Health Insurance

Objectives for today Explain the origins of insurance Differentiate among types of insurance Explain reimbursement mechanisms Explain service use incentives Identify provider incentives

What is insurance? A method of distributing risk Traditional insurance for expensive potential losses car accidents, hospitalization Today’ health insurance covers fairly non-risky events routine physician care

Origins of health insurance European industries Germany’s sickness fund, 1840 United States Blue Cross: Baylor teachers in Dallas, 1929 American Medical Association opposed Blue Cross: expanded during depression Blue Shield: California Medical Society, 1939

Health insurance types Voluntary Individuals, employers purchases Social health insurance Government sponsored (e.g. Medicare in the U.S.; health insurance in Canada) Public welfare For low income persons (e.g. Medicaid)

Health insurance coverage in U.S million Americans (15.6 % of population) uninsured in 1996 (Carrasquillo et al. 1999; from Current Population Survey) Texas has the higher proportion of uninsured of all of the states 4,680,000 Texans (24.3 %) uninsured a significant increase from 1989

Health insurance coverage in U.S million (70.4%) covered by private insurance 31.9 million (11.8%) covered by Medicaid 34.7 million (13.2%) covered by Medicare (13.2%)

Health insurance coverage in U.S. by Age Category

Health insurance coverage in U.S. by Gender

Health insurance coverage in U.S. by Race/Ethnicity

Voluntary health insurance Most people in U.S. covered by private insurance Employer purchased Self-employed Medigap

Social health insurance programs in the U.S. Worker’s compensation Medicare Medicaid Department of Defense VA health system (not simply an insurance system, but a health system)

Source of expenditures

Where the $1 trillion is spent from Levit et al. (1996)

Worker’s compensation Covers employed persons Pays cash replacement of a portion of wages Pays for medical care resulting from work-related injury or sickness

Medicare An entitlement program passed in 1965 The major social health insurance program in the U.S. Covers individuals 65 and older Also covers disabled individuals and those with end-stage renal disease

Medicare Part A Compulsory Covers hospital costs Paid for by Social Health Insurance Trust Fund Indirect payment Gov’t. does not own provider organizations and does not hire providers

Medicare Part A Benefits 90 inpatient days in a benefit period Deductibles for days 1-60 Coinsurance for days days in Skilled Nursing Facility Coinsurance

Medigap 70 % of Medicare enrollees have supplemental insurance Covers deductibles, coinsurance

Medicare Part B Not compulsory Covers physician services Most $ from general treasury Some $ from Social Security check deductions for Part B

Medicare Part B Benefits Physician services Yearly deductible Monthly premium Outpatient hospital care No pharmaceuticals No eye examinations

Medicaid (Title XIX) A welfare or charity program Most $ comes from U.S. General Treasury State treasuries pick up rest of tab

Medicaid (Title XIX) Eligibility requirements Receiving Aid to Families with Dependent Children (AFDC) Pregnant and postpartum women with children < 6 yrs. and income < 133% of poverty level Aged, blind, and disabled receiving supplemental security income

Medicaid Benefits Hospital inpatient care Home health care Physician services Family planning Other services as shown in text

Department of Defense Military health care system for uniformed military personnel CHAMPUS - Civilian Health and Medical Program of the Uniformed Services for families and dependents of active military personnel

VA Health Care System For retired, disabled, and other “deserving” veterans approximately 170 hospitals in U.S. provide mostly acute hospital care some specialized outpatient care mental health care long term care

Moral hazard When have insurance, want to reap the benefits of it Can lead to excess use of health services To control effects of moral hazard, multiple techniques used

TEFRA Tax Equity and Fiscal Responsibility Act (1982) Encouraged Medicare HMOs Prospective payment for Medicare (DRGs)

RBRVS Resource-based relative-value scale (1992) for Medicare Part B Based on physician work, practice expense, and malpractice insurance

Controlling excess use In the U.S., we tend to rely on risk distribution and market incentives Patient incentives (cost sharing) Provider incentives (reimbursement) Utilization review Health plan competition

Patient incentives: Deductibles Money that must be paid by the individual before insurance benefits kick in e.g. the patient must pay for $500 of medical charges before insurance begins to pay Criticized for contributing to delays in treatment

Patient incentives Copayment Fixed amount paid for each service consumed e.g. a patient has to pay $15 every time he/she visits a physician Coinsurance A percentage of money paid by individual for each service e.g. the insurer pays 80% of surgery charges; the patient pays 20%

Physician reimbursement Fee-for-service (FFS) Prepayment Salary

Utilization review Prospective Retrospective Concurrent