Presentation on theme: "U.S. Health Care Delivery Financing & Reimbursement"— Presentation transcript:
1 U.S. Health Care Delivery Financing & Reimbursement
2 Objectives Learn about U.S. health care financing Identify different payers for health carePrivate insurancePublic insuranceEmployersCitizensDiscuss insurance, reimbursement methods, and their effects on health care
3 U.S. Health Care Financing Financing: includes two functionsPayment for delivery of servicesPurchase of health insuranceU.S. health care delivery financing is very complexHealth insurance is the most common avenue for receiving careHealth care financing through various public and private sources ultimately aggregates into national health care expenditures
4 Who Pays for Health Care? Employers? The U.S. Government?Employers and the government are the primary financiers of health care in the U.S.Private and government insurance plans pay the bulk of health care costsPatients? American Citizens?Patients often directly pay a relatively small portion of the costs of services receivedAmericans indirectly finance health care through employment and taxesPayment to providers of care is handled in numerous ways
6 The Sandwich GuyI’ve started a sandwich shop! My sandwiches cost me $4.50 to make on average I’ll charge $5 for each sandwich to cover my costs and wages
7 You Guys Are In the Mood For a Great Sandwich! Everything is going okay… Folks are buying sandwiches, and I’m making 50₵ on each sandwich But things could be better… Some of you don’t have $5 to spend on a sandwich! Some of you would like to eat sandwiches more often, but your budget limits the number of times you can eat out
8 Health Insurance: Basic Concepts Insurance is a mechanism for protection against riskRisk = possibility of substantial financial lossInsured = individual protected against risk by insuranceAlso referred to as enrollee or beneficiaryInsurer = insuring agency that assumes riskAlso referred to as underwriterUnderwriting = technique for evaluating, selecting, classifying, and rating risksPremium = amount charged for insurance coverage
9 Health Insurance: Four Principles Four fundamental principles underlying the concept of insuranceRisk is unpredictable for the individual insuredRisk is generally predictable for a group or populationInsurance provides a mechanism to transfer or shift risk from the individual to the group by pooling resourcesActual losses are shared on some equitable basis by all members of the insured group
10 Health Insurance & Cost Sharing Cost sharing = insured assumes part of the riskThree types of cost sharingPremium cost sharingInsured workers pay 15% for single plans, 26.5% for familyPayroll deductionsDeductibleAmount insured pays before plan benefits are payableUsually paid on an annual basisMay have separate deductibles for hospitalization, outpatientCopaymentAmount paid out of pocket each time health service providedIncludes co-insurance, which is the ratio of cost sharingMarginal vs. Total Cost
11 Health Insurance & Cost Sharing Cost sharing exampleBob pays $400 each month in insurance premiumsHis plan requires a $500 deductibleHis plan also offers 80:20 coinsuranceThe ratio of cost sharing = coinsuranceThe dollar amount paid = copaymentStop-loss provision of $1,500Maximum out-of-pocket liability incurred per year
12 Health Insurance & Cost Sharing Why do we have cost sharing?Reduces misuse of insurance benefitsControl utilization of health care servicesAddresses moral hazard by making the insured more responsible for health care costsPromotes responsible behavior in health care utilization
13 Private Insurance Recall the history of health insurance Five types Group insuranceSelf-insuranceIndividual private insuranceManaged care plansHigh-deductible health plans
14 Group InsuranceObtained through employers, unions, or professional organizationsSponsors purchase insurance for participantsSpreads out risk and costs of health care across a substantial number of people
15 Change is in the Air…A number of you work for TU… …RIGHT NEXT to The Sandwich Guy! You sure would love to eat the sandwiches there more often during lunchtime. Trinity wants to keep you as good employees, and they know you love sandwiches. They worry you’ll start thinking about working elsewhere.
16 Here Comes Mr. Private Insurance He’s got a special deal to offer TU “If your employees just pitch in $20/month, they’ll receive a “membership” into the Healthy Appetite Club!” …sounds like a “premium”… …what’s the catch?
17 The Healthy Appetite Club In addition to your $20/month premium… You pay for your first sandwich (…$5 deductible) After that, you pay only 20% of retail price on sandwiches! (…$1 copayment) After you eat 6 sandwiches in a month, the rest of your sandwiches that month are FREE (…$30 maximum out-of-pocket liability) It would have cost $30 for 6 sandwiches With a membership, you start saving LOTS of money once you’ve eaten 7 or more sandwiches Your incentive is to EAT MORE SANDWICHES!!! (…sounds like moral hazard…we’ll revisit that…)
18 Behind the Scenes…Mr. Private Insurance approaches me: “Here’s the deal Sandwich Guy… I’ve got these TU employees signed up as members, and they’re ready to eat sandwiches. I’ll include you in my “club” so they get a great deal by eating sandwiches at YOUR shop… …BUT instead of paying you $5 for a sandwich, I’m going to pay you $4.75 each time I pay for one of my members’ sandwiches. Don’t like it? I’ll be happy to go across the street and make The Sandwich Dude a participating restaurant of my club.” (my biggest competitor!) …how can I refuse???
19 Now I’ve Got a Problem…I was making 50₵ for each sandwich Now I’m only getting $4.75 for a lot of the sandwiches being purchased… …I’m not making as much per sandwich! But I have an incentive to sell more If I have the power, I might increase the price of my sandwiches for other customers to make sure I earn income to provide for my family. But think about what this implies.
20 Self-InsuranceSome employers are big enough they can self-insure by budgeting a certain amount of money to pay for employees’ medical claimsProvides employers with greater degree of controlProtected from risk of high losses by purchasing reinsurance from private insurance companiesExempts them from many state insurance regulations
21 Individual Private Insurance Rather than spread out risk across a group of participants, premium price and eligibility is determined based upon individual health status and demographicsBarrier for high-risk individualsWho pays for individual private insurance?Self-employedEmployees whose employer doesn’t offer insuranceEarly retireesACA – Public insurance exchanges or Marketplace?
22 How Can I Get In On This???A few of you are getting annoyed…your friends keep bragging about the deals they get on sandwiches, and you want in! You call up Mr. Private Insurance and ask if he’ll help you get a discount on your sandwiches…
23 How Can I Get In On This???To one of you, he says: “Okay, can I get a list of your favorite foods and how often you eat out at local restaurants?” He figures there’s NO WAY he’ll have to pay much for sandwiches, so he lets you in on the deal by paying $25/month for his bargain rates
24 How Can I Get In On This???To another, he says: “Okay, can I get a list of your favorite foods and how often you eat out at local restaurants?” But this time he’s worried he might have to pay more than he’d like based on his prediction of your eating habits He’ll let you in on the deal too, but you have to pay $30/month… …AND you’ll pay $1.50/sandwich after the 1st sandwich… …AND you won’t get free sandwiches until the 10th sandwich.
25 How Can I Get In On This???To the third one of you, he says: “Okay, can I get a list of your favorite foods and how often you eat out at local restaurants?” But he KNOWS you love sandwiches and will eat at The Sandwich Guy all the time… …so he refuses to let you in on his deal. You’ve been denied coverage!
26 Managed Care PlansLike health insurance, they assume risk in exchange for insurance premiumsContract with a network of providers to assume responsibility for delivering care to enrolleesPatients expected to stay in-network for careHigher out-of-pocket expenses incurred for going out-of-networkMonitor utilization, adopt a variety of different reimbursement methods
27 High Deductible Health Plans Also referred to as consumer-driven health plansLink personal savings account to insuranceHDHP/Health Reimbursement Arrangement (HRA)HRA funded by employerFunds reimburse insured for qualified medical expenses, including premiumsHDHP/Health Savings Account (HSA)Employers may contribute, but are not requiredFunds belong to account holder and accumulateBenefits of tax exemption & tax-deductible contributions
29 Public Insurance Recall the creation of Medicare & Medicaid Public insurance financed by government; services purchased from private providersSome exceptions – for example, V.A.Medicare Part AMedicare Part BMedicare Part CMedicare Part DMedicaidSCHIP
30 Medicare Finances care for: Persons 65 years and older (84%)Disabled individuals entitled to Social Security benefits (regardless of age)Persons with permanent kidney failure (end-stage renal disease, regardless of age)Administered by Centers for Medicare and Medicaid Services (CMS)“Of all government programs, Medicare poses the single greatest future challenge to taxpayers” (p. 139)
31 Medicare Economic Rational Because employer-provided insurance isolated retirees, Adverse Selection was a real threatCan think of Medicare (and Medicaid) as a response to market failureCost based reimbursement lead to increased utilization, DRG prospective payment rearranged incentives – a form of capitation
32 MedicareElderly spend an average of 22% of annual income on out-of-pocket health expensesDeductibles, copayments, noncovered services20% of beneficiaries qualify for MedicaidPicks up expenses not covered by Medicare25% of beneficiaries privately pay for supplemental insurance policies“Medigap” policies, covering all or a portion of Medicare deductibles & copayments
33 Medicare Part A Hospital Insurance Inpatient hospital services, skilled nursing facilities, home health, hospiceFunded by a tax of 2.9% of earnings paid by employers and workers (1.45 each)ACA increases payroll tax by .9 percentage points for high income taxpayers (more than $200,000 for an individual)Accounts for about 36% of total Medicare spendingAbout 46 million enrollees
34 Medicare Part B Supplemental Medical Insurance Physician, outpatient, home health, and preventative servicesFunded by general revenues and beneficiary premiums – set to cover 25% of spending in the aggregate. Higher income pay higher premiumsAccounts for about 27% of total spendingAbout 42.4 million enrollees
35 Medicare Part C Medicare Advantage (formerly Medicare+Choice) Allows beneficiaries to enroll in a private insurance planThese plans receive payment from MedicareAccounts for about 24% of spending11.5 million enrolleesEvidence suggests these plans have achieved cost savings over traditional plansLess “cream-skimming” than under Medicare +ChoiceACA lowers payment to these payers
36 Medicare Part D Recently implemented (2006) Voluntary program, requiring monthly premiumTwo types of private plansStand-alone prescription drug plans (PDPs)17.7 million or 28% of enrolleesOffer only drug coverageAvailable to those staying in the original Medicare fee-for-service programMedicare advantage prescription drug plans9.9 million or 21% of enrolleesAvailable to those who want to obtain all health care services through MCOs participating in Medicare Advantage (Medicare Part C)ACA removes “doughnut hole” and puts in place income-related premium similar to the Part B premium
37 Services Not Covered By Medicare Vision careEyeglassesDenturesHearing aidsRoutine physical examsMany preventive servicesLong Term Care
44 Medicaid Jointly financed by federal and state governments Federal government provides matching funds to states based on per capita income in each stateAdministered by each stateEligibility criteria, covered services, payments to providers vary by stateMeans-tested program
45 Medicaid Finances care for: Indigent But does not provide medical assistance for all poor personsCertain low-income people required for coverage by federal law (many elderly, blind, disabled receiving Supplemental Security Income, some pregnant women)Eligibility criteria established by each state according to threshold levels for income and other resources and assetsMost states defined “medically needy” categories (e.g., institutionalized in nursing or psychiatric facilities)Instrumental in providing health insurance to children in low-income families
47 SCHIP State Children’s Health Insurance Program Offers additional federal matching funds to states to expand Medicaid eligibility to enroll children under 19 years of ageAlso provides coverage to qualifying pregnant women, parents, and caretaker relativesParticipating states have three options:Expansion of MedicaidEstablishment of special child-health assistance programCombination of the two approaches
51 Reimbursement Third-party payers Various methods Insurance companies, MCOs, BC/BS, GovernmentJoin the patient & provider as “third party”Payment by third-party payers to providers for patient care is reimbursementVarious methodsFee for service Package pricing RBRVS Managed care reimbursement Retrospective Prospective (DRGs)
52 Fee for Service Reimbursement Based on assumption that services are provided in a set of identifiable and individually distinct units of servicesEach service is separately billedInitially set by providers and passively paid for by insurers, later limited to “usual, customary, and reasonable” amounts determined by payersResulted in “balance billing” – asking patients to pay for the difference in actual charges and payments received
53 Fee for Service Reimbursement Are there problems with this arrangement?Incentives?Induce demand and deliver additional nonessential servicesCost escalation
54 Package Pricing Also referred to as bundled charges Related services included in one priceThe Patient Protection and Affordable Care Act of 2010 called for a pilot project on bundled paymentsProvides acute care provider with single payment for patient’s entire episode of careProvider is responsible to distribute payments to other participating providers during the episode
55 Resource-Based Relative Value Scale Reimburses physicians according to a “relative value” assigned to each physician serviceBased on time, skill, and intensity required for each serviceReimbursement calculated from a complex formulaPublished in the Medicare Fee Schedule under current procedural terminology (CPT) codesAdjusted for geographic area
56 Managed Care Reimbursement Three approachesPPOsEstablishes fee schedules based on discounts negotiated with in-network providersHMO physiciansHave salaried physicians on staffHMO capitationProvider paid a set monthly fee per enrollee, regardless of whether or how often enrollee received careRemoves incentive for provider-induced demandEncourages provision of only necessary services
57 Retrospective Reimbursement Medicare and Medicaid established per diem (or daily) reimbursement rates for hospitals, nursing homes, home health, and inpatient facilitiesBased on actual costs incurred by providers during previous yearRates set after evaluating costs retrospectively
58 Retrospective Reimbursement Are there problems with this arrangement?Based on costs directly tied to length of stay, services rendered, and service costsIncentives?No incentive to control costsIncrease revenue by increasing costsNo incentive to discriminate servicesNo incentive to manage length of stay
59 Prospective Reimbursement Has largely replaced retrospective reimbursement, doesn’t use historical costsDetermines payment amounts in advance using pre-established criteriaInpatient: Diagnosis Related Groups (DRGs)Outpatient: Ambulatory Payment Classifications (APCs)Skilled Nursing: Resource Utilization Groups (RUGs)Determined by case mix (severity of patients’ condition)Home Health: Home Health Resource Groups (HHRGs)Pays fixed rate for 60-day episode of care
60 So What?What are the effects of all these different types of financing and insurance arrangements?Access to health carePayment to providersUnintended consequences
61 Negative Effects of Financing Insurance desensitizes patients to priceExcessive demand from insured patients who want to use their benefits …consumers are driven to utilize more services when covered under insurance than if they paid out of pocket… moral hazardInsurance desensitizes providers to priceServices with more liberal reimbursement are favored by providers …providers are driven to encourage demand to deliver additional and more expensive services, regardless of health benefits… provider-induced demand
62 Negative Effects of Financing To control the growth of health care demand and health care expenditures, rationing measures are implementedSupply-side rationingRestricts supply of services through central health planning (limiting availability of expensive care)Experienced in national health care programsDemand-side rationingDoes not extend health insurance to all residentsExperienced in the U.S.
63 What We’ve LearnedFinancing is a critical part of the U.S. health care delivery systemInsurance coverage for patientsReimbursement for provider servicesPrivate and public forms of insuranceMethods of reimbursementThe effects of financing on the U.S. health care delivery system
64 Areas of Focus Important terms relating to the concept of insurance Private and public forms of insuranceMethods of reimbursementThe effects of financing on the U.S. health care delivery system