2Outline How much do we spend on health care? Who pays for health care? What are the different types of health insurance?How do physicians receive compensation via the different forms of payment?
3National Health Expenditures per Capita, 1990-2018 $13,100(2018)ActualProjected$8,160(2009)$2,814(1990)Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (Historical data from NHE summary including share of GDP, CY , file nhegdp07.zip; Projected data from NHE Projections , Forecast summary and selected tables, file proj2008.pdf).
5NHE Total Expenditures: $2,700.7 billion Distribution of National Health Expenditures, by Type of Service (in Billions), 2011NHE Total Expenditures: $2,700.7 billionNOTE: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc.SOURCE: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (see Historical; National Health Expenditures by type of service and source of funds, CY ; file nhe2011.zip).
7Wages Private Group Health Insurance 56.3% of GDPOther Fringe Benefits and Payroll TaxesWages45.6%Although total compensation – wages plus benefits – has remained fairly stable as a share of our nation's economy since 1960, health benefit costs paid by employers has risen from 0.6 percent of GDP in 1960 to 4.1 percent in 2006.20067
8Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings,SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, (April to April).
9Impact of Unemployment Growth on Medicaid and SCHIP and the Number Uninsured $3.4$1.4State1.11.0=1%&Increase in National Unemployment Rate$2.0FederalIncrease in Medicaid and SCHIP Enrollment(million)Increase in Uninsured(million)A one percent rise in the nation's unemployment rate is projected to increase the number of uninsured by 1.1 million and result in an additional 1 million (600,000 children and 400,000 adults) enrolling in Medicaid, increasing state Medicaid spending by $1.4 billion at time when their tax revenues would fall by 3 to 4 percent.Increase in Medicaid and SCHIP Spending(billion)Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser Commission on Medicaid and the Uninsured, April 20089
10Putting Off Care Because of Cost In the past 12 months, have you or another family member living in your household… because of the COST, or not?Percent saying “yes”Relied on home remedies or over the counter drugs instead of seeing a doctorSkipped dental care or checkupsPut off or postponed getting health care you neededNot filled a prescription for a medicineSkipped recommended medical test or treatmentCut pills in half or skipped doses of medicineHad problems getting mental health careDid ANY of the aboveSource: Kaiser Family Foundation Health Tracking Poll (conducted November 5-12, 2009)10
12Why is it important? US compared to OECD countries Health expenditures grew rapidly between for most countries.Rates continued to rise into the 1990s-2000s in US.The US is the biggest spender in terms of GDP for health care. Spends twice as much as the UK (national health insurance).
13Ranking methodology subjected to significant criticism in academic circles (Science, Health Economics)•But oft cited as ‘authoritative’nonetheless …•Relatively poor U.S. rank in part attributable to–High levels of health spending–Relatively mediocre population health outcomes–Inequitable access for the uninsured4
18Who Pays for Health Care? Private InsuranceEmployer BasedDirect PurchaseGovernment InsuranceMedicareMedicaidMilitaryOther (SCHIP and TANF)You – out of pocket expenses
19Simple Organizational Chart How Do Dollars Flow?
20Federal Programs Medicare Medicaid Military health programs 100% federal payrun by the fedselderly, disabled people under Supplemental Security Income (SSI)Medicaid1/3-1/2 cost share by the statesrun by statespoor people, often old, nursing homes, disablefalls apart when folks need it mostMilitary health programsGetting to be big dollars, usually left off the graph
22Types of Medicare Part A Part B Part C Part D is the part of Medicare coverage that covers major illnesses and end-of-life care issues. This may include services such as inpatient hospital care and hospice care.Part Bis a type of Medicare that covers normal doctor's visits and other minor issuesPart CPart D
24Medicare Part C (AKA Medicare Advantage Plan or Medicare Choice) Helps people afford private insurancewill completely replace both Medicare Part A and Part B.It may also require an additional premium payment.
25Medicare Part Dto subsidize the costs of prescription drugs for Medicare beneficiaries in the United States.It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)Effective date: January 1, 2006.
28Medicare Spending as a Share of Total Federal Outlays, FY2010 2010 Total Outlays = $3.5 trillionSOURCE: OMB, Fiscal Year 2010 Budget, February Budget Summary by Category.
29Private Insurance Types of Private Insurance EPO (HMO) a managed health care unitHigh premiums, low deductible and/or co-paymentsLimits choices, but also limits costPPOLow premiums, high deductible and/or co-paymentsOffers more choiceHealth Savings Account (HSA)Provides a tax-shelter to self insurer.
32What is insurance? Consider a club 100 members About the same age, about the same lifestylesAbout once a year one of the members gets sick and incurs expenses of $1,000.Club collects $10 from each member each year.Invests it somewhere to maintain or increase its value.Pays it out to members who file claims.
33What has happened?Insured pay $10 per year, guaranteed, to avoid the possibility of having to pay $1,000.Although outlays for an individual may be highly variable,Outlays for a group are generally rather predictable.The “Law of Large Numbers” suggests that as group size increases, the distribution of the average rate of illness will collapse around the “true” probability of the illness.
34Insurance Terms Moral Hazard Adverse Selection occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.Typically occurs after you have insuranceAdverse SelectionLemons problemIt refers to a market process in which "bad" results occur when buyers and sellers have asymmetric information (i.e. access to different information): the "bad" products or customers are more likely to be selected.Typically occurs before you have insurance
35Insurance Terms Premium - $X premium for $Y of coverage. Coinsurance and Copayment - The insured person must pay the loss.% paid is the coinsurance rate (varies from 0 to 100%).amount paid is the copayment.Deductible - Some amount may be deducted from the payment to the insured person, irrespective of coinsurance.Why coinsurance and deductibles? Discuss.
36Let’s Review Coinsurance 40Suppose a visit costs $20.BUT, insurance pays 50%.40Effective demand3030Money Price20Effective Price20Money price demand1010Visits
37What Does Moral Hazard Do? It makes us spend too much on medical care.DemandDemand w/insurancePriceAt P1, we buy Q1 and spend E1.With insurance, we pay LESS than full price, so we buy Q2, spend E2. This is P1 (Q2 - Q1) more than we spent before.Why is it too much?P1Exp.Q1Q2Quantity
38What Does Moral Hazard Do? Why is it too much? We paid P1 (Q2 - Q1) more.DemandDemand w/insurancePriceThe demand curve tells us what the care is worth to us. So the additional (Q2 - Q1) is worth:P1Exp.WastedValueThe “wasted” expenditures are:Q1Q2Quantity
39For the Entire Economy it’s WORSE Demand w/insuranceWhy is it too much? We paid P1 (Q2 - Q1) more.DemandPriceThe demand curve tells us what the care is worth to us. So the additional (Q2 - Q1) is worth:P1Exp.WastedValueSupplyThe “wasted” expenditures are:Q1Q2Quantity
40Risk and Insurance What is “expected value?” What’s the expected value of a coin flip that pays $1 for heads and 0 for tails.A> Probability of heads * $1 + Probability of tails * 0.E = 0.5 * * $0 = $0.5How much would you pay to play this kind of game?Why do we care?A> Because insurance is based on expected losses!
41Anatomy of an Insurance Premium The amount paid for insurance can be separated into two parts.Actuarially fair premiumLoading feeExpected CostLoading FeePremium
42Loading Fee Administration Costs Legal Fees Profits 10 – 15% of a premium
43Why do I need to know all of this insurance stuff? You will most likely work in one of two environments“Fee-for-Service”There is a menu of services and each service has a price.“Capitation”Physicians offer a bundle of services at one flat price per patient.
44Financial Risk Arrayed on a Spectrum from Full Risk for the Insurer to Full Risk for the Provider
46Fee for Service Advantage Disadvantage Bundle Payment – See the ACA No risk associated with costYou are encouraged to see many patients and perform many servicesDisadvantageYou have “no skin” in the medical options therefore you tend to over-supply and run up health care costBundle Payment – See the ACA
48CapitationCapitation - Physician receives a fixed payment per person in return for providing medical services regardless of the quantity of medical care delivered.e.g. A physician may receive $9 per member per month for each enrollee who chooses an HMO plan and elects him to be their primary care caregiver.
49Capitation Physician has an incentive to restrict # of patient visits. Problem - Physician can reduce visits by referring patients to other providers in the same HMO plan.e.g. If the patient has high blood pressure, refer her to a cardiologist.Solution - Withholding
50Advantages of Capitation Increased clinical autonomyPhysician financially responsible for cost overrunsEliminates need for external reviewIncreased incomePhysician compensated by risk pools created from withholds if can reduce utilization of hospital, outpatient, diagnostics, other ancillary services
52Questions About the ACA Are the health exchange open to everyone?No, only to those not receiving health insurance from their employerWill I receive a subsidy to buy health insurance?If you're an individual making up to $45,950, you should be eligible for at least a bit of a subsidy.
53Questions About the ACA What are the employer penalties$2,000 excluding the first 30 employees, but the average family cost of insurance for an employer is $11,429
54Questions About the ACA What is the individual penalty?In 2014, the annual penalty will be $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of family income, whichever is greater.In 2015, the penalty will be $325 per adult and $ per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater.In 2016, the penalty will be $695 per adult and $ per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater.
58How Not to Become Dr. CoxBe a Doctor because you want it! Not your parents, not your friends, not because society may think it is good.Always be nice to others: especially nurses, therapists, secretaries, etc . . They will save you one day or throw you under the bus.