Component 1: Introduction to Health Care and Public Health in the U.S. Unit 4: Financing Health Care Lecture 3 This material was developed by Oregon Health & Science University, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015.

Health IT Workforce Curriculum Topics in This Lecture How health insurance works Sources of health insurance Types of health insurance What managed care is How insurers pay health care providers for their services Regulation of private health insurance Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011

How Health Insurance Works Spreads the financial risk over a large pool of people Balances risk with cost 5% of the population accounts for approximately half of all health care spending People over age 65 consume more health care than other age groups do Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011

Public vs. Private Insurance Public insurance is government-run Medicare Medicaid Children’s Health Insurance Program (CHIP) Department of Veterans Affairs Military Health System Private insurance is run primarily by state-licensed companies Some employers have their own plan (may contract to third-party administrator) Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011

Blue Cross/Blue Shield Independent, state-licensed organizations Historically set up as not-for-profits under special state laws Blue Cross reimburses hospitals Blue Shield reimburses physicians Today, some Blue Cross/Blue Shield organizations operate as commercial insurers Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 5 5

2 General Types of Health Insurance Indemnity plans are “traditional” plans that were prevalent a generation or two ago Fee for service Simply provide reimbursement to providers Managed care plans prevail today Offer financial incentives to providers Integrate the financing and delivery of care within a single system Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 6 6

What Is “Managed” in Managed Care? Ideally, managed care keeps costs in check while delivering high-quality health care Many people consider managed care’s primary function to be a “gatekeeper” There are many versions of managed care plans, with differences based primarily on cost and provider choice Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 7 7

Cost vs. Provider Choice The various managed care plans are defined by choices in what providers the patient can use Fewer choices translate to lower health care premiums and lower out-of-pocket costs 3 main types of managed care plans have varying degrees of choices and costs Health maintenance organization (HMO) Preferred provider organization (PPO) Point-of-service plan (POS) Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 8 8

Comparison of Indemnity vs. Managed Care Programs Feature Fee for service HMO PPO POS Provider network None Strict or exclusive Broad network Hybrid of HMO/PPO Physician choice Unlimited PCP required PCP not required PCP recommended Referrals Not needed Must come from PCP Required if out of network Precertification Required Not usually required Not usually required Preventive care Usually not covered Covered Some covered Varies Relative cost to patient High Low Medium–high Medium Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 9 9

Health IT Workforce Curriculum HMO Models Staff model: Doctors are salaried employees Group model: Doctors are employed by a group practice; the plan contracts with the practice for their services; most patients that a doctor sees are patients in that plan Open-group model: As above, but doctors are freer to accept patients from outside the plan Independent physician association (IPA): Doctors are organized into a legal entity; have autonomy but also contract with the plan Network model: The plan contracts with multiple independent physicians, group practices, and/or IPAs Mixed model: Mixes and matches any of the above Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 10 10

Major Influences on the Cost of Health Insurance Cost of prescriptions and medical technology Aging population Increase in chronic disease → more health care consumption Costs to administer health plan Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 11 11

How Insurers Pay Providers The provider submits a claim Claim must include at least one diagnosis code, and one procedure code for each service rendered Diagnosis code = ICD-10-CM Procedure code = CPT code A medical claims examiner or adjuster processes the claim Determines “usual and customary” charge Deducts any portion the patient is responsible for Deducts any contractual provider discount Reimburses the remainder Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 12 12

How Insurers Pay Providers (cont’d) The patient receives an explanation of benefits (EOB), also called remittance advice Regardless of whether claim is accepted or denied Regardless of whether the patient receives a check A claim can be denied for many reasons: Coding errors or insufficient information Procedure considered experimental or otherwise not covered by the policy Rejected claims can be appealed Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 13 13

Regulation of Private Health Insurance States control the legal structure of private insurers and monitor their finances Purpose: To ensure the company can meet its obligations to the people it insures Private insurance companies are also regulated by federal laws Federal law may take precedence over state law Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 14 14

Regulation of Private Health Insurance (cont’d) The most important federal laws: ERISA (Employee Retirement Income Security Act) Regulates pension plans and health plans in private industry Does not require employers to establish a plan, but requires those who have plans to meet certain minimum standards Requires a grievance and appeals process for participants to get benefits from their plans Gives participants the right to sue for benefits Requires individuals who manage plans to meet certain standards of conduct Passed in 1974 Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 15 15

Regulation of Private Health Insurance (cont’d) COBRA (Consolidated Omnibus Budget Reconciliation Act) Allows employees to choose continuation of group health benefits in certain cases Voluntary or involuntary job loss, reduction in hours worked, transition between jobs, death of a spouse, divorce, certain other life events Individuals may have to pay premium up to 102% of cost Generally required for group health plans of companies with 20+ employees An amendment to ERISA, passed in 1986 Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 16 16

Regulation of Private Health Insurance (cont’d) HIPAA (Health Insurance Portability and Accountability Act) Defines “protected health information” and helps ensure its privacy Protects participants in group health plans Prohibits discrimination based on health status Provides additional opportunities to enroll in group health plan, after loss of coverage or certain life events For some people, guarantees access to individual insurance An amendment to ERISA, passed in 1996 Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 17 17

Regulation of Private Health Insurance (cont’d) ERISA also mandates certain types of coverage Newborns' and Mothers' Health Protection Act Plans that offer maternity coverage must pay for at least a 48-hour hospital stay following childbirth Mental Health Parity Act Lifetime and annual dollar limits on coverage must be the same for mental illness and medical/surgical benefits Women's Health and Cancer Rights Act Plans that cover medical/surgical benefits with respect to mastectomies must also cover certain post-mastectomy benefits, including reconstructive surgery and treatment of complications Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 18 18

Regulation of Private Health Insurance (cont’d) Affordable Health Care Act (Health Reform Law) No limit or denial of coverage for children under 19 with preexisting conditions Insurance for adults denied due to preexisting condition Ends lifetime limits and most annual limits on care Allows young adults under 26 to stay on their parent’s health insurance plan Some plans will provide free access to preventive services 50% discounts on brand-name drugs for seniors in the Medicare “donut hole” More benefits will be phased in through 2014 Passed in 2010 Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 19 19

Health IT Workforce Curriculum Summary Insurance works by spreading financial risk The government runs public insurance; individual organizations run private insurance Managed care balances choice with cost Insurers pay providers based on diagnosis and procedure codes Private health insurers are regulated by both state and federal laws Important federal laws regulating private health insurance are ERISA, COBRA, HIPAA, and the Affordable Health Care Act Component 1/Unit 4-3 Health IT Workforce Curriculum Version 2.0/Spring 2011 20 20