Health Insurance: Major Finance Mechanism

1. Health Insurance:Major Finance Mechanism Chapter 6 Dr. Tracey Lynn Koehlmoos HSCI 678 Intro to US Health Services System

2. Chapter Overview • Insurance Concepts • Evolution of Health Insurance • Private Health Insurance • Public Health Insurance • Pending Policy Reforms • This chapter will not cover managed care

3. General Concept • Insurance protects against infrequent, large loss by establishing contractual relations between the insured and the insurance provider and spreading the risk across a larger population.

4. General Risk Assessment • Underwriting Process-actuarial risk • Experience Rating • Cherry Picking/Cream Skimming • Adverse Selection • Redlining • Insurers goal: premium $ received > benefit $ paid

5. Specific Health Concepts • Early days: • Linked to Employment • Hospitalization Only (1:13 among non-elderly) • Conceptual Shift • Expanded scope of interactions • Non-random, non catastrophic events • Commercial v. social purpose

6. Risk Assessment • 35% of insured—no claims • 5% of insured = majority of claims • Most insurers require medical screening • Pre-existing conditions • Excluded • HIPAA (1996)

7. Direct Risk Adjustment • Medical Underwriting • Tier rating—by member and industry • Durational rating—Low $ to start, increases over time • Redlining • Excludes individuals or groups based on perceived hazards, life-style or claims history

8. Indirect Risk Adjustment • Co-payments • Limited Benefits Packages (procedures/pharmaceuticals) • Caps/Ceilings • Waiting period for effectiveness • Results in inequitable access across the US

9. Growth of Commercial Health Insurance • Provider-Organized Plans—dominant before WWII • Post-WWII: Growing Non-for Profit Hospitals, more plans based on employment groups • 1947 Taft-Hartley Act: Health benefits as a condition of employment for which labor was entitled to negotiate

10. Availability in Small Businesses • Smaller businesses <100 employees • 50% of US labor firms • Nature of business too high risk • Unaffordable premiums—cannot spread risk • Part-time work force • One claim could increase all premiums • 10 to 40% higher cost to small v. large business

11. Retiree Health Insurance • Larger companies offer this as a benefit • Hard to capture this group as data • Jeopardy of benefits due to shake-ups in the mid-1980’s • Medicare eligible—Medicare 2nd payor • Employers seek higher cost share • Medicare Part D; Patient’s Bill of Rights

12. Self-Funded Health Insurance • Large group of employees • Eliminates need for insurance company • ERISA exemptions • Pay only what is used • Can negotiate rates • Insurance companies can be hired to bear excessive financial risk • Third Party Administrator can handle admin.

13. The Cost of Doing Business • Health Insurance is a major expense • Premium growth rates—on the rise, again • $4,692 per employee & family per year • $2,088 per employee per year • 75% of business health expenditures are on health insurance premiums • 16% Medicare Contributions • 8% Workman’s Compensation

14. Cost Containment Measures Cost Sharing/Co-payments • Limiting Scope of Benefits • Caps on Insurance Expenditures • Controls on Utilization • Prior Authorization • Second opinions • Pre-certification (nursing home stay)

15. ERISA • Employee Retirement Income and Security Act of 1974 • Allows large employers to self-insurer • Response to concerns on pension mismanagement • Protects health services benefits packages

16. HIPAA • Established requirements for carriers at the individual, small and large group markets • Portability from group to individual plan • Limits pre-existing condition waiting periods • Also, state reforms in the early 1990’s

17. HIPPA • Health Insurance Portability and Accountability Act of 1996 • Allows employees to “carry” insurance to the next job without a waiting period • Allows employees in small companies to bring in previous insurance • Addresses confidentiality issues

18. Summary of Private Insurance • Covers 2/3 of US population • Mostly as employee benefit, large group • New laws and regulations to protect the benefits of the insured • Ineligible people—may use individual policies

19. Public Health Insurance • Tricare • Medicare • Medicaid • State insurance programs for the uninsurable • State Child Health Insurance Programs

20. Tricare • Military dependents and retirees • Supplemental to Military Health Service System • 8.4 million beneficiaries • Outside of the military system, Tricare functions as an HMO with contracts awarded to regional civilian companies.

21. Medicare • Social Security Act of 1965 • Originally only for >65 years of age • Currently: 87% of beneficiaries • 1972: End Stage Renal Disease (ESRD) • 1973: Any age, Medicare disability • Currently: 13% of beneficiaries

22. Do you know your ABCD’s? • Part A: Hospital Insurance (HI) • SNF, HH, Hospice • Deductible $840 per benefit period • Financed by Fed Trust Fund (payroll deduction, employer contributions) • Part B: • Supplemental Medical Insurance (SMI) • Physicians, tests, outpatient services • Monthly premiums 75% & by Fed Trust Fund

23. More Medicare ABCD’s… • Part C: Medicare + Choice, 1997 • Managed Care with mixed results • Patients were slow to sign up • Providers found it costly • Part D: Prescription drug plans • New and confusing • Threats to Medicaid/Medicare • Slow patient sign up

24. Medicaid • Social Security Act of 1965 • State and Federal Program 50/50 • No or Low co-pay or deductibles • State offerings vary All include: Inpatient, outpatient, x-ray, HH, preventive services for children, family planning Some: Podiatrist, Dentist, Physical therapy, case management, eyeglasses

25. Medicaid Eligibility • Eligibility varies—almost all “Low Income” • Pregnant woman • Infants, children < 6 • Elderly, blind, disabled, poor Medicare • Special groups who qualify because of the disease (HIV/AIDS, NBCCEDP)

26. Who is on Medicaid?

27. Where does the money go?

28. Other State Run Programs • Medically Indigent Programs • State Sponsored Health Insurance Programs for the Uninsurable • State Children’s Health Insurance Program (SCHIPs)—BBA 1997

29. Other types of insurance • Workers’ Compensation Insurance • Viatical Settlements • Health Ins Purchasing Cooperatives

30. Summary • 70% of US and almost all elderly have health insurance • Medicaid covers 10% of US population • 20% of US population NO insurance • Cost of premiums continue to rise • Employer sponsorship remains link • No basic set of benefits in the US