THE UNITED STATES HEALTH CARE SYSTEM Combining Business, Health, and Delivery CHAPTER Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle The Payment Process: Insurance and Third-Party Payers 3

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Objectives Describe what arrangements are covered by the term health insurance. Identify who is and who is not insured and how much is spent for coverage. Describe the interaction between the patient, the third-party payer, the employer, and the health care provider.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Objectives (cont.) Define the basic terms in an insurance agreement. Identify the major types of third-party payers. Describe how third-party payers are regulated.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Figure 3.1 The Simple Payment Process

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle What is Health Insurance? Insurance is the business of shifting the risk of loss from the individual to a third party. The insurance company is predicting they will make a profit by taking in more money than they will have to pay out. The process is known as risk pooling.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Who Is Insured? 5% of Americans under age 65 purchase private individual health care insurance. Employment benefit–under 65 –60%: Insurance as part of an employer- sponsored plan –18%: Covered by Medicaid and other public forms of insurance –17%: Do not have health insurance

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Who Is Insured? (cont.) Americans age 65+ are covered by Medicare. Large employers almost all offer health care benefits. Smaller companies, the number drops to about 59%.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Who Is Insured? (cont.) Average contribution for single coverage was $779, or 17%. Average contribution for family coverage the average was $3,515, or 27%. Most plans cover preventive care. There is a strong correlation between having insurance and being able to access the health care system.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Who Is Insured? (cont.) More than 18% of the American population under the age of 65 (46 million people) is uninsured. Most of the uninsured (63%) are from low- income families.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Who Is Insured? (cont.) Most (66%) are from families with at least one full-time worker. The reforms in the 2010 Patient Protection and Affordable Care Act seek to change this picture.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Figure 3.2 The Third-Party Payer Process

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle How Does “Insurance” Work? The Patient/Employer–Third-Party Payer Relationship –The third-party payer will set a price for the benefit package. –The price is determined by the number of people being insured and the general state of their health. –Once the employer has negotiated an agreement with the insurer, the employer can offer health care benefits to its employees.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle How Does “Insurance” Work? (cont.) The Patient/Employer–Third-Party Payer Relationship –The insurance plan is a legally binding contract known as a policy. –The purchaser is the insured. –The enrollment period is when employees decide to take advantage of the benefit being offered by the employers. –If they take the benefit, they are known as enrollees.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle The Patient–Provider Relationship A deductible is a dollar amount of services that must be paid by the patient. A copayment (coinsurance) is paid at the time that services are rendered. A patient may be insured under more than one policy. A coordination of benefits clause will determine which third party pays for services.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle The Provider–Third-Party Payer Relationship A health insurance claim is a request for reimbursement for the services that have been provided. Coding is the process of correctly coding what diagnoses, procedures, and services were provided to the patient.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle The Provider–Third-Party Payer Relationship (cont.) Process of paying for services –Two systems of coding  ICD-9-CM (International Classification of Diseases, 9th Revision, Clinical Modification) –Used in physician’s offices  HCPCS (Healthcare Common Procedure Coding System) –Used in hospitals/outpatient facilities and clinics

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle The Provider–Third-Party Payer Relationship (cont.) Billing –Process of charging the patient/employer for services –Billers send the charges (claims) to the third- party payer –The third-party payer sends the insured an EOB (explanation of benefits)  Tells insured how much they are going to pay and if any part of the claim has been denied –Payment is sent to provider

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers Indemnity Insurers–classic form –The insurance carrier agrees to pay (indemnify) the insured loss.  With health insurance, the loss is the need to obtain health care services.  Once the patient has paid the provider for services, the insurance company reimburses the patient.  The insurance company may also reimburse the provider directly.

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers (cont.) Self-Insurers –The employer assumes the risk of loss for medical costs. –Often a third-party administrator (TPA) is hired by the employer to administer the health care benefits and process claims. –Self-insured plans are exempt from state insurance regulation. –They are regulated by Employee Retirement Income Security Act of 1974 (ERISA).

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers (cont.) Blue Cross/Blue Shield –Teachers started Blue Cross in the 1920s –Paid monthly sum in return for 21 days in yearly hospitalization –In 2009, 100+ million Americans were enrolled –Was originally not for profit; some plans converted to for-profit in the 1990s –A prepaid service; the subscriber is still responsible for deductibles, copayments, and any noncovered services

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers (cont.) Managed Care Models –Both pay for services and deliver services –95% of workers covered by an employer plan were under-managed care in 2009 –Health Maintenance Act of 1973 gave incentives to companies to become managed care organizations and required employers to offer both types

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers (cont.) Health Maintenance Organizations (HMOs) –Are prepaid health plans (PHPs) –Traditionally hire physicians and staff to work for them –Pay for services by capitation  Each patient or group has a fixed dollar amount of services provided for a time period

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Types of Third-Party Payers (cont.) Delivery Models –PPO–Preferred Provider Organization  If insured goes to a PPO, the cost of care is lower –EPO–Exclusive Provider Organization  The insured must select designated providers or service is not covered

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Regulation of Third-Party Payers Insurance companies and HMOs are regulated by state and federal rules. Insurance companies must be licensed. HIPAA –Regulates portability, access, and mandated benefits

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Regulation of Third-Party Payers (cont.) COBRA –Employees may continue health benefits after leaving employer for a time period and self pay

Copyright ©2012 by Pearson Education, Inc. All rights reserved. The United States Health Care System: Combining Business, Health, and Delivery, Second Edition Anne Austin Victoria Wetle Regulation of Third-Party Payers (cont.) The 2010 Patient Protection and Affordable Care Act has numerous provisions that regulate the actions of insurers. The law requires that states establish American Health Benefit Exchanges and Small Business Health Options Program Exchanges so that the uninsured and small businesses can obtain coverage.