed to purchasing insurance coverage from commercial carriers (and having the carrier assume all risk). Claims processing is often handled through an administrative services contract with an independent organization, often an insurance company.

SMALL BUSINESS HEALTH PLAN (SBHP) - Purchasing pools for small employers that have frequently been the subject of congressional proposals, SBHPs would include trade, industry and professional associations as well as "cooperative" corporations or chambers of commerce. Known in other proposals as association health plans, SBHPs have generated controversy because they would be exempt from some state laws regulating health insurance.

SMALL GROUP MARKET REFORM - Generally refers to laws, regulations and proposals that are designed to simplify rules for small employers (50 workers or fewer) purchasing health insurance. While most regulation of health insurance is done at the state level, the 1996 Health Insurance Portability and Accountability Act made some key reforms.

STAFF-MODEL HMO - A health maintenance organization (HMO) that delivers health services through salaried physicians who are employed by the HMO exclusively to care for HMO enrollees. Also see "health maintenance organization," "group-model HMO" and "network-model HMO."

STATE MANDATE - State coverage laws requiring private insurers to cover specific services (such as well-baby care) or reimbursement for specific providers (such as psychologists). The Employee Retirement Income Security Act generally exempts self-insured companies from these requirements.

SUSTAINABLE GROWTH RATE (SGR) - The Balanced Budget Act of 1997 established the formula for determining annual SGR targets for physicians' services under Medicare. The SGR is intended to control growth in total Medicare expenditures for physician services. If expenditures exceed the SGR target, the fee schedule update is decreased. Four factors are used to calculate the SGR: (1) average percent change in physician fees; (2) change in the average number of fee-for-service beneficiaries; (3) 10-year average annual growth in GDP per capita; and (4) change in expenditures due to new laws or regulations.

TAX CREDIT - A flat amount that can be subtracted from taxes owed. Under some health care reform proposals, tax credits would be given to moderate-income individuals/families to subsidize health insurance premiums. A tax credit is more progressive in its impact than a tax deduction of the same amount, since the value of a deduction is greater for those whose tax rates (and usually incomes) are higher.

TAX DEDUCTION - An amount that can be subtracted from taxable income if spent on a specific purpose. Currently, businesses and the self-employed can deduct the cost of health insurance provided to employees, but health expenses (including insurance) are a deduction for families with group health insurance only after they reach 7.5 percent of income.

TAX PREFERENCE (FOR HEALTH BENEFITS) - Employer-paid health benefits are treated under federal tax law as a deductible business expense for the employer, and excluded from taxable income for the worker. This creates incentives for some employers and workers to prefer extra compensation in the form of more health coverage rather than wages.

TERTIARY CARE - Health care services provided by highly specialized providers such as neurosurgeons, thoracic surgeons, and intensive care units. These services often require highly sophisticated technologies and facilities.

THERAPEUTIC SUBSTITUTION - Replacement of one drug with another drug from the same therapeutic class that the Food and Drug Administration has determined to be equivalent - the substitute has the same active ingredient with the same absorption rate as the original drug. Often, this results in prescribing the less costly compound.

THIRD PARTY ADMINISTRATOR (TPA) - A professional firm that provides administrative services to employers who want to self-insure their employees. The TPA does not underwrite the financial risk of providing coverage.

THIRD PARTY PAYER - Organization, public or private, that pays or insures medical expenses on behalf of enrollees. An individual pays a premium, and the payer organization pays providers' actual medical bills on the individual's behalf. Such payments are called third-party payments and are distinguished by the separation among the individual receiving the service (the first party), the individual or institution providing it (the second party), and the organization paying for it (third party).

TRADE ACT HEALTH INSURANCE SUBSIDY - Premium subsidy program that covers 65 percent of the cost of health insurance for early retirees, their families and other workers who have lost their employer-sponsored health coverage as a consequence of company failure due to trade practices or bankruptcy. The subsidy to former workers is provided in the form of a federal tax credit either to be claimed when the income tax return is filed, or sent directly to the beneficiary's health insurance provider each month, in which case he/she is responsible for paying only 35 percent of the monthly premium. For more information, see www.familiesusa.org/assets/pdfs/TAARA_Implement_Nov_2003.pdf.

UNBUNDLING - Separately billing for medical services that might otherwise be priced together ("bundling"). For claims processing, this includes providers billing separately for health care services that should be combined according to industry standards or accepted coding practices.

UNCOMPENSATED CARE - Care rendered by hospitals or other providers without payment from the patient or a government-sponsored or private insurance program. It includes both charity care, which is provided without the expectation of payment, and bad debt, for which the provider has made an unsuccessful effort to collect payment due from the patient.

UNDERINSURED - People with public or private insurance policies that do not cover all necessary health services, resulting in out-of-pocket expenses that often exceed their ability to pay.

UPPER PAYMENT LIMIT (UPL) - Federal regulatory payment limit governing what states can pay eligible public facilities for Medicaid services. The UPL is usually the rate Medicare would pay for the same service. In some cases, states request federal matching funds in amounts that exceed the state's standard Medicaid reimbursement rate, and use the new revenues generated for other goods or services.

VOUCHER - In various health reform proposals, a certificate or fixed dollar amount that is provided to low- or moderate-income persons, which is used to pay all or part of the cost of health insurance or services.

Endnotes

1 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

2 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

3 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

4 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

5 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

6 "Employer Health Benefits: 2007 Summary of Findings" Kaiser Family Foundation and Health Research Educational Trust, September 2007. (http://kff.org/insurance/7672/upload/Summary-of-Findings-EHBS-2007.pdf)

7 "Health Care Costs: A Primer" Kaiser Family Foundation, August 2007. (http://www.kff.org/insurance/upload/7670.pdf) Retrieved Sept. 1.

8 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

9 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

10 Catlin, Aaron et al. (2007) "National Health Spending In 2005: The Slowdown Continues" Health Affairs January/February 2007. (www.healthaffairs.org).

11 "Health Care Costs: A Primer" Kaiser Family Foundation, August 2007. (http://www.kff.org/insurance/upload/7670.pdf) Retrieved Sept. 1.

12 "Health Care Costs: A Primer" Kaiser Family Foundation, August 2007. (http://www.kff.org/insurance/upload/7670.pdf) Retrieved Sept. 1.

13 "Employer Health Benefits: 2007 Annual Survey" Kaiser Family Foundation and Health Research and Educational Trust 2007. (www.kff.org).

14 Kaiser Family Foundation (2007). "Survey of Employer Health Benefits 2007." Exhibit 1. September 11, 2007. www.kff.org/insurance/7672/upload/7693.pdf

15 "Health Care Costs: A Primer" Kaiser Family Foundation, August 2007. (http://www.kff.org/insurance/upload/7670.pdf) Retrieved Sept. 1.

16 Stuart Butler (2007). "Evolving Beyond Traditional Employer-Sponsored Health Insurance" The Hamilton Project, The Brookings Institution. (www.hamiltonproject.org)

17 Lauren Necochea (2007) "Reinsuring Health: A Proposal to make Health Insurance More Affordable" Robert Wood Johnson Foundation. (www.rwjf.org).

18 "Employer Health Benefits: 2007 Annual Survey" Kaiser Family Foundation and Health Research and Educational Trust 2007. (www.kff.org).

19 "Employer Health Benefits: 2006 Annual Survey" Kaiser Family Foundation and Health Research and Educational Trust 2006. (www.kff.org).

20 "Employer Health Benefits: 2007 Annual Survey" Kaiser Family Foundation and Health Research and Educational Trust 2007. (www.kff.org).

21 "Employer Health Benefits: 2006 Annual Survey" Kaiser Family Foundation and Health Research and Educational Trust 2006. (www.kff.org).

22 "Health Care Costs: A Primer" Kaiser Family Foundation, August 2007. (http://www.kff.org/insurance/upload/7670.pdf) Retrieved Sept. 1.

23 Ryan Z. Cortazar (2006). "Cutler and colleagues say U.S. health care cost-effective" Harvard University Gazette, August 20, 2006. (www.news.harvard.edu/gazette).

24 "Beyond Health Care: the Economic Contribution of Hospitals" American Hospital Association, July 2006. (www.aha.org).

25 Peter R. Orszag (2007). "Health Care and the Budget: Issues and Challenges for Reform" Congressional Budget Office. Testimony before the U.S. Senate Budget Committee, p. 2, June 21, 2007 (www.cbo.gov/ftpdocs/82xx/doc8255/06-21-HealthCareReform.pdf).

26 John A. Poisal et al. (2007). "Health Spending Projections Through 2016: Modest Changes Obscure Part D's Impact" Health Affairs Web Exclusives February 21, 2007. (www.healthaffairs.org).

27 Barbara M. Rothenberg. (2007). "Medical Technology as a Driver of Healthcare Costs: Diagnostic Imaging" Blue Cross Blue Shield, October 14, 2003 (http://www.bcbs.com/betterknowledge/cost/Medical_Tech_Drivr_Rept_10.pdf)

28 "The Factors Fueling Rising Healthcare Costs 2006" http://www.pwc.com/extweb/pwcpublications.nsf/docid/E4C0FC004429297A852571090065A70B/$File/ahip-factors_fueling_rising_hc-costs.pdf

29 "Covering Health Issues 2006" Alliance for Health Reform, 2006. p. 112-113. (www.allhealth.org).