Question | Answer |
Complexity of financing | Primary characteristic of HC delivery in US
Many payers
Many private plans
Many gov't programs
Many payment methods |
Who are the uninsured? | People not covered by either private or gov't health insurance |
U.S. has a voluntary system | Employers not mandated to offer insurance (but can be fined if they don't)
Employees not req'd to joint (can be fined if they don't)
Gov't covers only certain groups |
National HC Programs | Provide universal coverage for all citizens |
What is financing? | Any mechanism that gives people the ability to pay for HC services
In most cases, financing is necessary to have access to HC |
Sources of financing HC | Private health insurance |
Economic perspective of financing | Working Americans finance own HC & subsidize it for those who can't afford it
Employer-paid insurance is an exchange for more salary
Taxes support public programs |
Health Insurance | Primary mechanism to obtain HC
Regarded as a key component of HC financing
Financing determines access to HC
Demand related to financing (insurance increases demand)
Insurance lowers out of pocket cost (pts consume more [moral hazard]) |
Role & Scope | New services proliferate when they're covered by insurance
Financing has given rise to sub-industries (home health, sub-acute care)
Influence on technology diffusion & utilization
Mgmt devisions influenced by reimbursement |
What does financing affect? | Supply & distribution of health professionals
Total HC expenditures |
What increases expenditures? | Expansion of insurance
Increase in health insurance premiums |
Expenditures can be reduced by: | Restricting insurance
Restricting reimbursement to providers
Having fewer spcialists
Spending less on R&D
Direct control over utilization
Designating certain services as not covered |
What is the definition of health insurance? | A financial mechanism that shares & disperses risk of financial loss due to occurrence of an adverse event within a population of people |
What is risk? | Possibility of a substantial financial loss from an event of which the probability of occurrence is relatively small
(Car accidents common; however, risk is quite small that a specific person will have one in a given year) |
What is a premium? | Fee paid by individuals &/or employers
Creates pool of resources that provides income or service benefits to holders |
Who are beneficiaries? | The holders of insurance contract |
What is a policy? | A contract |
4 Principles of Insurance | 1. Risk is unpredictable
2. Risk can be predicted w/ some accuracy in a large group
3. Insurance can xfer risk from individual to group thru pooling of resources
4. Losses shared by all members |
Purpose of Insurance | Protection from unforseen and severe financial loss |
Risk Pool | Collection of premium fees from each member which can be dispersed to individuals who actually incur an event covered by the contract
*Beneficiaries aren't guaranteed to receive benefits = to amount contributed to risk pool |
Org/Admin of Insurance- Performed by private companies & the government | US is a dualistic mix unlike other countries
Gov't regulates the insurance companies to make sure their reserves are adequate |
Org/Admin of Insurance- Actuarial Analysis | Process used to determine the premium fee
Premiums cover: plan, profit, benefits, admin expenses
Analysis considers: demographics, past medical care use rates, known cost data |
Moral Hazard | Financially irresponsible behavior regarding insurance
Consumer behavior that leads to a higher utilization of HC services when services are covered by insurance |
Insured? Insurer? Underwriting? | 1. Enrollee/beneficiary; individual protected by insurance
2. Insurance agency that assumes risk
3. Evaluates, selects/rejects, classifies, & rates risk |
Cost Sharing | Insurance requires some type of cost sharing
Insured assumes at least part of the risk
Purpose of cost sharing is to reduce misuse of insurance benefits |
3 main types of cost sharing in private health insurance | Premium cost sharing
Deductibles
Co-payments |
Premium | Amount charge by the insurer to provide coverage
Cost sharing by employers & employees |
Deductibles | Amount the insured pays first before benefits are paid by the plan
Paid annually |
Co-Payment | Money paid out-of-pocket each time health services are received
% share is referred to as co-insurance |
Stop Loss | Limits total out-of-pocket costs |
Indemnity Plans | Reimburses the insured a pre-determined amount per service
Insured is responsible for paying provider |
Service Plan | Provides services to the insured
Plan pays the provider directly except for deductible & co-payments |
Covered Services- Benefits | Services covered by an insurance plan (medically necessary)
Specified in a contract
Dental coverage is often separate |
5 Main Types of Private Insurance | 1. Group
2. Self
3. Individual private
4. Managed care
5. High-deductible health |
Group Insurance | Offered thru an employer, union, or professional org
Anticipates large #s of people in a group will buy insurance thru a sponsor
Cost & risk are distributed equally among the insured |
Self-Insurance | Large employers' workforces are large & diversified enough
They can predict their own medical experience
They can assume risk & pay all claims
High losses covered thru re-insurance |
Individual Private Health Insurance | For those who don't have group coverage (farmers, early retirees, self-employed individuals)
Risk is individually determined
High-risk people often unable to get insurance |
High-Deductible Health Plans- HRA | HDHP/HRA- HDHP combined with health reimbursement arrangement
Employer-financed account
Tax exempt payments made for qualified medical expenses |
High-Deductible Health Plans- HSA | HDHP combined with a health savings account
Mainly employee financed on a tax-deductible basis |
Managed Care Orgs (MCO) consist of | HMO (Health Maintenance Org)
PPO (Preferred Provider Org)
Assume risk in exchange for a premium
Assume responsibility for obtaining HC services by contracting with providers |
Pt Protection & Affordable Care Act (ACA) | Mandates individuals to have insurance or pay a tax penalty
Employers w/ 50+ employees mandated to offer insurance coverage or pay "free rider" tax
Medicaid expanded to cover all people at or below 133% of federal poverty level |
ACA | Mandate states to establish insurance exchanges
Tax credit for small businesses with <25 workers
It's illegal to deny insurance to people with pre-existing medical conditions
To cost at least $150 bill in 2016, ~21 mill still be left uninsured |
Reimbursement- 3rd party payers | Insurance companies, managed care orgs, BCBS, government |
Reimbursement | Payment made by 3rd party payers to the providers of services |
The Payment Function | Charge/Rate- set fee for a service
Charge- price set by provider
Rate- price set by 3rd party payer
Fee schedule- index of charges listing individual fees for each type of service |
Reimbursement Methods: Determine how much to pay providers | Fee for service
Bundled charges (pkg pricing)
RBRVS
Managed care approaches
Cost-Plus reimbursement
Prospective reimbursement |
Fee-for-Service Reimbursement | Charges set by providers
Each service billed separately
"Usual, customary, & reasonable" (UCR) became common
Main drawback: provider-induced demand |
Payment Function- Bundled Charges (Package Pricing) | Number of related services in one price
Reduces provider-induced demand b/c fees are inclusive of all bundled services |
Resource-Based Relative Value Scale (RBRVS) | Medicare developed program to reimburse physicians according to a "relative value" assigned to each service
Based on time, skill, intensity |
Reimbursement methods- Managed care approaches | Discounted fees
Used by PPOs
Capitation- used by HMOs, Per member per month (PMPM) fee to cover all needed services, prudent delivery of services, minimize provider-induced demand |
Retrospective Reimbursement | Rates set after evaluating costs retrospectively
Historical costs used to determine amount to be paid
Perverse incentives |
Prospective Reimbursement | Uses certain pre-established criteria to determine in advance the amount of reimbursement |
4 main methods of prospective reimbursement | Diagnosis Related Groups (DRG)
Ambulatory Payment Classifications (APC)
Resources Utilization Groups (RUG)
Home Health Resources Group (HHRG) |
Diagnosis-Related Groups (DRGs) | For acute hospital inpatients
~500 DRGs
Prospectively set bundled price (according to the admitting dx)
Hospital earns profit by keeping costs below DRG reimbursement |
Ambulatory Payment Classification (APC) | Medicare's OP Prospective Payment System (OPPS)
300 procedure groups
Reimbursement rates associated with each APC group
Bundled rate to include: anesthesia, drugs, supplies, recovery |
Resource Utilization Groups (RUG) | Case-mix method to reimburse SNF (case mix: overall acuity level in facility)
Each pt classified into 1 of 66 RUGs
Case mix determines a fixed per-diem rate: the higher the case mix score, higher the reimbursement |
Home Health Resource Groups (HHRG) | Fixed, pre-determined rate for each 60-day episode of care, regardless of services given
OASIS used to rate pt's fxnal status & clinical severity
Assessment measure translate into points
Total points determine HHRG category |
Pay for Performance | Based on premise that reimbursement should be linked to quality & efficiency |
Adverse Selection | Enrollment in greater #s by high-risk individuals
Premiums rise for everyone, making insurance less affordable unless healthy individuals are mandated to buy insurance |
Favorable Risk Selection (cream skimming) | Insurers select low risk people
Difficult for high-risk people to get coverage
Risk rating has been criticized: equity grounds; politically unacceptable |
Cost Shifting | This was the traditional way for providing HC to the uninsured
Capitation & prospective payment methods have eroded this capability |
Fraud & Abuse | Significant problem particularly in Medicare/Medicaid
Fraudulent billing may amount to 3-10% of total HC spending
HIPAA of 1996: HC Fraud & Abuse Control Program |
National Health Expenditures | Spending for all health services & related activities
Eval'd as a % of GDP & as amount spent per capita
17.9% of GDP spent in 2010
HC cost inflation eval'd using the CPI |
Financing plays a critical function in HC delivery | Enables consumers to obtain HC services through insurance coverages
For providers, it reimburses them for the services they provide |
Conclusion | Methods of reimbursement changed from retrospective to prospective
Prospective payment & capitation used by HMOs contain incentives for the delivery of cost-effective health care |
Financing is shared b/t private & public sources | Gov't incurs ~45% of all HC expenditures in the US
A quasi-national HC system
Public expenditure is expected to grow substantially if ACA is implemented in 2014 |