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Chapter 7

Chapter 7. Financing Health Care. CHAPTER OBJECTIVES. Understand the scope and magnitude of U.S. health care spending in relationship with other developed countries Understand how the U.S. health care payment system evolved & current trends

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Chapter 7

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  1. Health Care USA

  2. Chapter 7 Financing Health Care Health Care USA

  3. CHAPTER OBJECTIVES • Understand the scope and magnitude of U.S. health care spending in relationship with other developed countries • Understand how the U.S. health care payment system evolved & current trends • Understand the related roles of government & the private sector in financing health care • Understand efforts to link costs with quality Health Care USA

  4. PART 1 • National Health Care Expenditures • Influences on health care finances • Primary components of health care expenditures • Private Health Insurance • Blue Cross/Blue Shield • Commercial Insurers • Managed Care Health Care USA

  5. Overview Multiple payment sources Working Americans’ employer health insurance (Blue Cross/Blue Shield, managed care plans) Public funds support Medicare (66 +), Medicaid for low-income individuals Health Care USA

  6. Influences on Health Care Financing • Providers, employers (purchasers), consumers, politics • Tensions- Responsibilities of • Government • Employers • Consumers • Providers • The Market Health Care USA

  7. Health Care Expenditures in Perspective • 2008 expenditures= $ 2.33 trillion, 16% of GDP, $ 7,681/person; 1/6 of total economy • Hospital care, physician services, prescription drugs: 3 top expenses • Government sources finance 48% of total expenditures Health Care USA

  8. FIGURE 7-1 National Health Expenditures per Capita and Their Share of the Gross Domestic Product, 1960–2008. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA

  9. FIGURE 7-2 The Nation’s Health Care Dollar 2008: Where It Went. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA

  10. FIGURE 7-3 The Nation’s Health Care Dollar 2008: Where It Came From 1Other Public includes programs such as workers’ compensation, public health activity, Department of Defense, Department of Veterans Affairs, Indian Health Service, State and local hospital subsidies and school health. 2Other Private includes industrial in-plant, privately funded construction, and non-patient revenues, including philanthropy. 3Out of pocket includes co-pays, deductibles, and treatments no covered by Private Health Insurance. Note: Numbers shown may not add to 100.0 because of rounding. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA

  11. Factors that Decreased Expenditure Growth • Managed care utilization controls • Hospital prospective payment • Managed care physician fee restrictions Health Care USA

  12. U.S. Health Spending Compared with Other Developed Countries (2) • 1970-2005: U.S. had largest increase in percent of GDP devoted to health care among 29 other countries • Lower life expectancy based on per capita income • Lower ranking on health status indicators • Spent > twice median spending of others per capita on health care Health Care USA

  13. U.S. Health Spending Compared with Other Developed Countries (2) • With 3rd highest level of public spending on health care, U.S. public insurance covered only 26.5% of population • Lower U.S. utilization rates per capita (hospital stays and physician visits) • Lower supply of expensive technology • Higher income & medical care prices…not superior health care or better outcomes Health Care USA

  14. U.S. Health Care Waste • 30-40% of spending yields no value, inefficiently producing valuable services • CBO Director (2008): “future health care spending…the single most important factor determining the nation’s long-term fiscal condition • Evidence-based physician practice needed to reduce variability Health Care USA

  15. Health Care Fraud & Abuse • FBI 2009 estimates: $ 75-250 B • U.S. Justice Department & HHS Inspector General investigate, convict and exclude providers • 2009 : Health Care Fraud Prevention and Enforcement Action Team using new technology to identify and analyze suspected fraud Health Care USA

  16. Major Contributors to Increases in Health Expenditures • New diagnostic & treatment technology • Growth in older population • Medical specialization • Uninsured, underinsured populations • Labor intensity • Reimbursement system incentives Health Care USA

  17. New Diagnostic & Treatment Technology • Equipment, devices & pharmaceutical agents, requiring advanced personnel training & new personnel roles • Computed tomography scanning, Magnetic resonance imaging, PET scanning • Pacemakers, implantable cardio-converters • Drugs and drug marketing to consumers Health Care USA

  18. Aging Population • Since 1900, 65+ year olds tripled in number • 85+ year old projected at 8.9 M by 2030 • Major consumers of hospital inpatient care • Advanced age accompanied by chronic conditions requiring surgeries, drug therapies Health Care USA

  19. Medical Specialization • ~60% of physicians are specialists • Americans demand specialty care and use of diagnostic testing • Managed care relaxing hurdles to specialty care referrals Health Care USA

  20. Uninsured and Under-insured • 47 million, 16% of Americans • Almost 75% of uninsured in households with at least one full-time worker • No insurance: late care, medical complications, emergency care, avoidable hospitalizations • Costs passed to insurance premiums, taxes Health Care USA

  21. Labor Intensity • People- centered services require high staff to consumer ratio • New technologies require new, technically trained personnel • Aging population contributes to home care, other personnel needs • 3.2 M new jobs by 2014 will be in health services Health Care USA

  22. Economic Incentives • Traditional payment for piece-work drove high utilization • Managed care, prospective payment dulled incentives • System still largely physician and hospital driven with continuing incentives for over-use Health Care USA

  23. Private Health Insurance • 1800s: movement to insure workers against lost wages due to work injuries; later coverage added for serious illness • Insurance payments to medical care providers not until 1930s Health Care USA

  24. Health Insurance Concepts • Antithetical to “insurance” premise of guarding against unlikely events, health insurance evolved to pay for both routine and unexpected events • Indemnity coverage protected from all costs of care; prevailed 1930s-1970 introduction of managed care Health Care USA

  25. Blue Cross/Blue Shield • 1930 Baylor University teachers’ contract with Baylor, TX hospital to cover inpatient services on an annual basis • Model for Blue Cross development • Blue Shield for physician payment followed in 1940s with AMA financing of Association of Medical Care plans Health Care USA

  26. Insurance Transformed Health Care (1) • Established hospitals as centers of medical care proliferation & technology • Put hospital care within easy reach of working population • Annual hospital admissions 50% higher for covered individuals than nation as a whole by late 1930s Health Care USA

  27. Insurance Transformed Health Care (2) • Private insurance countered forces that lobbied for national health insurance, strongly opposed by private medicine • Focused government insurance on low-income individuals • Stimulated American Hospital Assn. & local hospitals to subsidize semi-private and ward care for low-income populations Health Care USA

  28. Features of Blue Cross & Blue Shield • Initially, not-for-profit corporations & community rated (without regard to demographics, occupation, etc.), later, experience- rated to compete with for-profit companies • Since 1990s, many plans converted to for-profit status Health Care USA

  29. Commercial Health Insurance • Entered market in decade following Blues • Used experience-rating to charge higher premiums to less healthy; competed with Blues for healthy persons with lower premiums • By early 1950s surpassed Blues’ enrollment Health Care USA

  30. Managed Care • Throughout the 1960s, rapidly increasing Medicare expense, quality concerns by government and industry health insurance purchasers resulted in development of the HMO Act of 1973 • Many employer groups had used specific, contracted arrangements; Act opened participation to all employers Health Care USA

  31. HMO Act of 1973 • Loans & grants for planning, implementing combined insurance, health care delivery organizations • Required comprehensive services for acute and preventive care • Employers of >25 mandated to offer HMO option, if available & fund premiums=to prior plans Health Care USA

  32. HMO Fundamentals • Links health care provision to prepayment • Population, not individual-based reimbursement • Financial risk-sharing among providers, insurers, consumers • Intended to reverse incentives for utilization Health Care USA

  33. HMO Models • Staff: MD employees provide primary care in HMO-owned facilities • Independent Practice Association: Community-based MDs serve HMO members on pre-paid, fee-for-service, contracted basis • Hybrids: group practice, network, direct contract Health Care USA

  34. Payment Methods • Encourage cost-conscious, effective, efficient care • Capitation: per-member per-month fee paid in advance whether or not services used • Withholds: retains percentage of customary fee, refunded if targets met Health Care USA

  35. Financial Risk-sharing • For Providers: capitation, withholds, expenditure targets • For Subscribers: co-payments, deductibles Health Care USA

  36. Evolution of Managed Care (1) • Point of Service (POS) plans spawned by demands for out-of-network choices • Preferred Provider Organizations (PPOs): MDs & hospitals offer private payers & self-insured firms negotiated fee discounts in return for business volume guarantee (60 % of all employer-covered workers) • Today, virtually all health insurance is some form of managed care Health Care USA

  37. Evolution of Managed Care (2) • Disease Management • Use of evidence-based guidelines for subscribers with high-risk medical and potentially high-cost conditions • Identified from claims data • Insurer or contracted services to monitor condition and ensure compliance Health Care USA

  38. Evolution of Managed Care (3) • Primary physician “gatekeeper” role declining in importance • Subscriber demands for more choice in referrals • Staff model decline Health Care USA

  39. Managed Care Backlash (1) • Organized medicine, consumers protested restrictions on choice of providers, referrals, other practices • Presidential commission est. to review patient protections • President Clinton imposed patient protections on companies supplying federal workers Health Care USA

  40. Managed Care Backlash (2) • Bipartisan Patient Protection Act proposed in 1998 never passed • State legislatures led with 900+ laws & regulations addressing provider and consumer protections Health Care USA

  41. Managed Care Backlash (3) • Consumer-Driven Health Plans: employers’ response to rising costs & demands for consumer choice • Employees take responsibility for health care decisions and cost-consciousness • Health care reimbursement or Health Savings Accounts using high-deductible policies • 2009: ~8% employee participation Health Care USA

  42. Trends in Managed Care Costs (1) • 1990s: slowest rate of cost growth in years • 1998: premiums rose again • Insurance underwriting cycle • Prescription drug costs • Investor pressures • Consumer demands for choice Health Care USA

  43. Trends in Managed Care Costs (2) • 1999-2009, avg. family policy premiums increased 131% to $13,375 • Workers’ contribution: 17% single, 27% family • 40 hour/week minimum wage worker ($7.25/hour) gross earnings (before taxes) = $ 15,080 Health Care USA

  44. Impact of Rising Premiums • Higher worker contribution results in dropped coverage • Employers use “benefit buy-downs,” reducing benefit scope, increasing co-pays, and/or deductibles • 1% increase in premiums= 164,000 additional uninsureds Health Care USA

  45. Managed Care “Report Card” • 5-year literature review notes failings in dual promise to lower costs and increase quality • Needed: • Systematic information systems’ revamping • More appropriate provider incentives • Revised, evidence-based clinical processes Health Care USA

  46. Managed Care Industry Changes • Consolidations & mergers: 5 publicly traded companies now enroll 103+ million members, 82% of all subscribers • Responses to provider/consumer issues: • States’ patient protection legislation • Loosening of choice on patient referrals • Patient access to policies, esp. payment denials Health Care USA

  47. PART 2 Managed Care & Quality Self-funded Insurance Programs Government as Payer Cost and Quality Initiatives State Experiments Future Challenges Health Care USA

  48. Managed Care Organizations and Quality • American Association of Health Plans est. 1979; renamed National Committee on Quality Assurance (NCQA) in 1990 • Independent, not-for-profit, funded by accreditation fees and revenues from sale of a quality indicator compendium on 250 health plans serving 50 million Americans Health Care USA

  49. NCQA (1) • Evaluations & accreditation on a voluntary basis for • Managed care organizations • Preferred provider organizations • Managed behavioral health organizations • New health plans • Disease management programs Health Care USA

  50. NCQA (2) • Accreditation entails rigorous reviews of all organization aspects including on-line surveys and onsite visits: • Management, physician credentials, member rights & responsibilities, preventive health services, utilization, medical records, disease management programs, outcomes of care, measures of clinical processes Health Care USA

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