Introduction to Health Services Administration homework 2

Chapter04-FinancingHealthSystems.ppt

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Financing Health Systems

Chapter 4

Size of U.S Health Care Industry

In 2004, Americans spent $1.878 trillion on health care.
Health care comprised 16 percent of GDP.
Health care amounted to $6,280 per capita.

Table 4.1
Aggregate and Per Capita National
Health Expenditures, United States, Selected Years

Year	Total (Billions)	Per Capita	GDP (Billions)	Percent of GDP
1940	$4.0	$30	$100	4.0
1950	$12.7	$82	$287	4.4
1960	$26.9	$141	$527	5.1
1970	$73.2	$341	$1,036	7.1

Table 5.1
Aggregate and Per Capita National
Health Expenditures, United States, Selected Years

Year	Total (Billions)	Per Capita	GDP (Billions)	Percent of GDP
1980	$247.2	$1,052	$2,784	8.9
1990	$699.4	$2,689	$5,744	12.2
2000	$1,358.5	$4,729	$9,817	13.8
2004	$1,877.6	$6,280	$11,734	16.0

Factors Contributing to Disproportionate
Growth in Health Care Expenditures

Rapid development and dissemination of technology.
Rising expectations about the value of health care services.
Government financing.
Nature of third party reimbursement.

Factors Contributing to Disproportionate
Growth in Health Care Expenditures

Aging population.
Lack of competitive forces in the health care system.
Maldistribution of physicians and other providers of health care services.

Payment Sources (2004)

Private health insurance
37 percent
Out-of-pocket payment
13 percent
Philanthropy and other private sources
4 percent
Federal, state, and local governments
46 percent

Outlays (2004)

Hospital and nursing home services
41 percent
Physicians’ services and other personal care items
40 percent
Prescription drugs
11 percent
Administration and health insurance
8 percent

Health Insurance: Distributing Risk

Risk is defined as the probability of incurring loss and stems from both anticipated and unanticipated events.
Illness is an anticipated event, but it is uncertain for the individual patient.
Since groups are actuarially predictable, insurance is a way of pooling or distributing risk.

Violations to Insurance Assumptions

The theory of insurance assumes that risks are independent of each other:

- What befalls one person does not affect another.

For a single individual, risks are independent.

Neither assumptions are true in health insurance.

Moral Hazard
and Adverse Selection

Moral hazard:
To the extent that the event insured against can be controlled, there exists a temptation to use insurance.

Moral Hazard
and Adverse Selection

Adverse selection:
Occurs when a particular insurance policy experiences a higher number of claims due to sickness than would be probable on a random basis.

Benefit Structure-Definitions

Deductible
Sum of money which must be paid by the patient on an annual basis before the insurance policy becomes active.
Copayment
Sum of money paid as the beneficiary uses the insurance.

Benefit Structure-Definitions

Coinsurance
Percentage of the total charges incurred and is paid by the patient.

Voluntary Health Insurance

Blue Cross and Blue Shield.
Private or commercial insurance companies.
Health maintenance organizations.

Insurance Coverage (2002)

85 percent of the U.S. population had some type of health insurance coverage.
71 percent of the population under 65 had some form of VHI.
93 percent were covered by group policies
15.2 percent of the population had no health insurance coverage.

Private Health Insurance

Most commonly covered services are linked to inpatient hospitalization.
Most comprehensive policies cover physician office visits, outpatient mental health care, prescription drugs, DME, ambulance services, etc.

Prepaid Plans

Provide fairly comprehensive coverage in return for a prepaid fee.
Usually without deductibles and coinsurance for most services
In 2003, there were about 454 HMOs in the United States.
Covered approximately 72 million Americans

Social Health Insurance Programs

Social insurance
Entitlement program earned by individuals in the course of their employment.

Social Health Insurance Programs

Workers’ compensation
Provides a cash replacement for a portion of wages lost due to disability and payment for all or part of the medical care necessary.
Medicare
Covers medical services for the elderly, disabled, and other special groups.

Medicare

Provides a variety of hospital, physician, and other medical services for the following individuals:
Persons 65 and over.
Disabled individuals who are entitled to local Security benefits.
End-stage renal disease victims.

Part A - Hospital Insurance (HI)

90 days inpatient care in a “benefit period.”
Lifetime reserve of 60 days inpatient care, once the 90 days are exhausted.
100 days of post-hospitalization care in a skilled nursing facility.

Part A - Hospital Insurance (HI)

Home health agency visits.
Three pints of blood, as part of an inpatient stay.

Part B -
Supplementary Medical Insurance (SMI)

Physicians
Physician-ordered supplies and services
Outpatient hospital services
Rural health clinic visits
Home health visits
Preventive services
Hospice benefits

Not Covered by SMI

Dental care
Routine eye exams and eyeglasses
Hearing exams and hearing aids
Long-term care services

Part C and Part D

Part C:
Medicare advantage plans
Private HMOs, PPOs, and other plans that offer comprehensive services to Medicare recipients.
Part D:
Medicare prescription drug benefit
“Doughnut hole” benefit provides coverage for prescription drugs.

Medicaid

Medicaid is an “in-kind” transfer payment to welfare recipients who are eligible to receive cash under TANF or SSI.
It is financed by an average federal contribution from the general treasury of 59 percent and from state treasuries at an average contribution of 41 percent.

Medicaid

Federal matching varies from 50 to 77 percent, depending on the income of the individual state.
In 2005, approximately 57 million Americans received Medicaid benefits at some point within the year, with an average monthly enrollment of 45 million.

Distribution of Medicaid Recipients
and Expenditures by Eligibility Category

Needy families comprised 72.4 percent of Medicaid recipients, but accounted for only 28.1 percent of the total budget.
Aged comprised 9.8 percent of Medicaid recipients, but accounted for 24.3 percent of the total budget.

Distribution of Medicaid Recipients
and Expenditures by Eligibility Category

Blind and disabled comprised 17.9 percent of Medicaid recipients, but accounted for 42.1 percent of the total budget.

Basic Health Benefits

Hospital inpatient care
Hospital outpatient services
Certified nurse practitioner services
Lab and x-ray services
Nursing facility services for those aged 21 and older
Home health services for those eligible for nursing services

Basic Health Benefits

Physicians’ services
Family planning services and supplies
Rural health clinic services
Early and periodic screening, diagnosis, and treatment for children under 21

Basic Health Benefits

Nurse midwife services
Certain federally qualified health center services
Medical and surgical services furnished by a dentist

Most Commonly
Covered Optional Services

Clinic services
Nursing services in a care facility for the aged and disabled
Intermediate care facility services for the mentally retarded
Inpatient psychiatric services

Most Commonly
Covered Optional Services

Optometrist services and eyeglasses
Prescribed drugs
Prosthetic devices
Dental care

Medicaid Payments

Payments are made directly to providers.
Methods for reimbursing physicians and hospitals vary widely among the states.
Payment rates must be sufficient to enlist enough providers so that comparable care and services are available to the Medicaid population.

Physician Reimbursement

Fee-for-service
Indemnity
Fixed fees
Prepayment
Salary

Fee-For-Service

Advantages:

1. Adjusts for case complexity

2. Transparency of physician’s profile of practice

3. Patients can exercise economic clout over practitioners

Fee-For-Service

Disadvantages:

1. Incentives favor overwork and overutilization

2. Fosters unnecessary or duplicative services

Indemnity Benefits

Advantages:

1. Administratively simple

2. Accounts for inflation and changing physician practice patterns

Disadvantages:

1. No provision to protect patients from outlandish charges

Service Benefits

Advantages:

1. Protects insurers from unlimited liability in the wake of high charges

2. Provides patients with information about reasonable fee norms

Fixed Fees

Advantages:

1. Little or no cost sharing on the part of the patient

2. Cost containment

Capitation Payments

Advantages:

1. Administratively simple

2. Facilitates global budgeting

3. Incentive for physicians to control the cost of medical services

Capitation Payments

Disadvantages:

1. Incentives to decrease costs and services provided

2. Incentives for “dumping” patients with complex cases on other providers

3. Little transparency of physician’s profile of practice

Salary

Advantages:

1. Administratively simple

2. Medical treatments selected are not influenced by profitability

3. Encourages cooperation among physicians

4. Facilitates advance budgeting

Salary

Disadvantages:

1. Incentives to treat fewer patients

2. Patients lose economic clout over physicians

3. Little transparency of physicians’ profile of practice

Prospective Payment System

October 1, 1983.
Pays a standardized amount for each DRG.
Payment bears no direct relationship to length of stay, services rendered, or costs of care.
Decreased Medicare hospital admissions.
Decreased average LOS.

Resource-Based Relative Values

Initiated by Medicare on January 1, 1992 as a new system for reimbursing physicians
Divides resources needed to produce physician services into three components
Physician work, practice expenses, and malpractice insurance costs
Establishes a uniform definition of “global surgery”

Strategies for Health Care Reform

National Health Insurance
Clinton Health Security Plan
Medicaid Reform
SCHIP