Chapter 3 Paying for Health Services

Objectives After studying this chapter the student should be able to: Identify the major factors that have influenced healthcare financing. Explain how healthcare systems are financed. Describe the factors that have affected public and private health insurance. Explain the different methods of healthcare payment: (a) private insurance, (b) Medicare, (c) Medicaid, (d) group insurance, (e) individual insurance, (f) managed care, and (g) fee-for-service. Identify the role of the government in the expansion of health care.

Healthcare Financing Health care in the United States is funded through a variety of private payers and public programs. Public spending: –represents pay outs by federal, state, and local governments –Centers for Medicare and Medicaid Services (CMS) –Children’s Health Insurance Program (CHIP) for children not covered by Medicaid –Many others: Veteran’s Health, Indian Health Services, school health programs, etc. on pg. 28

Healthcare Financing Private funding: –primarily through private health insurance with 61% of Americans having employer-sponsored health insurance –individuals’ out of pocket cost –philanthropy (charities) –non-patient revenues (gift shops, etc.) –employer provided health establishments

Reimbursement For Healthcare Services – Three Methods Fee for service payment –the predominant method of reimbursement –payment for each service (itemized) at the time of service –problem: the service can vary among different practitioners Capitation –the insurance pays the practitioner or hospital a fixed amount to cover all the services = controls cost Salary –used only in organizations where various other incentives are provided to the practitioner to enhance productivity

Government-Funded Health Insurance: Medicare The Medicare program is a federal insurance program, administered by CMS of U.S.D.H.H.S, and for: –people ≥ 65 years old –disabled people < 65 years old –any adult with permanent kidney failure (ESRD) Patients are entitled to the same benefits and care as those with private insurance –government picks up the bill

Government-Funded Health Insurance: Medicaid Medicaid is the federal and state cooperative health insurance plan for the indigent: –People with incomes below the poverty level established by a state; each state sets its own guidelines of eligibility and services Women and children account for 75% of the total Medicaid beneficiaries The majority of spending, 67%, is for the elderly, children and adults with disabilities

Government-Funded Health Insurance: Medicaid (cont.) General eligibility for Medicaid: must be U.S. citizen legal immigrant pregnant woman children parents of low-income children seniors disabled persons (physical and mental) chronically ill individuals

Government-Funded Health Insurance: Medicaid (cont.) Medicaid includes the same services as private insurance, with primary care through federally qualified health centers - plus dental and vision care, transportation, and translation services. The federal government will match the states’ funds to cover the cost of the Medicaid program –this depends on the states’ income  the lower the income, the greater the % of matching funds

Government-Funded Health Insurance The Children’s Health Insurance Program (CHIP) –Funded by the federal government and the states –Provides healthcare coverage for low-income children (those below 200% of the federal poverty level) who do not qualify for Medicaid and would otherwise be uninsured. –Children’s Health Insurance Program Reauthorization Act (CHIPRA) extended funding for CHIP –Update: The Affordable Care Act increased the federal funding to CHIP  average federal match rate is 93% 1

History of Health Insurance in the U.S. Government sponsored healthcare efforts were initiated between  provided limited financial support for public health and healthcare services for women and children 1 st private hospital insurance plan in 1929 –21 days of hospitalization = $6.00!! Eventually hospitals banded together to provide prepaid plans to cover hospitalization costs (Blue Cross); as well as groups of physicians to cover physician service fees (Blue Shield) in 1946

History of Health Insurance in the U.S. A long and convoluted path leads us to … The most significant change in government healthcare financing was when Congress approved the Medicare and Medicaid programs, with the passage of the Social Security Act of s – Managed Care Organizations

Managed Care: HMOs and PPOs Managed Care Organizations (MCOs) –companies offering healthcare plans via employers and health insurers with cost controls –divided primarily into: HMOs – Health Maintenance Organizations PPOs – Preferred Provider Organizations

Managed Care: HMOs HMOs are a form of prepaid health insurance The focus of HMOs is health maintenance. Physicians and other providers agree to provide certain services for a specified cost –with a cap on total patient visits or procedures during a benefit period. –the insurance company pays providers/hospitals a set fee to cover all required services = capitated system

Managed Care: HMOs An HMO provides basic and supplemental health maintenance and treatment services to enrollees for a fixed fee. The range of health services delivered depends on the voluntary contractual agreement between the enrollee and the plan. Benefit – low cost services Drawbacks: –People belonging to an HMO must use the agency’s designated facilities instead of choosing their own –The enrollee must also find a physician within the HMO group for services

Managed Care: PPOs PPOs comprise groups of physicians or a hospital that have a contractual agreement to provide companies with comprehensive health services at a discount. The majority of Americans with private health insurance (69%) receive their care through a PPO. A fee-for-service system Benefits - choice of provider and hospital, and cost control. Drawback – out of pocket cost can be more than HMO

Healthcare Costs The United States spends more on health per capita than any other country. Costs have gradually increased since the implementation of Medicare in In 2007, healthcare expenditures totaled $2.2 trillion and Medicare, Medicaid, and CHIP accounted for $769.6 billion. –was projected to hit 3.2 trillion in Huge surge in medical, hospital, and nursing home costs during Costs continue to rise because of the complexity of health care and the number of elderly requiring care.

Healthcare System – Major Problems Cost –health insurance and hospital cost increasing, more specialists, technology Care is not coordinated, disease not well managed Technological advances Increase in elderly population Services to low-income and racial minorities are inadequate Uneven distribution of health services: rural health < large cities

Healthcare Expenditures The largest category of expenditures for personal health care is for hospital care (31%). Physicians’ services rank second in monies spent for health care (21%) of the total health service budget. –The remainder is divided among other professional services, nursing home and home care, and prescription drugs.

Health Insurance Coverage in the United States Most Americans with private health insurance belong to a plan financed through their employer –The majority (58%) are enrolled in a PPO –Employer sponsored coverage is declining –Insurance offered is increasingly unaffordable

Health Insurance Coverage in the United States Most important trends accounting for the deterioration of health coverage is due to: 1.Rising cost of premiums 2.Employers eliminating coverage bc of cost or shifting the cost to the employee 3.Less full time jobs 4.More strict requirements for immigrants – must provide proof of citizenship

Effect On Healthcare Providers Predicted growth in employment in the healthcare professions is 2x that of non-health care because of the aging of the population. More demand for primary care and technical personnel EMR requirement –will increase demand for health information technology Increased need for rehab, home health, geriatrics

Effect On Healthcare Providers Shortages of all healthcare workers are anticipated in the next decade because of: the greater demand with an increasing aging population the expected increased access to healthcare with reform