Resource Guide and Health Care Reform Fact Book

1. Resource Guide and Health Care Reform Fact Book Prepared by Dylan H. Roby, Ph.D. Adjunct Assistant Professor UCLA School of Public Health droby@ucla.edu Service Employees International Union (SEIU) Nurse Alliance Change That Works: A Prescription for Quality Affordable Healthcare Jackson Memorial Hospital, Miami, FL March 12th to 13th, 2009

2. Background on the Employer-Based System

3. How did Employer-Based Insurance Coverage become the main source of health care in the U.S.? • Prior to 1929, the only source of payment for health care was Workers’ Compensation • Workers’ Comp was a cash benefit, used to pay for workplace injuries • Medical care was generally paid for out-of-pocket and there was no insurance to subsidize health care costs • In 1929, a group of teachers negotiated a pre-paid health services plan with physicians at Baylor University hospital • This was the first attempt at private health insurance coverage in the U.S.  Blue Cross (1932) • $6 per year for each of 1,500 schoolteachers to cover 21 days of hospital stay

4. When Did Employer-Based Coverage Take Over in the U.S.? • During World War II, there was a large amount of growth in employee benefits • Due to wage freezes, competition for employees resulted in health care benefits becoming far more popular • Labor unions played a large part before, during and after the war in maintaining this momentum • After the war ended, employer-based health insurance coverage dominated the U.S. health care system • Tax benefits = less payroll tax for employers, pre-tax benefit for employees

5. Descriptions of Governmental Insurance Programs

6. Medicare (Title XVIII) • Federal program, no state funding • Multiple “Parts” – A, B, C, and D • Part A is Financed through federal payroll tax (1.45% from employee and employer) • Part B is voluntary and financed through monthly premiums ($131 per month), taxes, and interest from the trust fund • Part C is a voluntary program allowing Part A&B enrollees to opt into commercial Managed Care plans (i.e. Secure Horizons, Humana GoldPlus) • These now include HMO, PPO, or prepaid FFS plans • Government provides high rates to the private insurers to make sure they stay in the market (Benchmark rate + 75% of bid difference) • Part D was created in the 2003 Medicare Modernization Act (MMA) • Covers prescription drugs through separate pharmacy benefit commercial plans ($28+ per month)

7. Who qualifies for Medicare? • Designed to provide health care to elderly and disabled U.S. residents • Age 65 and over, must pay payroll tax (1.45%) on at least 10 years of income (40 work credits) • Having a spouse who paid into the Medicare payroll tax for 10 years is also acceptable • You can earn up to 4 work credits per year, one work credit is equal to $1,090 of income. • The Permanently Disabled • Certified as permanently disabled by SSI (2 years) • Amyotrophic lateral sclerosis (ALS) • End Stage Renal Disease • Everyone gets Part A • Free with 40 work credits • People with partial work credit can buy-in for an added premium • Part B, C, and D are voluntary and require additional premiums

8. What Does Medicare Cover? The Medicare benefit package is outdated Similar to the “Major Medical” plans that were purchased by employers and consumers in the 1960s You would not find the Medicare benefit package in any mainstream insurance plan No Pharmacy Benefit until 2003 (Part D) Part A – inpatient hospital care Part B – outpatient/physician office care Part C – Managed Care (combination of A&B) Part D – Prescription Drug Benefit

9. How Is Medicare Paid For? Part A: Payroll tax 1.45% each from employer and employee Look at the Medicare line item on your next paycheck OASDI (Social Security) represents another 6.2% of your paycheck Part B: Monthly premium from beneficiaries => about 25% of total General tax revenues => about 71% of total Interest on trust fund => about 4% of total Administrative expense => about 1.5-2.0% of expenditures Medicare (CMS) does not actually process claims, they contract with commercial insurance plans as fiscal intermediaries Patients in Medicare pay for a significant share of their own care through deductibles, co-payments (% of fee), and premiums Only 55% of Medicare-related costs are paid for by the Medicare program Medigap supplemental coverage

10. Hospital Payment Under Medicare Since October 1983, Medicare has paid for inpatient care according to the Hospital Inpatient Prospective Payment System (PPS) Patients are assigned to 1 of almost 550 categories, known as Diagnosis-Related Groups (DRGs), based on their diagnosis Hospital receives a fixed payment based on the patient’s DRG, regardless of the cost of treatment The adoption of PPS in 1983 had a ripple effect on the rest of the health care system More use of prospective payment by other payers Need for cost shifting PPS spread into other parts of Medicare (outpatient - APC, long-term care - RUG, etc)

11. Physician Payment Under Medicare Since January 1992, Medicare pays for physician services according to the Medicare Fee Schedule (MFS) MFS assigns 3 relative value units to more than 6000 services provided by physicians defined according to Current Procedural Terminology (CPT) codes RVU for physician work, based on the Resource-Based Relative Value Scale (RBRVS) RVU for office expense RVU for malpractice expense Payment calculation accounts for geographic location, overhead costs, and resources used for each service

12. Medicare Advantage (Part C) Medicare Modernization Act of 2003 renamed Medicare+Choice to Medicare Advantage Effective January 1, 2006, all companies offering a Medicare Advantage plan must offer at least one plan with prescription drug coverage, and added: Regional PPOs Private FFS plans Special Needs Plans (SNPs) MSAs were renamed Health Savings Accounts (HSAs) Medicare beneficiaries are still not eligible Increased growth rate of premiums “Benchmark” fee-for-service rate + 75% of bid difference + yearly 2% inflator Provides an incentive for companies to continue offering Medicare products and not abandon the market Starting in 2006, beneficiaries in Part A and B can choose to enroll in a health plan during an annual enrollment period at the end of the calendar year, but are “locked in” to their choice of health plan for an entire year With the exception that they can still make one change during an “open-enrollment” period in the first 3 months of the following calendar year

13. Prescription Drugs (Part D) Effective January 1, 2006, created a voluntary prescription drug benefit plan Monthly premiums of about $28 $275 deductible 25% copayment from $276 to $2,510 100% copayment from $2,511 to $5,726.25 the so-called “doughnut hole” Maximum Out of Pocket Threshold is $4050 = 275 + [(2510-275)*.25] + [(5726.25-2510)*1] Premium and deductible support for low-income beneficiaries

14. Medicaid (Title XIX) • State-Federal partnership • Regulated by CMS (Centers for Medicare and Medicaid Services) • Each state submits a plan for their Medicaid program design • States can seek Medicaid waivers (1115, 1915b, 1915c) • Federal Medical Assistance Percentage (FMAP) – Federal “Match” • Delivered by individual state Medicaid offices • California Department of Health Care Services • Florida Agency for Health Care Administration • Ohio Department of Job and Family Services • Pennsylvania Department of Public Welfare • Medicaid is an entitlement program, its inclusion in the federal budget is guaranteed • Can be delivered via fee-for-service and managed care • 50% of California’s Medicaid beneficiaries are in Fee-for-Service (aged, blind, disabled, rural residents, medically needy), while other 50% are in managed care plans (run by commercial or public insurance companies)

15. Who qualifies for Medicaid? • Designed to provide health care to poor families and pregnant mothers, chronically ill and medically needy, disabled, and blind residents of the U.S. • Eligibility levels depend on the state • Required to have proof or citizenship or legal residence, must live in U.S. for at least five years (“DRA Requirements”) • Presumptive eligibility and “Emergency” Medicaid (Partial Scope) • Some beneficiaries have a share of cost

16. Medicaid Payments Often Low • Medicaid Fee Schedules in many states are much lower than Medicare and Commercial Rates • Many physicians opt-out of Medicaid participation, resulting in larger burden on safety net clinics and hospitals • Medicaid is also dominated by disabled, blind, medically need, and aged  expensive groups to treat! • Results in cost-shifting for hospitals, overcrowded emergency departments, difficulty securing specialty referrals, despite the patient being insured!

18. SCHIP (Title XXI) • State-Federal partnership • Regulated by CMS (Centers for Medicare and Medicaid Services) • Each state submits a plan for their SCHIP program design • States receive a higher Federal Medical Assistance Percentage (FMAP) – Federal “Match”, however, it is a “block grant” • Delivered by individual state offices • California’s “Healthy Families” program is administered by the Managed Risk Medical Insurance Board of the Department of Health Care Services • SCHIP was originally authorized for 10 years (1997-2007), and was recently re-authorized for another 10 years • Can be delivered via fee-for-service and managed care • States had flexibility in program design to piggyback on current Medicaid program or start new SCHIP program from scratch • Many states created new programs – focus on marketing, removing Medicaid stigma, and setting up better provider networks through private insurance mechanisms

19. Who qualifies for SCHIP? • Designed to provide health care to working poor, low-income families who are residents of the U.S. • Eligibility levels depend on the state • Must be above Medicaid eligibility levels • Required to have proof or citizenship or legal residence, must live in U.S. for at least five years (“DRA Requirements”) • Most beneficiaries have to pay cost sharing in the form of premiums and co-pays • Cost sharing cannot exceed 5% of family income

21. Managed Care

22. All Major Health Insurers and Payers Use Managed Care • Preferred Provider Organizations (PPOs) are effectively discounted fee-for-service arrangement • Health Maintenance Organizations (HMOs) are staff, network, or group model health service plans, often paid based on capitation • HMOs focus on prevention and primary care • HMOs engage in active utilization review • Hybrid model: Point of Service (POS) combines HMO (in-network) and PPO (out-of-network) ideas

24. Different Payers = Different Managed Care Plans • Medicare – Medicare Advantage Plans • Medicaid – States are allowed to enroll beneficiaries into Commercially-run Medicaid HMOs • SCHIP – Many States used completely HMO-based system to deliver care • Employer-Based and Individually-Purchased Plans are predominantly HMO/PPO/POS • Even county and state indigent care programs have adopted managed care principles • Medical Home • Primary Care Gatekeeping and Specialty Referral systems • Designed to reduce ER overcrowding, improve health status, and empower patients using managed care ideas

27. Recent Examples of State and Local Reform

28. The Massachusetts Model of Reform • Individual Mandate • First Layer is an employer mandate pay-or-play provision • Requires Employers or 11 people or more to offer “fair and reasonable” coverage or pay into a purchasing pool ($295 annually per employee) • Massachusetts provides subsidized health care for residents earning up to 100% of the FPL (through Medicaid), and partially subsidized health care those earning up to 300% of the FPL, depending on an income-based sliding scale. • Commonwealth Health Insurance Connector Authority offers subsidized coverage and facilitates the selection and purchase of private insurance plans by individuals and small businesses. • Incentives for residents to obtain health insurance coverage include tax penalties for failing to obtain an insurance plan. • Helped by $700 million Uncompensated Care Pool that has existed for several years, funded by provider tax levies • Maximum of 650,000 uninsured individuals in MA during 2006, in two years more than two-thirds are now insured.

29. San Francisco’s Universal Health Care Reform: Healthy SF • Employer Mandate • Currently being phased-in by income level (now at ≤500% FPL) • Still uses existing county indigent care system, Medi-Cal, Healthy Families (SCHIP), and commercial insurance • Pay-or-Play: Employers are required to offer commercial insurance coverage or pay a fee to City of San Francisco • If individuals are uninsured, they receive “coverage”, not insurance • Employer fees go to county to provide care • Enrollees receive a medical home, have access to specialty referrals, and pay enrollment fees and some share-of-cost • Through County system (SF General Hospital, County Health Department Clinics) • Employees who do not need insurance or live out of area will receive Medical Reimbursement Account due to employer contributions

30. Key Terms, 1 Adverse Selection – a situation in which a riskier individual (i.e. chronically ill or medically needy) is more likely to opt into an insurance plan than a lower-risk individual. This can result in higher risk to the insurance company or governmental health plan. Capitation – A per member per month (PMPM) rate paid to physicians to provide health care for a specific managed care enrollee for a set time period. Commercial Insurance – Insurance coverage provided through a private insurance company. Premiums are either paid by an employer on behalf of an employee or by an individual who purchased the plan directly from the insurer or broker. Contracted Rate – The amount of money a physician, hospital, clinic or other billing provider has agreed to accept for a specific service or bundle of services from an insurance payer Cost-Based Reimbursement – A method of payment for health services in which the provider is able to bill for and be paid the actual cost of the service provided. This method is still prominent in the Federally Qualified Health Center program, where the FQHC-rate is a cost-based prospective payment. EMTALA – The Emergency Medical Treatment and Active Labor Act (1986) is a law requiring hospitals with an emergency department to triage and stabilize emergent patients regardless of ability to pay. This policy was designed to prevent “wallet biopsies” and “patient dumping” (i.e. transfers of unstable patients to safety net hospitals).

31. Key Terms, 2 Employer Mandate (also known as a “Pay-or-Play” Provision): Governmental imposed requirement for employers to provide health insurance to employees or pay into a government-run fund to subsidize the uninsured Fee-for-Service – The method of payment for health services where a provider bills an insurance company their usual, customary, and reasonable charge for a service, and is reimbursed the entire amount of the charge. This type of billing is no longer prevalent, even in Medicare FFS or Medicaid FFS, where the rates are based on a set, prospective fee schedule that does not represent the full charge. FQHC – Federally Qualified Health Centers are community-based, non-profit clinics and are part of the federal Community, Migrant, and Homeless Health Center program (Section 330 of the Public Health Service Act). These clinics are an integral part of the health care “safety net” and provide comprehensive primary care services to people regardless of ability to pay. They receive an “FQHC rate” for primary care services under Medicaid, and also receive 20-25% of their operating revenue from a federal grant administered by the Bureau of Primary Health Care within the Health Resources and Services Administration

32. Key Terms, 3 HMO – Health Maintenance Organizations are managed care firms, also called “health service plans” and regulated by the Knox-Keene Health Service Act of 1975. Organized in three ways: Network Model (network of private physicians), Group Model (one or more contracted Medical Groups), and Staff Model (i.e. Kaiser Permanente) – all three represent different ways of contracting with physicians for care delivery. Often reimburse for primary care and some inpatient services via capitated rates which are negotiated with individual physicians, medical groups, or hospitals. HMOs use evidence-based utilization review, primary care gatekeeping, closed physician networks, and capitated rate negotiations to reduce costs and improve member health care/status.

33. Key Terms, 4 Indigent Care – A term for care provided to the uninsured. Counties and states often have indigent care programs or indigent care pools to finance health care for the uninsured residents of their county that cannot qualify for Medicaid or afford their own insurance. Individual Mandate – Government imposed requirement that all resident obtain insurance coverage through any available source. This requirement can be met through Medicaid, Medicare, SCHIP, commercial insurance supplied by an employer, or privately purchased coverage. Senator Baucus suggests that using this method will limit Adverse Selection. Managed Care – The general term to describe HMO, PPO, and POS-based physician networks that use contracting, evidence-based utilization review, and cost controls to provide health care. Medicaid – State operated health care insurance program for poor families and pregnant mothers. It is a state-federal partnership, administered by states in collaboration with CMS. The federal match is based on the FMAP for each state. Medicaid beneficiaries are categorically eligible, meaning they must meet certain eligibility requirements related to income, family characteristics, and assets. Medicare – It is a federally administered health care insurance program for people age 65 and over who worked at least 10 years (40 work credits) in the U.S., or have spouses who met the work requirement. Medicare can be delivered through Fee-for-Service (Part A and B) or Managed Care (Part C) arrangements. You can also become eligible due to disability (two years of SSI), End-State Renal Disease, or ALS.

34. Key Terms, 5 Per Diem Rate – A daily rate paid to hospitals, usually for inpatient days. Negotiated between the hospital and insurer. POS – While this stands for Point of Service, it is a hybrid managed care plan in which a member can choose to use the HMO network and pay a simple co-pay and lower cost sharing to use their primary care physicians and specialty referral system, or go out-of-network to use any willing provider at a higher cost to themselves. However, like a PPO, a portion of the out-of-network visit will be paid by the insurance company (usually between 60 to 80% of the UCR rate). PPO – A Preferred Provider Organization is a health insurance arrangement that allows a member to seek care from a group of in-network physicians for either primary or specialty care at a lower cost (10% co-pay, insurance pays 90% of contracted rate). Or, the member can go out-of-network to any willing provider and the insurer will pay a lower rate (60 to 80% of the UCR). PPOs contract with their in-network physicians at a discounted fee-for-service rate, or a bundled rate (rather than a capitated rate like an HMO). PPOs will also contract with hospitals using per diem or discounted fee-for-service rates. Prospective Payment – This is a very popular method of payment for health services in which the insurer or payer pays an agreed upon amount for a specific service, rather than paying the charge that is submitted on a claim by a provider. Contracted rates, RBRVS, and the FQHC-rate methodology are all prospective payment systems.

35. Key Terms, 6 RBRVS – Resource Based Relative Value Scale payments are prospective payments calculated for use in Medicare to compensate physicians or hospitals who have provided health care to Medicare beneficiaries. The RBRVS is based upon Diagnosis Related Groups for inpatient care, where a specific RVU value and RVU-unit cost is calculated based on the usual course of treatment for a condition or service. RVU – A Relative Value Unit is used in RBRVS to establish how much “input” went into a specific encounter, so that payment can be calculated for a specific service. SCHIP – The State Children’s Health Insurance Program was created in 1997 as part of the Balanced Budget Act. It provides health insurance coverage to children aged 0 through 18 who cannot qualify for Medicaid or afford their own private insurance coverage. This is a state-federal partnership program, similar to Medicaid. The federal match is higher for each state because they use an “enhanced FMAP” rate. Uncompensated Care – Health care provided by physicians and hospitals that is not paid for, usually provided to uninsured patients who cannot afford to pay for the services used. These uncompensated care costs are often written off by hospitals or physicians as charity care or bad debt.

36. Key Players Senator Max Baucus – a proponent of health care reform through an individual mandate proposal Representative John Conyers – A proponent of single-payer health care reform (Medicare for All – HR 676). Department of Health and Human Services (DHHS) – Administration responsible for health care in the U.S., has oversight of CMS, CDC, etc. Secretary Kathleen Sebelius directs the agency for the Obama Administration. Office of White House Health Care Reform – A new office created by President Obama to function as a liaison between DHHS, the President, and the Legislature. Directed by Nancy-Ann Min DeParle, a former health care consultant and Director of HCFA (the former CMS). Centers for Medicare and Medicaid Services (CMS) – the office responsible for administering Medicare and Medicaid.

37. Web Resources • http://www.nchc.org/facts/cost.shtml • http://www.statehealthfacts.org • http://www.kff.org/healthreform/index.cfm • www.healthpolicy.ucla.edu