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Glossary


Activities of Daily Living (ADLs)

Defined by the National Health Interview Survey (NHIS) as bathing, dressing, eating, and getting around the home.

Activity Limitation

The NHIS classifies individuals’ activity limitations due to a chronic health condition according to four categories: (1) unable to perform a major activity; (2) able to perform the major activity but limited in kind or amount; (3) not limited in the major activity but limited in the kind or amount of other activities; (4) not limited in any way. A major activity is play (for children under 5); attending school (for those 5–17); working or keeping house (for persons 18–69); and the capacity for independent living (for persons 70 and older).

Adverse Selection

The disproportionate enrollment of individuals with poorer than average health expectations in certain health plans.


Capital (physical, private, human)

Physical capital is land and the stock of products set aside to support future production and consumption. In the national income and product accounts, private capital consists of business inventories, producers’ durable equipment, and residential and nonresidential structures. Human capital is the education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services.

Contingent Valuation (CV)

A method for estimating the monetary value or willingness to pay for an intervention or policy that reduces risk or enhances health, utility, or longevity based on responses to survey questions about hypothetical choices.



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A Glossary Activities of Daily Living (ADLs) Defined by the National Health Interview Survey (NHIS) as bathing, dressing, eating, and getting around the home. Activity Limitation The NHIS classifies individuals’ activity limitations due to a chronic health condition according to four categories: (1) unable to perform a major activity; (2) able to perform the major activity but limited in kind or amount; (3) not limited in the major activity but limited in the kind or amount of other activities; (4) not limited in any way. A major activity is play (for children under 5); attending school (for those 5–17); working or keeping house (for persons 18–69); and the capacity for independent living (for persons 70 and older). Adverse Selection The disproportionate enrollment of individuals with poorer than average health expectations in certain health plans. Capital (physical, private, human) Physical capital is land and the stock of products set aside to support future production and consumption. In the national income and product accounts, private capital consists of business inventories, producers’ durable equipment, and residential and nonresidential structures. Human capital is the education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services. Contingent Valuation (CV) A method for estimating the monetary value or willingness to pay for an intervention or policy that reduces risk or enhances health, utility, or longevity based on responses to survey questions about hypothetical choices.

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Cost (direct, indirect) Direct costs include the value of all goods, services, and other resources that are consumed in the provision of an intervention or in dealing with the side effects or other current and future consequences linked to it. These costs are often thought of as involving—or potentially involving—a monetary transaction. Indirect costs refer to productivity gains or losses related to illness or death (Luce, 1996, pp. 178-179). Cost, Economic Cost The amount paid or payable for the acquisition of materials, property, or services. Economic cost is defined as the minimum payment necessary to keep a resource in its present employment. Cost, External Costs not directly assumed by the entity that owns and operates a product or service. Cost, Internal or Private A direct effect, either positive or negative, on profit or welfare arising from a person’s or institution’s activity. Cost, Productivity Costs that are associated with morbidity and mortality, excluding the intrinsic value of health (Luce, 1996, p. 178). Cost-Benefit Analysis Comparison of benefits measured in terms of monetary value and costs of a medical intervention in order to determine whether it is worth doing (Sloan, 1995a, p. 3). Cost-Effectiveness Analysis Measurement of benefits in terms of some stan-dard of clinical outcome or effectiveness, such as mortality rates, years of added life, or quality-adjusted life years compared to the costs of a medical intervention to establish whether or not the intervention is merited (Sloan, 1995a, p. 3). Disability A general term referring to any long- or short-term reduction of a person’s activity as a result of an acute or chronic condition. Efficiency, Economic The “right” goods are being produced. Efficiency, Technical Technical efficiency is achieved when, for a given output, the amount of inputs used is minimized or when, for a given combination of inputs, the output is maximized (Culyer, 1991, p. 66). Entitlement A legal obligation on the federal government to make payments to a person, business, or unit of government that meets the criteria set in law. Congress generally controls entitlement programs by setting eligibility criteria and benefit or payment rules—not by providing budget authority in the appropriation act (CBO, 2002).

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Equity Equity concerns fairness and justice, the idea of balancing legitimate, competing claims of individuals in society in a way that is seen as impartial or disinterested. Distributional equity, which concerns the fair distribution of some good or service of interest, has been the dominant equity concern both of normative economic analysis and of health policy makers (Hurley, 2000). Fiscal Policy The government’s choice of tax and spending program that influences the amount of growth in government debt as well as the level, composition, and distribution of national output and income (CBO, 2002). Functional Limitation Difficulty in performing any of the following activities: (1) reading newspaper print (with corrective lenses, if used); (2) hearing normal conversation (using aids, if used); (3) speaking understandably; (4) lifting or carrying 10 pounds; (5) walking a quarter mile without resting; (6) climbing a flight of stairs without resting; (7) getting around outside; (8) getting around inside; (9) getting out of bed. These criteria are used to report functional limitations in the Survey of Income and Program Participation (SIPP). Gross Domestic Product (GDP) The total market value of goods and services produced domestically during a given period. The components of GDP are consumption (both household and government), gross investment (both private and government), and net exports (CBO, 2002). Health Capital The present value of a person’s lifetime health (Cutler and Richardson, 1997, from Grossman, 1972). Health-Related Quality of Life (HRQL) A measure of those aspects of overall quality of life that can be clearly shown to affect health, either physical or mental. On the individual level, this includes physical and mental health perceptions and their correlates, including health risks and conditions, functional status, social support, and socioeconomic status. Normally scaled so that death = 0 and excellent health = 1 (CDC, 2000). Human Capital The education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services. Instrumental Activities of Daily Living (IADLs) Used by the National Health Interview Survey (NHIS) to determine need for assistance. IADLs include performing household chores, doing necessary business, shopping, and getting around for other purposes. Job Lock A distortion in job mobility attributed to employer-provided health

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insurance when employees keep jobs they would rather leave for fear of losing coverage (from Madrian, 1994). Loading Fee The amount added to the actuarial value of the covered benefit (i.e., to the expected or average amounts payable to the insured) to cover all additional administrative costs and contingencies of issuing the policy, including any profit for the insurer. Lost Earnings Capability The difference between the actual earning capability of the working age population and what this capability would be in the absence of health and disability limitations. This measure takes into account the effect of functional limitations on wage rates in addition to the amount of time worked (Haveman et al., 1995). Merit Good A concept describing situations where the social evaluation of a commodity derives not simply from the standard of consumer autonomy, but implies that individual preferences are either neglected or supplemented by other considerations for the community as a whole. Thus, the common interests and values of the community may give rise to shared needs that individuals feel obliged to support as a member of that community (Musgrave, 1959). Moral Hazard The incentive for people to seek more care when they have health insurance (Cutler and Zeckhauser, 2000). National Income Total income earned by U.S. residents from all sources, including employee compensation (wages, salaries, benefits, and employers’ contributions to social insurance programs), corporate profits, net interest, rental income, and proprietors’ income (CBO, 2002). Nominal Value The nominal level of income or spending measured in current dollars (CBO, 2002). Opportunity Cost The value of resources devoted to a given activity measured by their value if deployed elsewhere. Present Value A single number that expresses a flow of current and future income (or payments) in terms of an equivalent lump sum received (or paid) today (CBO, 2002). Productivity The amount of output (what is produced) per unit of input (labor, equipment, capital) used. Public Good A good that all individuals can consume despite not having

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contributed to its production, and if one individual consumes the good, utilization by others is not reduced. Quality-Adjusted Life Year (QALY)A measure of health outcomes used to combine mortality and morbidity effects of an intervention. It is calculated by assigning a health-related quality of life weight ranging from 0 to 1 to each period of time. The number of quality-adjusted life years represents the number of healthy years of life that are valued equivalently to the actual health outcome. A weight of 1 translates to perfect health and a weight of 0 translates to a health state deemed equivalent to death (Garber et al., 1996, p. 29). Risk Responsibility for paying for or otherwise providing a level of health care services based on unpredictable need for these services (Academy for Health Services Research and Health Policy, 2000). Risk Premium The additional return that investors require to hold assets whose returns are more variable than those of riskless assets. The risk can arise from many sources, such as the possibility of default (in the case of corporate or municipal debt), the volatility of earnings (in the case of corporate equities), or changes in interest rates (CBO, 2002). The risk premium is that part of an insurance policy premium that accounts for the riskiness of the policy to the issuer—see Loading Fee. Social Capital A research construct with either or both cognitive and social structural elements that refers to the stocks of resources available through social relationships, as measured by indicators such as civic engagement, norms of reciprocity, and interpersonal trust (Macinko and Starfield, 2001). Social Cohesion The degree of perceived or operationalized social connected-ness or integration among a group of people, sometimes measured as social capital (Kawachi and Kennedy, 1997). Spillover Effect A direct effect, either positive or negative, on a person’s or institution’s profit or welfare developing as a byproduct of some other person’s or firm’s activity. Also referred to as an economic externality. Transfer, Transfer Payment Payments made to an individual or organization for which no current or future goods or services are required in return. Federal transfer payments include welfare, Social Security, and unemployment benefits (CBO, 2002). Uncertainty When the likelihood of future events is indefinite or incalculable.

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Utility The capacity of a commodity or a service to satisfy human wants. Satisfaction and utility are generally interchangeable terms. Marginal utility is the satisfaction gained through consumption of a single additional unit of any consumption good. Value of a Statistical Life (VSL) A measure of how much wealth people are willing to forgo for a small reduction in mortality risk. The total amount that a large group of people would pay to avoid one expected fatality among them, not the amount one person would pay to avoid certain death. Welfare Gain or Loss The change in total or net human satisfaction or utility occurring through any action by a consumer, a producer, or a government. The difference between the benefit derived from the action and the cost of the action is the gain or loss. Willingness to Pay (WTP) Either demonstrated (revealed) preference through market transactions or stated preference in survey responses of the maximum amount consumers would be willing to pay for a program or intervention.