1. Financing Health Care And Health Insurance
Chapter 7
Financing Health Care
And
Health Insurance

2. National Health Expenditures
Four areas account for 66% of expenditures
30.6% -- hospital care
21.4% -- physician and clinical services
10.1% -- prescription drugs
8.4% -- nursing home and home health care
The remaining 34% of spending includes:
Administrative costs
Structures and equipment
Public health
Other medical products
Research

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

4. Paying for Care Sources of Payments Out-of-pocket payments – 11.4%
Private health insurance – 34.4%
Other private funds %
Public funding, including Medicare, Medicaid, the State Children’s Health Insurance Program %

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

6. Concerns Relating to Health Insurance
Choice of provider
Access to care
Access to specialists
Restrictions on Care
Premium costs
Deductibles
Copayments
Policy limitations
Uncovered benefits
Access to quality care
Geographic limitations
Utilization restrictions

7. Types of Health Insurance
Indemnity insurance
Managed care plans
HMOs
PPOs
EPOs
POSs
PHOs
Direct Contracting plans

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

9. Health Plan Enrollment by Type of Plan,
Type of Plan
1988
1993
1998
2003
2005
Conventional
73%
46%
14% 5% 3%
HMOs
16%
21%
27%
24%
PPOs
11%
26%
35%
54%
61%
POSs 0% 7%
17%
15%
Source: Kaiser Family Foundation and Health Research and
Educational Trust, 2005

10. New Directions in Health Insurance
Consumer-driven health plans
Flexible spending accounts
Medical Savings Accounts (MSAs)
Health Reimbursement Arrangements (HRAs)
Health Savings Accounts (HSAs)

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

12. 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

13. Medicare “Parts” Part A – Hospital Insurance (HI)
Part B – Supplemental Medical Insurance (SMI)
Part C – Medicare + Choice – Medicare managed care
Part D – Prescription Drug Benefit

14. Sources of Medicare Revenues
General Revenues 41%
Payroll Taxes 40%
Payments from states 2%
Beneficiary premiums 11%
Interest income 4%
Taxation of Social 2%
Security Benefits

15. Causes of Medicare Growth
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

16. 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)

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

18. 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 SCHIP
Expanded coverage in some states to include those with higher incomes in relation to the federal poverty level

19. 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

20. 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

21. 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

22. 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)

23. 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

24. 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

25. 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

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

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

28. Health Insurance Coverage Statistics
Coverage by:
Employment-based private health insurance – 59.8%
Direct purchase private health insurance – 9.3%
Medicare – 13.7%
Medicaid – 12.9%
Military health care – 3.7%
Not cover individuals – 15.7%

29. Health Insurance Total cost of Premiums
Individual Coverage
$4,024 – All plans
$3,782 – Conventional plans
$3,767 – HMOs
$4,150 – PPOs
$3, POSs
Family Coverage
$10,880 – All plans
$9,979 – Conventional plans
$10,456 – HMOs
$11,090 – PPOs
$10, POSs

30. Source: DeNava-Walt, Proctor and Lee: Income, Poverty, and Health Insurance Coverage in the United States: Current Population Reports, P Washington, DC: U.S. Government Printing Office, 2005

31. 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 cover because can’t afford it, not because they don’t need it
79% are American citizens

32. 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

33. 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