Financing & Structuring of Health Services

Health Expenditures  Health care industry is by far the largest service industry in the country  Seven main areas attribute to growth in health care spending

Payment Sources  Spending for Medicare and Medicaid has been increasing more rapidly than total national health expenditures  42% of the money spent for health in 1999 was used to purchase hospital and nursing home services

Health Insurance  Voluntary Health Insurance  Social Health Insurance  Public Welfare  Distributing Risk

Benefit Structure  Because of moral hazard, health insurance usually pays less than the total loss incurred by levying out-of-pocket or direct costs on the patient. Know terms used in determining benefit structure: deductible, co-payment, service benefit, co-insurance Know terms used in determining benefit structure: deductible, co-payment, service benefit, co-insurance

Premium Determination  Health Insurance plans vulnerable to the Phenomenon of adverse selection. A “sicker” person or potentially higher utilizer of health care services is likely to elect the plan with more generous provisions.

Adverse Selection cont.  Because of adverse selection most health insurance plans today are experienced rated.  “Community Rating” is when an insurance company bases premiums upon the wider utilization of the defined geographic area.

Voluntary Health Insurance  Blue Cross-Blue Shield  Private or Commercial Insurance companies  Health Maintenance Organizations  Prepaid plans: The single most rapidly growing segment of private health insurance market; Anticipated that HMO concept would foster incentives toward prevention and cost- consciousness on the part of the physician.

Social Health Insurance  Worker’s Compensation  Medicare  Welfare Medicine  Medicaid Check out the benefits and structure of each social health insurance program Check out the benefits and structure of each social health insurance program

Physician Reimbursement  Three main reimbursement mechanisms for paying the physician: 1.Fee for Service 2.Prepayment 3.Salary Check out these mechanisms and combinations of reimbursement.

Initiatives in Health Care Finance  Factors in Health Care Inflation  Cost containment Measures  Pro-Competition  TEFRA: Tax Equity and Fiscal Responsibility Act (1982)  Target Rates  The Prospective Payment System  Selective Contracting: Medi-Cal Program

Health Care Reform  Strategies for Reform: 1.American Medical Association 2.National Health Insurance 3.The Clinton Health Security Plan

Medicaid Reform  Welfare Reform Act of 1996 placed new restrictions on eligibility for AFDC, SSI, and other federally funded welfare programs, including Medicaid. In 1997, Congress enacted SCHIP: State Children’s Health Insurance Program

Other Issues in Health Care  Medicare Changes in the George W. Bush Administration  The Uninsured : Results in reduced access to care and “sicker patients” that in turn increases cost of care and providers must recoup these costs of serving uninsured from their paying customers  International Comparisons

Managed Care  Review Table 5.3 Objectives of Managed Care  The structure of managed care include 4 main players: the purchaser, the health insurance plans, the providers of health care and the patient receiving care.  Study Table 5.6 Influencing Physician Behavior in managed care practices

Types of Managed Care  Preferred Provider Organization (PPO’s)  Health Maintenance Organizations (HMO’s)  Medicare/Medicaid Managed Care

Key Concepts of Managed Care 1.The need for Education/Preparation of Insured in Managed Care 2.Importance of an Information System and the insistence on Quality and Outcome measures 3.Provider concerns in managed care Table 5.7

Key Concepts cont. 4.Capitation: payment of a fixed fee per person to physicians or hospitals in exchange for their willingness to assume responsibility to provide a complete range of services as needed 5.Risk-Sharing 6.Importance of Contracts in Managed Care

Issues for Future of Managed Care  Consolidation among Health Plans  Impact of Managed Care on the Provider System  Conflict of Interest in managed Care  Protection of the Public  Mental Health In Managed Care  Medicare/Medicaid Managed Care

Private Health Insurance and Employee Benefits  “Health Insurance” is a combination of true insurance and employee benefits.  Divide into two categories 1.Principal Insurance Benefits associated with ill health 2.Type of organization furnishing the coverage

Commercial Health Insurance Industry  Mutual Insurance Companies are essentially owned by their policyholders. (Examples are Prudential and Metropolitan)  Stock Insurance Companies are owned in the more traditional corporate fashion by stockholders (Examples are Aetna/U.S. Healthcare & United Healthcare

Blue Cross/Blue Shield  Subject to special enabling state legislation  Differentiated from commercial insurance by establishing premium levels using community rating methodology  Blues adoption of Service Benefits  Reluctance to underwrite quite as rigidly as commercial insurers.

Changes and Strategies of Blue Cross/Blue Shield 1.Number of plans has decreased steadily 2.Pseudo-consolidation is occurring on a marketing or administrative basis 3.Attempt to compete effectively for the business of multi-state employers 4.Converting to “for profit” status 5.Blues plans will continue to emphasize managed care than it has in the past.

Health Maintenance Organizations 1990’s growth slowed somewhat due to several factors. 1990’s growth slowed somewhat due to several factors.  Characterized by form of organization according to principal structures 1.Group 2.Staff 3.Independent Practice Association (IPA) 4.Network

Health Related Insurance Programs  Individual coverage  Group coverage  Funding alternative for group health related insurance: a.Fully insured b.Partially insured c.Self-funding

Core Medical Employee Benefits  Medical plans  Dental Plans  Vision Plans  Prescription Drug plans  Long-Term Coverage  Retiree Medical coverage  Disability Insurance

Employee Benefits cont.  Short-term programs  Long-term programs  Workers’ Compensation Insurance- a social insurance program

Changes facing the health Insurance Industry 1.Increasing challenges to control employers’ medical benefit costs 2.Increasing competition from nontraditional health insurance models 3.Continued consolidation of major health insurers 4.Movement away from “bricks-and- mortar” managed care structures

Changes facing health care industry cont. 5.Increasing growth of less restrictive forms of managed care 6.Escalating regulation and oversight of the managed care industry 7.Growing use of managed care in medical benefit programs, especially for retirees 8.Increasing focus on measuring and monitoring quality.