2. FINANCING HEALTH CARE AND HEALTH INSURANCE
Chapter 9
FINANCING HEALTH CARE AND HEALTH INSURANCE

3. Learning Objectives
Identify the concepts of healthcare financing and payment for health care
Provide an overview of how health insurance works
Outline a brief history of how health insurance has evolved
Define terms and characteristics of health insurance

4. Learning Objectives (cont’d)
Compare and contrast the different types of private health insurance
Delineate the types of social insurance
Evaluate data on health insurance coverage and lack thereof
Characterize the uninsured
Assess healthcare reform and changes to insurance resulting from it
Explain the implications for management

5. National Health Expenditures 2008
Five areas account for more than 80% of expenditures
8.7% nursing home and home health care
The remaining 20% of spending includes:
30.7% hospital care
21.2% physician and clinical services
Administrative costs
Structures and equipment
10.0% prescription drugs
Public health
10.0% other professional, dental and personal care services
Other medical products
Research

6. Paying for Care Sources of Payments Out-of-pocket payments – 11.9%
Private health insurance – 33.5%
Other private funds – 7.3%
Public funding, including Medicare, Medicaid, the State Children’s Health Insurance Program – 47.3%

7. Key Changes in the Evolution of the Health Insurance Industry
Advent of comprehensive health services and benefits
Increased role of the public and private sectors in health care coverage
Health insurance as an employee benefit
Changes in reimbursement for care provided
Continual rise in the cost of health care

8. History of Major Pieces of Health Insurance Legislation
National Health Insurance
discussed in 1930’s
seen as socialized medicine
not enacted
Medicare and Medicaid enacted in 1965
Children’s Health Insurance Program (CHIP) legislated in 1997
Patient Protection and Affordable Care Act passed in 2010

9. Terms in Health Insurance
Risk Pooling
Maximum Out-of-pocket expenditure
Forms of Payment
Lifetime limits
Fee-for-service
Types of Benefits
Pre-payment
Comprehensive
Cost Sharing
Basic/Major Medical
Co-payments
Catastrophic Coverage
Deductibles
Disease-specific
Co-insurance
MediGap
Policy limitations

10. Other Concerns Relating to Health Insurance
Choice of provider
Access to care
Restrictions on Care
Moral hazard
Pre-existing conditions
Buy-downs

11. Types of Health Insurance
Conventional indemnity insurance
Managed care plans
HMOs
PPOs
POSs
HDHP/SO

12. Types of HMOs Closed-panel HMO Group model HMO Open-panel HMO
Staff model HMO
Independent Practice Association -- IPA model
Network model HMO

13. Health Plan Enrollment by Type of Plan, 1988-2009
1993
1998
2003
2005
2009
Conventional
73%
46%
14% 5% 3% 1%
HMOs
16%
21%
27%
24%
20%
PPOs
11%
26%
35%
54%
61%
60%
POSs 0% 7%
17%
15%
10%
HDHP/SO 8%
Source: Kaiser Family Foundation and Health Research and
Educational Trust, 2009a

14. Legislative History of Social Insurance
1960 – Kerr-Mills Act
1989 – Omnibus Budget Reconciliation Act (OBRA) 1997 – Balanced Budget Act (BBA)
1965 – Social Security Act
2003 – Medicare Prescription Drug, Improvement & Modernization Act (MMA)
Title XVIII – Medicare
Title XIX – Medicaid
1982 – Tax Equity and Fiscal Responsibility Act (TEFRA)
2010 – Patient Protection and Affordable Care Act

15. Eligibility for Medicare
Coverage is provided to:
Elderly citizens over 65 years of age
Permanently disabled younger adults
Individuals with end-stage renal disease (ESRD)
Terminally ill patients in the end of life

16. Medicare “Parts” Part A – Hospital Insurance (HI)
Part B – Supplemental Medical Insurance (SMI)
Part C – Medicare Advantage Plans (MAs)
Part D – Prescription Drug Benefit

17. Sources of Medicare Revenues
General Revenues 41%
Payroll Taxes 38%
Payments from states 2%
Beneficiary premiums 12%
Interest/other sources 4%
Taxation of Social %
Security Benefits

18. Causes of Growth in Medicare Spending
Shift from acute to chronic care
Growth in hospital expenditures
Fee-for-service reimbursement
Growth in pharmaceutical costs
Advances in medical technology
Increased payments to health plans
Increased payments to rural health providers
Rising medical malpractice premiums

19. Reimbursement Efforts to Control Medicare Spending
Inpatient hospital Stays – Diagnosis-Related Groups (DRGs)
Physician office visits – Resource-Based Relative Value Scales (RBRVS)
Skilled nursing facilities – Resource Utilization Groups (RUGs)
Home health agencies – Home Health Resource Groups (HHRGs)
Hospital outpatient department services – Hospital Outpatient Prospective Payment System (OPPS)

20. Ongoing Medicare Program Concerns
Continuing expansions of benefits
Access to Medicare participating physicians and providers
Continuing increase in program spending
Program solvency

21. Medicaid Program Characteristics Eligibility
Coverage for the medically indigent
AFDC (now TANF) and SSI recipients qualify automatically
Expanded coverage for pregnant women, children and infants
Expanded coverage for children via CHIP
Expanded coverage in some states to include those with higher incomes in relation to the federal poverty level

22. Medicaid Program Characteristics Funding
Jointly-funded by federal and state governments
Federal share = 50-77% of costs
State share = 23-50% of costs
“Bare bones” programs
“Welfare magnets” – programs that offer extensive expanded eligibility, as well as many additional benefits

23. Medicaid Program Characteristics Benefits
Services mandated by federal legislation:
Inpatient hospital stays
Outpatient hospital services
Physician services
Lab and x-ray
Nursing facilities
Home health services
EPSDT
Services added at a state’s discretion:
Dental care
Mental health care
Drug and alcohol treatment
Rehabilitation
Preventive care
Prescription drugs
Prostheses

24. Ongoing Medicaid Program Concerns
Growth in Medicaid spending, as a result of:
Increases in volume
Increases in provider payments
Increasing numbers of beneficiaries as a result of:
Downturns in the economy
Rising unemployment
Increases in the uninsured population
Continued expansions of benefits

25. Insuring Veterans, Active and Retired Military Personnel and Their Families
Department of Defense (DOD) medical facilities
TRICARE Plan
Veteran Affairs (VA) medical facilities
VA Civilian Health and Medical Program (CHAMPVA)

26. TRICARE Characteristics – Eligibility
Active duty, retired military and families covered
Includes DOD’s 536 hospitals and clinics
Three program options:
HMO
PPO
Fee-for-service

27. TRICARE Characteristics – Benefits/Funding
Hospital care, physician services, prescription medications, diagnostic tests, preventive services
Dental services for active duty personnel only
Funding
No enrollment fees
Subsidized by the federal government
Co-pays required (except for active duty personnel)
Some required to meet annual deductibles

28. TRICARE Concerns Limited network of providers in rural areas
Difficult to provide care to National Guard and Reserve personnel
Ensuring sufficient providers for 9.2 million beneficiaries

29. Veterans Health Administration
All veterans are eligible
Veteran Integrated Service Networks (VISNs) located in 22 regions
Varying benefits based on enrollment categories

30. CHAMPVA Coverage is provided for: Non-retired veterans
Permanently and totally disabled individuals
Spina Bifida Healthcare Program
Women Vietnam Veterans Healthcare Program

31. Health Insurance Coverage Statistics
Coverage by:
Employment-based private health insurance – 58%
Direct purchase private health insurance – 8.9%
Medicare – 14.3%
Medicaid – 14.1%
Military health care – 3.8%
Not cover individuals – 15.4%

32. Health Insurance Total cost of Premiums, 2009
Individual Coverage
$4,824 – All plans
$4,878 – HMOs
$4,922 – PPOs
$4,835 – POSs
$3,986 – HDHP/SO
Family Coverage
$13,375 – All plans
$13,470 – HMOs
$13,719 – PPOs
$13,075 – POSs
$11,083 – HDHP/SO
Source: Kaiser Family Foundation and Health Research and Educational Trust, 2009b.

33. Figure 9-9: Distribution of the Uninsured by Age, 2008

34. Characteristics of the Uninsured
¼ from families with incomes below the poverty level
Most from families with incomes above the poverty level, but under the 300% level
Most were workers or dependents of workers employed in industries that don’t provide health insurance
More uninsured people live in the South and West than in the East and Midwest
Aren’t covered because they can’t afford it, not because they don’t need it

35. Utilization of the Health Care System by the Uninsured
Delay seeking care or forgo care all together, thereby increasing their chances of:
Preventable health problems
Disability
Premature death
Utilize the most expensive access point to the health care system – hospital emergency departments–to obtain care
Do not have a primary care physician

36. Management Implications
As part of their HR activities, managers become involved in:
Selecting health insurance plans for employees
Considering benefit packages, costs of coverage and other issues
As part of patient-related activities, managers need to understand:
Health insurance plans and coverages
Coding and billing to plans
Reimbursement policies and procedures