Transcript Section II - Bryant University

Sources of Health Care Financing
Health care in the U.S. is financed directly by
the recipients of services, by government, and
by private insurance
1.
Federal and state government
47%
2.
Private insurance
35%
3.
Private out-of-pocket
19%
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Coverage by Social Insurance Programs
1. Workers compensation pays medical
expenses for work-related injuries.
2. Federal Government is a major source of
health care financing under two programs:
• Medicare for persons over age 65.
• Medicaid, a needs-based program for
the poor.
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Private Medical Expense Insurers
1. Commercial insurance companies
2. Blue Cross and Blue Shield
3. Capitating health care providers
4. Self insurers
• corporate employers
• Multiple Employer Trusts
• MEWAs
5. Federal CHAMPUS program
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Extent of Medical Expense Coverage
1. Most individuals under 65 (slightly less than
two-thirds) are covered as employees or
dependents under employer-sponsored
medical expense plans.
2. Where employer-sponsored coverage is not
available, individual coverage may be
purchased.
3. Approximately 85% of Americans under age
65 were covered by private medical expense
insurance in 1998.
21-4
Traditional Medical Expense Insurance Plans
GROUP MEDICAL EXPENSE INSURANCE
1. Less than 10 million persons (under 5% of
population) are insured under individually
purchased medical expense insurance.
2. Overwhelming dominance of group
approach is due to
• lower cost of group insurance
• favorable tax treatment of employerprovided health insurance
21-5
Traditional Medical Expense Insurance
Fee-For-Service Plans
Historically, commercial insurers and Blue
Cross/Blue Shield organizations have provided
fee-for-service benefits.
1. insured sought services from a provider.
2. insurance would pay some or all of the
providers charge, directly or by
reimbursing the insured.
3. provider and insured agreed on the level of
care and the insurer paid the bill.
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Managed Care Plans
1. Many experts argued that the fee-for-service
approach provided an incentive to
overutilize health care.
2. Trend in recent years is away from
traditional indemnity fee-for-service plans
toward programs with a more direct
relationship between the provider and the
insurer.
3. Newer approach includes HMOs, PPOs, and
point-of-service plans.
4. These programs are often referred to as
managed care plans.
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Traditional Fee-For-Service
Medical Expense Insurance Plans
1. Hospital expense coverage
2. Surgical expense
3. Physician’s expense coverage
4. Major medical coverage
21-8
Hospitalization Insurance
1.
Hospital service benefit contracts
2.
Hospital reimbursement contracts
3.
Indemnity (cash payment) contracts
21-9
Surgical and Physician’s Expense Contracts
1.
Surgical service plans
2.
Surgical expense reimbursement contracts
3.
Physician’s expense reimbursement
insurance
21-10
Major Medical Insurance
1. High maximum (or unlimited)
2. Deductible
3. Coinsurance or share-loss provision
21-11
Comprehensive Major Medical
$1,000,000 maximum
Insurer pays 100% of costs up to maximum
$10,000
Coinsured Layer of Coverage
Insurer pays 80% of costs
Insured
pays 20%
of Costs
$250 per person/$500 family Deductible
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Illustrated Payment Under Major Medical
Amount of loss
Less deductible
$20,000
250
______
19,750
Insured pays 20% of expense
over deductible up to $10,000
Insurer pays balance
$2,000
$17,750
21-13
The Health Insurance Market Today
Although about 1,200 insurers that offer health
insurance for medical expenses, traditional
insurance plans no longer dominate the
insurance market.
Many employers now offer health care
coverage under alternative mechanisms.
1. Health Maintenance Organizations
2. Preferred Provider Organizations
3. Point-of-Service Plans
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GENERAL NATURE OF HMOs
• Provide a wide range of comprehensive
health care services to members in return for
a fixed periodic payment.
• Sponsored by a group of physicians,
hospital, employer, labor union, consumer
group, insurance company, or Blue
Cross/Blue Shield plans.
• HMO provides for the financing of health care
and also delivers that care.
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Provider Sponsored Organizations
1. Also sometimes called
• Physician-Hospital Organizations (PHOs)
• Integrated Delivery Systems (IDS’s)
2. Similar to HMOs
• PHO’s are paid a capitated fee
• fee is divided among providers on a
prenegotiated basis
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Preferred Provider Organizations (PPO’s)
1. Doctors or hospitals with whom employer
or insurer contracts to provide medical
services.
2. Provider discounts services and sets up
utilization control programs to control
costs.
3. Employees not required to use PPO, but if
they go elsewhere they must pay more.
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Point of Service Plans (POS)
1. POS plans are the newest development in
health insurance field.
2. In one respect, POS plans operate like a
PPO, since the employee retains right to use
any provider but will pay a higher part of the
cost for a provider outside network.
3. At same time, POS is like an HMO, since
care received through network is managed
by primary care physician or “gatekeeper.”
4. POS plans were created when HMOs allowed
subscribers to use nonnetwork providers.
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Cost Containment Provisions
In addition to managed care arrangements such
as HMOs, PPOs, and POS plans, most
traditional indemnity plans have adopted cost
control provisions.
1.
Increased employee cost sharing
2.
Coordination of benefits
3.
Covering alternative sites of care
4.
Addressing utilization
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Dental Expense Insurance
• Written with a dollar reimbursement limit or
on a service basis.
• Coinsurance may require different costsharing in earlier years (e.g., 50% first year,
60% second year, 70% third year, 80% fourth
year and 90% thereafter).
• Coinsurance may also be structured to
encourage or discourage utilization (100% for
preventive care, 50% for orthodontics)
21-20
Prescription Drugs
Usually written on a group basis, as an adjunct
to other coverage.
Reimbursement Basis Coverage
 Generally a coinsurance or deductible.
 Deductible per prescription or annual.
Service basis Coverage
 Operates similar to the Blue Cross model.
 Insurer payments directly to pharmacists.
 Payment limited to the amount payable to a
participating pharmacy.
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Medicaid
Title XIX of the Social Security Act, known as
Medicaid, is a federal-state program of medical
assistance for needy persons that was enacted
simultaneously with the Medicare program.
 provides medical assistance to low income
persons and certain needy persons who are
not at the poverty level.
 the federal government sets regulations and
minimum standards.
 federal share of cost is based on a formula
tied to state per capita income and varied
from 50% to 80% in 1998.
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Medicaid Benefits
Medicaid benefits are quite comprehensive.
 Benefits includes services traditionally
included in a commercial group-healthinsurance plan and some services, such as
long-term care, that are not.
 Mandatory benefits in all states include
inpatient and outpatient hospital services,
physician services, and home health care.
 Optional services include outpatient
prescription drugs, prosthetic devices and
hearing aids, and dental services.
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Taxes and Health Care Costs
1. Cost of employer-provided group plans is
deductible by employer and nontaxable to
the employee.
2. For the individual,
• health insurance premiums receive no
special tax treatment.
• premiums are combined with other health
care costs and deductible to extent total
exceeds 7.5% of AGI.
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Health Insurance for Self-Employed
• TRA-86 authorized self-employed persons to
deduct 25% of cost of health insurance. The
25% later increased to 30% and then 40%.
• TRA-97 phases in 100% deductibility.
Fiscal Year
1998-99
2000-01
2002
2003-2005
2006
2007
% Deductible
45%
50%
60%
80%
90%
100%
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The Health Insurance Problem
Access to health care
High cost of health care
21-26
The Access Problem
•
40 million Americans have no health
insurance coverage
•
Another 70 million are underinsured
•
Over 85% of the population with private
insurance obtain coverage through
employment
21-27
High Cost of Health Care
1. Medical care costs growing faster than the
average cost of living
2. Consuming an increasing share of GNP
• 1950
4.4% of GNP
• 1998
13.+% of GNP
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Some Causes of High Cost of Health Care and
Health Insurance
• Aging population
• Improved (high-cost) medical technology
• Excessive capacity
• Defensive medicine
• Insurance-encouraged utilization
• Cost-shifting from government funded plans
• Mandated benefits
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