Presentation on theme: "Introduction to Health Care Finance. Outline How much do we spend on health care? Who pays for health care? What are the different types of health insurance?"— Presentation transcript:
Introduction to Health Care Finance
Outline 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?
National Health Expenditures per Capita, 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). $8,160 (2009) $13,100 (2018) $2,814 (1990) ActualProjected
NOTE: 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).http://www.cms.hhs.gov/NationalHealthExpendData/ Distribution of National Health Expenditures, by Type of Service (in Billions), 2011 NHE Total Expenditures: $2,700.7 billion
2006 Wages Other Fringe Benefits and Payroll Taxes Private Group Health Insurance 45.6% 56.3% of GDP
Cumulative 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).
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 2008Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses Impact of Unemployment Growth on Medicaid and SCHIP and the Number Uninsured 1% Increase in National Unemployment Rate = Increase in Medicaid and SCHIP Enrollment (million) Increase in Uninsured (million) & $2.0 $1.4 $3.4 Increase in Medicaid and SCHIP Spending (billion) State Federal
Putting Off Care Because of Cost Relied on home remedies or over the counter drugs instead of seeing a doctor Skipped dental care or checkups Put off or postponed getting health care you needed Skipped recommended medical test or treatment Not filled a prescription for a medicine In the past 12 months, have you or another family member living in your household… because of the COST, or not? Did ANY of the above Percent saying yes Cut pills in half or skipped doses of medicine Had problems getting mental health care Source: Kaiser Family Foundation Health Tracking Poll (conducted November 5-12, 2009)
Why 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).
Who Pays for Health Care? Private Insurance –Employer Based –Direct Purchase Government Insurance –Medicare –Medicaid –Military –Other (SCHIP and TANF) You – out of pocket expenses
Simple Organizational Chart How Do Dollars Flow?
Federal Programs Medicare –100% federal pay –run by the feds –elderly, disabled people under Supplemental Security Income (SSI) Medicaid –1/3-1/2 cost share by the states –run by states –poor people, often old, nursing homes, disable –falls apart when folks need it most Military health programs –Getting to be big dollars, usually left off the graph
Types of Medicare Part A –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.hospice Part B –is a type of Medicare that covers normal doctor's visits and other minor issues Part C Part D
Medicare Part C
(AKA Medicare Advantage Plan or Medicare Choice) Helps people afford private insurance will completely replace both Medicare Part A and Part B. It may also require an additional premium payment.
Medicare Part D to 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.
From: Peter Orszag - Director CBO
Medicare Spending as a Share of Total Federal Outlays, FY2010 SOURCE: OMB, Fiscal Year 2010 Budget, February Budget Summary by Category Total Outlays = $3.5 trillion
Private Insurance Types of Private Insurance EPO (HMO) a managed health care unit High premiums, low deductible and/or co-payments Limits choices, but also limits cost PPO Low premiums, high deductible and/or co-payments Offers more choice Health Savings Account (HSA) Provides a tax-shelter to self insurer.
Why do we need Insurance?
What is insurance? Consider a club 100 members About the same age, about the same lifestyles About 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.
What 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.
Insurance Terms Moral Hazard –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 insurance Adverse Selection –Lemons problem –It 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.asymmetric information –Typically occurs before you have insurance
Insurance 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.
What Does Moral Hazard Do? It makes us spend too much on medical care. Quantity Price Demand Q1Q1 P1P1 Exp. At P 1, we buy Q 1 and spend E 1. With insurance, we pay LESS than full price, so we buy Q 2, spend E 2. This is P 1 (Q 2 - Q 1 ) more than we spent before. Why is it too much? Demand w/ insurance Q2Q2
What Does Moral Hazard Do? Why is it too much? We paid P 1 (Q 2 - Q 1 ) more. Quantity Price Demand Q1Q1 P1P1 Exp. The demand curve tells us what the care is worth to us. So the additional (Q 2 - Q 1 ) is worth: Demand w/ insurance Q2Q2 Value The wasted expenditures are: Wasted
For the Entire Economy its WORSE Why is it too much? We paid P 1 (Q 2 - Q 1 ) more. Quantity Price Demand Q1Q1 P1P1 Exp. The demand curve tells us what the care is worth to us. So the additional (Q 2 - Q 1 ) is worth: Demand w/ insurance Q2Q2 The wasted expenditures are: Wasted Supply Value
Risk and Insurance What is expected value? Whats 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 = $0.5 How much would you pay to play this kind of game? Why do we care? A> Because insurance is based on expected losses!
Anatomy of an Insurance Premium The amount paid for insurance can be separated into two parts. Actuarially fair premium Loading fee Premium Expected Cost Loading Fee
Administration Costs Legal Fees Profits 10 – 15% of a premium
Why 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.
Financial Risk Arrayed on a Spectrum from Full Risk for the Insurer to Full Risk for the Provider
Fee for Service vs. Capitation VS
Fee for Service Advantage –No risk associated with cost –You are encouraged to see many patients and perform many services Disadvantage –You have no skin in the medical options therefore you tend to over-supply and run up health care cost Bundle Payment – See the ACA
Capitation Capitation - 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.
Capitation –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
Advantages of Capitation Increased clinical autonomy uPhysician financially responsible for cost overruns èEliminates need for external review Increased income uPhysician compensated by risk pools created from withholds if can reduce utilization of hospital, outpatient, diagnostics, other ancillary services
Healthcare Reform Bill
Questions About the ACA Are the health exchange open to everyone? –No, only to those not receiving health insurance from their employer Will 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.
Questions 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
Questions 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.
How Not to Become Dr. Cox 1.Be a Doctor because you want it! Not your parents, not your friends, not because society may think it is good. 2.Always be nice to others: especially nurses, therapists, secretaries, etc.. They will save you one day or throw you under the bus.