FINANCING HEALTH CARE AND HEALTH INSURANCE Chapter 9 FINANCING HEALTH CARE AND HEALTH INSURANCE

Learning Objectives Identify the concepts of healthcare financing and payment for health care Provide an overview of how health insurance works Outline a brief history of how health insurance has evolved Define terms and characteristics of health insurance

Learning Objectives (cont’d) Compare and contrast the different types of private health insurance Delineate the types of social insurance Evaluate data on health insurance coverage and lack thereof Characterize the uninsured Assess healthcare reform and changes to insurance resulting from it Explain the implications for management

National Health Expenditures 2008 Five areas account for more than 80% of expenditures 8.7% nursing home and home health care The remaining 20% of spending includes: 30.7% hospital care 21.2% physician and clinical services Administrative costs Structures and equipment 10.0% prescription drugs Public health 10.0% other professional, dental and personal care services Other medical products Research

Paying for Care Sources of Payments Out-of-pocket payments – 11.9% Private health insurance – 33.5% Other private funds – 7.3% Public funding, including Medicare, Medicaid, the State Children’s Health Insurance Program – 47.3%

Key Changes in the Evolution of the Health Insurance Industry Advent of comprehensive health services and benefits Increased role of the public and private sectors in health care coverage Health insurance as an employee benefit Changes in reimbursement for care provided Continual rise in the cost of health care

History of Major Pieces of Health Insurance Legislation National Health Insurance discussed in 1930’s seen as socialized medicine not enacted Medicare and Medicaid enacted in 1965 Children’s Health Insurance Program (CHIP) legislated in 1997 Patient Protection and Affordable Care Act passed in 2010

Terms in Health Insurance Risk Pooling Maximum Out-of-pocket expenditure Forms of Payment Lifetime limits Fee-for-service Types of Benefits Pre-payment Comprehensive Cost Sharing Basic/Major Medical Co-payments Catastrophic Coverage Deductibles Disease-specific Co-insurance MediGap Policy limitations

Other Concerns Relating to Health Insurance Choice of provider Access to care Restrictions on Care Moral hazard Pre-existing conditions Buy-downs

Types of Health Insurance Conventional indemnity insurance Managed care plans HMOs PPOs POSs HDHP/SO

Types of HMOs Closed-panel HMO Group model HMO Open-panel HMO Staff model HMO Independent Practice Association -- IPA model Network model HMO

Health Plan Enrollment by Type of Plan, 1988-2009 1993 1998 2003 2005 2009 Conventional 73% 46% 14% 5% 3% 1% HMOs 16% 21% 27% 24% 20% PPOs 11% 26% 35% 54% 61% 60% POSs 0% 7% 17% 15% 10% HDHP/SO 8% Source: Kaiser Family Foundation and Health Research and Educational Trust, 2009a

Legislative History of Social Insurance 1960 – Kerr-Mills Act 1989 – Omnibus Budget Reconciliation Act (OBRA) 1997 – Balanced Budget Act (BBA) 1965 – Social Security Act 2003 – Medicare Prescription Drug, Improvement & Modernization Act (MMA) Title XVIII – Medicare Title XIX – Medicaid 1982 – Tax Equity and Fiscal Responsibility Act (TEFRA) 2010 – Patient Protection and Affordable Care Act

Eligibility for Medicare Coverage is provided to: Elderly citizens over 65 years of age Permanently disabled younger adults Individuals with end-stage renal disease (ESRD) Terminally ill patients in the end of life

Medicare “Parts” Part A – Hospital Insurance (HI) Part B – Supplemental Medical Insurance (SMI) Part C – Medicare Advantage Plans (MAs) Part D – Prescription Drug Benefit

Sources of Medicare Revenues General Revenues 41% Payroll Taxes 38% Payments from states 2% Beneficiary premiums 12% Interest/other sources 4% Taxation of Social 2% Security Benefits

Causes of Growth in Medicare Spending Shift from acute to chronic care Growth in hospital expenditures Fee-for-service reimbursement Growth in pharmaceutical costs Advances in medical technology Increased payments to health plans Increased payments to rural health providers Rising medical malpractice premiums

Reimbursement Efforts to Control Medicare Spending Inpatient hospital Stays – Diagnosis-Related Groups (DRGs) Physician office visits – Resource-Based Relative Value Scales (RBRVS) Skilled nursing facilities – Resource Utilization Groups (RUGs) Home health agencies – Home Health Resource Groups (HHRGs) Hospital outpatient department services – Hospital Outpatient Prospective Payment System (OPPS)

Ongoing Medicare Program Concerns Continuing expansions of benefits Access to Medicare participating physicians and providers Continuing increase in program spending Program solvency

Medicaid Program Characteristics Eligibility Coverage for the medically indigent AFDC (now TANF) and SSI recipients qualify automatically Expanded coverage for pregnant women, children and infants Expanded coverage for children via CHIP Expanded coverage in some states to include those with higher incomes in relation to the federal poverty level

Medicaid Program Characteristics Funding Jointly-funded by federal and state governments Federal share = 50-77% of costs State share = 23-50% of costs “Bare bones” programs “Welfare magnets” – programs that offer extensive expanded eligibility, as well as many additional benefits

Medicaid Program Characteristics Benefits Services mandated by federal legislation: Inpatient hospital stays Outpatient hospital services Physician services Lab and x-ray Nursing facilities Home health services EPSDT Services added at a state’s discretion: Dental care Mental health care Drug and alcohol treatment Rehabilitation Preventive care Prescription drugs Prostheses

Ongoing Medicaid Program Concerns Growth in Medicaid spending, as a result of: Increases in volume Increases in provider payments Increasing numbers of beneficiaries as a result of: Downturns in the economy Rising unemployment Increases in the uninsured population Continued expansions of benefits

Insuring Veterans, Active and Retired Military Personnel and Their Families Department of Defense (DOD) medical facilities TRICARE Plan Veteran Affairs (VA) medical facilities VA Civilian Health and Medical Program (CHAMPVA)

TRICARE Characteristics – Eligibility Active duty, retired military and families covered Includes DOD’s 536 hospitals and clinics Three program options: HMO PPO Fee-for-service

TRICARE Characteristics – Benefits/Funding Hospital care, physician services, prescription medications, diagnostic tests, preventive services Dental services for active duty personnel only Funding No enrollment fees Subsidized by the federal government Co-pays required (except for active duty personnel) Some required to meet annual deductibles

TRICARE Concerns Limited network of providers in rural areas Difficult to provide care to National Guard and Reserve personnel Ensuring sufficient providers for 9.2 million beneficiaries

Veterans Health Administration All veterans are eligible Veteran Integrated Service Networks (VISNs) located in 22 regions Varying benefits based on enrollment categories

CHAMPVA Coverage is provided for: Non-retired veterans Permanently and totally disabled individuals Spina Bifida Healthcare Program Women Vietnam Veterans Healthcare Program

Health Insurance Coverage Statistics Coverage by: Employment-based private health insurance – 58% Direct purchase private health insurance – 8.9% Medicare – 14.3% Medicaid – 14.1% Military health care – 3.8% Not cover individuals – 15.4%

Health Insurance Total cost of Premiums, 2009 Individual Coverage $4,824 – All plans $4,878 – HMOs $4,922 – PPOs $4,835 – POSs $3,986 – HDHP/SO Family Coverage $13,375 – All plans $13,470 – HMOs $13,719 – PPOs $13,075 – POSs $11,083 – HDHP/SO Source: Kaiser Family Foundation and Health Research and Educational Trust, 2009b.

Figure 9-9: Distribution of the Uninsured by Age, 2008

Characteristics of the Uninsured ¼ from families with incomes below the poverty level Most from families with incomes above the poverty level, but under the 300% level Most were workers or dependents of workers employed in industries that don’t provide health insurance More uninsured people live in the South and West than in the East and Midwest Aren’t covered because they can’t afford it, not because they don’t need it

Utilization of the Health Care System by the Uninsured Delay seeking care or forgo care all together, thereby increasing their chances of: Preventable health problems Disability Premature death Utilize the most expensive access point to the health care system – hospital emergency departments–to obtain care Do not have a primary care physician

Management Implications As part of their HR activities, managers become involved in: Selecting health insurance plans for employees Considering benefit packages, costs of coverage and other issues As part of patient-related activities, managers need to understand: Health insurance plans and coverages Coding and billing to plans Reimbursement policies and procedures