answer the question
mikeryan461
Chapter8-FinancingHealthcare4.pptx
Chapter 8
Financing Health Care
CHAPTER OBJECTIVES
Understand the scope and magnitude of U.S. health care spending in relationship with other developed countries
Review how the U.S. health care payment system evolved, current trends and initiatives of the Patient Protection and Affordable Care Act of 2010
Understand the related roles of government & the private sectors in financing health care and roles of respective sector stakeholders
Discuss historical efforts to link costs with quality
Overview (1)
The ACA has immediate effects, especially on health insurance regulation; full effects of policy changes to unfold over many years
ACA does not change fundamental public/private financing mechanisms ‘of U.S. health care
Most working Americans’ health coverage provided by employers’ private insurance; some recent declines due to recession; 4-6% purchase coverage privately, relatively stable over past years
Overview (2)
Uninsured numbers increased steadily until 2011; decrease by 1M, due to ACA allowing children on parents’ coverage till 26 years.
Public funding: Medicare: all ≥ 65 years; Medicaid: low-income populations
Influences on financing: providers, employers, purchasers, consumers, politics
Overview (3)
Major tensions among influencers
Government (public) versus private roles & responsibilities
Employers’ roles & responsibilities as major insurance purchasers
Relationships of costs to quality
Payment systems’ effects on quality
Primary issues: rates of cost growth; uninsured
Healthcare Expenditures in Perspective (1)
National health care expenditures tracked & reported yearly (2 years in arrears) by National Center for Health Statistics (CDC); Office of the Actuary, National Health Statistics Group; U.S. Department of Health and Human Services
2011: $ 2.7 trillion; $ 8,680/capita; 17.9% GDP (Table 8-1, Fig. 8-1); Top personal: Hospital ($851 B); physicians ($541.B); prescription drugs ($263 B)
Healthcare Expenditures in Perspective (2)
Top 2011 payment sources: Private health insurance ($891 B); Medicare ($567 B); Medicaid ($405 B); all public sources = 40% of total payments
Healthcare Expenditures in Perspective (3)
Rate of U.S. expenditure growth outstrips general inflation by large margins
Among 29 developed nations, U.S. has largest % of national economy devoted to health, but lower life expectancy & poorer health outcomes; higher U.S. prices, not superior quality; other nations have universal coverage while U.S. covers 26% populations with public funds; other nations use more health services with more technology.
Healthcare Expenditures in Perspective (4)
20-40% U.S. spending is “waste:” services of no value or valuable services inefficiently delivered; reduction in cost variability, revised economic incentives needed.
Fraud & abuse: 3-10% total spending, $ 75-250 B/year; many federal/state agencies combat technologically sophisticated fraudulent schemes: Health Care Fraud Prevention and Enforcement Action Team
Drivers of Healthcare Expenditures (1)
Expensive medical technology: diagnostic & treatment equipment & pharmaceuticals: computerization; highly trained personnel; incentives for high volume use
Aging population: longevity increasing: major consumers of hospital care, pharmaceuticals
Specialty medical care: 60% + physician specialists; patient self-referrals; use of highest cost interventions without payment restrictions often unnecessary/inappropriate
Drivers of Healthcare Expenditures (2)
Un- or underinsured: delays in obtaining services result in higher cost interventions for late-stage complications
Labor intensity: large numbers of expensive, highly trained personnel; requirements increase with technology advances
Reimbursement system incentives: private & government insurance: until managed care & prospective payment, fee-for-service piecework favored high utilization by providers & hospitals; fee-for-service fuels high costs till present time
Evolution of Private Health Insurance (1)
1800s: movement to insure workers against lost wages due to work injuries; later coverage added to accident policies for serious illness
Insurance payments to medical care providers not until 1930s with BC hospital coverage
Antithetical to “insurance” to guard against unlikely events, health insurance paid for both routine and unexpected events
Evolution of Private Health Insurance (2)
Indemnity coverage protected insureds from costs of care by paying whatever was billed; prevailed 1930s-1980s until introduction of government prospective payment and managed care.
Development of Blue Cross & Blue Shield & Commercial Health Insurance
1930 Baylor, TX University teachers’ contract with hospital to cover inpatient services on an annual basis; model for Blue Cross development, a private, not-for-profit empire dominating health insurance for succeeding 4 decades
Blue Shield for physician payment followed in 1940s with AMA support.
Development of Blue Cross & Blue Shield & Commercial Health Insurance
A new era in U.S. health care financing: hospital & doctor care within reach of all working Americans; consumers insulated from costs; hospital use skyrocketed…BC subscribers’ admissions 50% higher than nation as a whole; a financing alternative that silenced lobbying for national health insurance coverage.
Initially “community-rated” for non-discrimination on risk factors, ultimately, “experience-rated” to compete with commercial insurers
Development of Blue Cross & Blue Shield & Commercial Health Insurance
Initially not-for-profit & “community-rated” for non-discrimination on risk factors, ultimately, “experience-rated” to compete with commercial insurers
Commercial insurers (for-profit) entered market in late 1940s; experience-rated competitive premiums; more subscribers than “Blues,” by early 1950s.
Managed Care (MCOs)
Cost increases, quality concerns-> Nixon administration enactment of Health Maintenance Organization Act (HMO) Act of 1973 with loans, grants for combined insurance & health care delivery organizations focused on cost containment and quality; required emphases on primary care & prevention
Initially, two major HMO types:
Managed Care (MCOs)
Staff model: employed physicians in HMO-owned facilities with ancillary services, some specialties
Independent practice association: community-based, independent physicians contracted to provide services to HMO members in their own office practices
MCO Payment Philosophy
Population-based
Links payment with service provision parameters
Providers share financial risk with insurers
Population basis allows insurer to actuarially determine projected service use for age, gender, other factors to estimate expected costs & set premiums.
MCO Goals
Reverse fee-for-service financial incentives for high volume: use pre-payment for population groups, paying a pre-set amount in advance for all services a population will need in a given period to encourage cost-conscious, efficient care
Capitation: pays providers a pre-set, per-member-per-month amount whether or not services are used; physicians spending lesser amounts than predicted retain as profit, exceeding amounts predicted results in penalty
Evolution of Private Health Insurance (11)
Consumer financial risk sharing: co-payments by visit; deductibles require a pre-determined amount of out-of-pocket expenditures met before insurance coverage begins; encourage consumer cost-consciousness
Early hybrids: developed from cost & quality concerns: group practice, network, direct contract arrangements.
Managed Care: Later Hybrids
Point of Service Plans (POS) allow members to use providers outside networks at increased co-pays & deductibles; 9% of covered employees
Preferred Provider Organizations (PPOs) formed by physicians & hospitals to serve private payers & self-insured organizations: guarantee a volume of business to hospitals & physicians in return for fee discounts; 2012 most popular plans: 56% of covered employees.
Managed Care Trends
Rise of PPOs: payers’ & providers’ negotiating power in fees & use monitoring with more consumer choice
Staff model decline: high facility capitalization costs, consumer choice issues, competition with independent practices
Disease management guidelines: Evidence-based guidelines in disease management programs: communications & interventions to promote self-care for high-risk populations.
Managed Care Backlash (1998-Present)
Organized medicine, other providers, consumers contested MCO policies on provider choice, physician referrals, other restrictive practices
States led with consumer & provider rights legislation in all 50 states
Employers implemented “Consumer-driven Health Plans” (CDHPs) with “health reimbursement arrangements (HRAs) or “health savings accounts” (HSAs) enabling consumer benefit & cost choices
Managed Care: Trends in Costs
1980s- 1990s: prospective payment (DRGs) & MCOs stalled national health expenditure growth while markets adjusted
2002-2012: average premiums for employment-based family health insurance increased 97%; singles contribute 18%, families 28%; employees drop coverage
Employers use “benefit buy-downs” to reduce premiums: co-pays, deductibles, drop riders
MCOs and Quality
National Committee on Quality Assurance (NCQA): independent, not-for-profit organization funded by revenues from accreditation services fees; publishes & markets online compendium of quality indicators for 500 health plans serving 107 M Americans
NCQA services (voluntary basis): accreditation for: MCOs, PPOs, MBHCOs, new health plans, disease management programs
MCOs and Quality
Certification for provider organizations to verify provider credentials, physician organizations, PCMHs, disease management programs; Recognition for physician performance excellence.
NCQA accreditation is rigorous: includes all organization aspects: online surveys, on-site reviews: quality management, physician credentials, member rights & responsibilities, clinical processes, care outcomes
Healthcare Effectiveness Data and Information Set (HEDIS) (1)
NCQA, MCOs, employer partnership: created a standardized method for MCOs to collect, analyze & report their performance allowing comparisons among MCO plans
Healthcare Effectiveness Data and Information Set (HEDIS) (2)
Criteria: effectiveness of care; access/availability of care; satisfaction with care; health plan stability; use of services; cost of care; informed health care choices; health plan descriptive information
2012 NCQA report: Audited HEDIS data covering 125 M Americans disclosed quality gaps informing policymakers, purchasers, plan administrators on avoidable illnesses and deaths
Self-funded Insurance Programs (1)
Large employers collect premiums and pool funds into accounts to pay medical claims instead of using a commercial carrier
Use actuarial firms to set premium rates & third-party firms to administer benefits, pay claims, collect utilization data; third parties may provide case management services
Employer advantages: avoid commercial carrier administrative charges, premium taxes; accrue interest on cash reserves, exemption from ERISA
Self-funded Insurance Programs (2)
ERISA controversies, e.g.: states’ responsibilities for consumers’ protections through regulation of employer-sponsored plans; states’ losses of premium revenue taxes; prohibition of employees’ suits against employer-sponsored health plans about insurance coverage decisions
Currently, organizations administering employer-based health insurance plans have legal immunity for withholding insurance coverage or for failing to provide necessary care
Government as a Source of Payment: A System in Name Only (1)
Early focus: military, government employees, special populations, e.g. Native Americans
Now: Medicare, Medicaid, U.S. Public Health Service hospitals, state, local, long-term psychiatric facilities, Veterans Affairs, military & dependents, workers’ compensation, public health protection, service grants
Government as a Source of Payment: A System in Name Only (1)
Mosaic of reimbursement, vendors/purchaser relationships, matching funds, direct services, e.g.
Contracts with providers, not direct service provision (Medicare, Medicaid, grants)
Federal with State matching funds (Medicaid)
Direct services (Veterans Affairs)
ACA: federal support programs for uninsured; not a comprehensive, universal “system”
Medicare: Historical Significance
1965: Title XVIII of Social Security Act
All Americans ≥65 yrs. entitled to health insurance benefits; 20 million entered system in 1965; today, 50 million covered.
Financed by payroll taxes
Conceded accreditation, administration to private sector-JCAHO…Now “JC”
Hospital payments by local Blue Cross intermediaries
Initial Medicare Components
Part A: Mandatory hospital coverage, outpatient diagnostics, extended care facilities, home care post-hospitalization; funded by Social Security payroll taxes.
Part B: voluntary MD coverage, tests, medical equipment, home health; funded by beneficiary premiums matched with federal revenues
Cost sharing: deductibles, co-insurance; medi-gap policies
Additional Medicare Components
Part C: Managed Care Options for Private Health Plan Enrollment (1997)
Part D: Prescription Drug Coverage (2003)
Medicare Cost Containment and Quality Initiatives (1)
Costs rose much more rapidly than expected
By 1976: Most cost growth due to added hospital personnel, non-personnel costs and profits
Early amendments added covered services, increased costs; quality concerns escalated through 70s and 80s.
Later amendments addressed cost growth reductions and quality improvement
Medicare Cost Containment & Quality Initiatives (2)
Comprehensive Health Planning Act (1966): organize local health planning
Professional Standards Review Organizations (1972): review Medicare hospital care.
Health Systems Agencies (1974): plan for health resources based on population needs (replaced CHP); plans based on local population needs
Medicare Cost Containment & Quality Initiatives (3)
OBRA 1980, 1981 amendments to reduce hospital lengths of stay, advocating home care
Tax Equity & Fiscal Responsibility Act (TEFRA) 1982: Peer Review Organizations (PROs) replaced PSROs, providing clearer cost/quality criteria;
2001: renamed PROs to QIOs (Quality Improvement Organizations)
DRGs (1983)
Shifted Medicare from
Pre-set hospital case reimbursement based on diagnoses of the International Classification of Disease (ICDA) codes (10,000+, grouped into 500+ categories)
Rewarded efficient care; financially penalized inefficiency
Other insurers followed lead
DRGs (1983)
Federal prospective Payment Assessment Commission (ProPac) established to review quality
No negative effects on patient outcomes; studies revealed positive results from shorter lengths of stay
Slowed cost growth
Hospitals realized increased profits
COBRA (1985): penalties for financially-motivated transfers; EMTALA (1986) refined COBRA
Medicare Cost Containment & Quality Initiatives (6)
Physician Fees: Rapid rise in Medicare payments and specialty services prompted political action:
1987-1989: price freeze ineffective; results offset by increased service volume
1992: RBRVS: Pay same amount for office procedures whether provided by specialist or primary physician; incentives for primary care practice; continued updates by AMA & specialty societies
HIPAA (Kennedy-Kassenbaum Bill)
Reaction to concerns raised in debates about the Clinton National Health Security Act, e.g.
Ensured continued coverage between employers; prohibited exclusions for pre-existing conditions
Established “portable” Medical Savings Accounts
Balanced Budget Act of 1997
Reduce Medicare spending growth rate over 5 years through direct and indirect cost reductions
Fund State Child Health Insurance Program (SCHIP) to enroll 10+ million Medicaid-eligible children
Introduce Medicare Part C-managed care
Combat fraud and abuse
Strong Resistance to the BBA
Balanced Budget Refinement Act (1999) to restore $ 17.5 B in cuts, delay implementation of BBA provisions
Benefits Protection and Improvement Act (2000) increased health plans’ and providers’ payments
Strong Resistance to the BBA
Balanced Budget Refinement Act (1999) to curtail MCO withdrawals from Medicare +Choice (Part C)
Consolidated Appropriations Act of 2000: restored $17 B in cuts, postponed/adjusted new payment schemes
Balanced Budget Act of 1997 (2)
Reduce Medicare spending growth rate over 5 years through direct and indirect cost reductions
Fund State Child Health Insurance Program (SCHIP) to enroll 10+ million Medicaid-eligible children
Introduce Medicare Part C-managed care
Combat fraud and abuse
Medicare Cost Containment and Quality Improvement (1)
2001: CMS “Quality Initiative” to monitor conformance with standards of care:
Hospitals, nursing homes, home health care agencies, physicians, other facilities
Medicare Quality Monitoring System:
Monitors quality of care delivered to Medicare fee for-service beneficiaries
Medicare Cost Containment and Quality Improvement (2)
2005: “Hospital Compare” website: criteria assessing hospital conformity with evidence-based practice and consumer assessments of hospital care
2008: No reimbursement for treatment of hospital acquired infections or “never happen events” and resulting treatment costs
“Never happen events:” e.g. catheter-acquired infections, foreign objects retained after surgery falls, other traumas sustained during hospitalization
Medicaid and the SCHIP (1)
1965: Title XIX of Social Security Act
Mandatory joint federal-state program
Shared state support based on state’s per capita income
Basic insurance coverage for 62 M low income individuals
19% of personal health service spending; 31% of nursing home care
Medicaid and the SCHIP (2)
Federal government establishes broad guidelines with minimum criteria, e.g. pregnant women & children; states may use broader eligibility criteria:
Low income families and children
Long-term care for older and disabled individuals
Supplemental coverage for low-income Medicare beneficiaries for non-Medicare covered services
Federally Mandated Medicaid Services
Inpatient, outpatient hospital services
Physician services
Diagnostic services
Nursing home care for adults
Home health care
Preventive health screening
Pregnancy related & child health services
Family planning services
Medicaid Funding
Personal income tax, corporate and excise taxes
Unlike Medicare
no entitlement
a transfer payment from more affluent to needy individuals
direct reimbursement to providers, no intermediaries
Medicaid Managed Care
1990s: States experimented with Medicaid managed care to slow rapid cost growth
1993: Federal waivers allowed mandatory managed care accelerated enrollment.
1997: BBA lifted all waiver requirements
50 states participate; majority of recipients in managed care
Medicaid and the SCHIP (6)
BBA established State Child Health Insurance Program targeting enrollment of 10 M children with federal matching funds, 1998-2007
8 M children enrolled by 2010; 2011: 9.8 M < 18 years (9.8%) remained uninsured
Renamed “Child Health Insurance Program;” re-authorized 2009-2013; ACA reauthorized 2010-2015.
Medicaid Quality Initiatives (1)
CMS and State Operations develops & implements Medicaid & CHIP quality initiatives with state programs
Division of Quality, Evaluation & Health Outcomes provides technical assistance to states for quality improvement initiatives
Medicaid Quality Initiatives (2)
Quality Assessment Criteria
Prevention and health promotion
Management of acute conditions
Family experience of care
Availability of services
Division of Quality Evaluation and Health Outcomes provides technical assistance to states on quality improvements efforts
Prelude to Passage of the ACA
2008 presidential election: voter concerns on health care second only to Iraq war
Obama promised swift action on health reform
2009-2010 bitter debates, public outcries
Death of Sen. Edward Kennedy lost Senate majority by replacement with Republican
March 2010 ACA passed in Obama’s 14th month in office; unparalleled reforms since Medicare and Medicaid 45 years earlier
Healthcare Financing Provisions of the ACA (1)
Individual mandate and insurance expansion: beginning 2014, most Americans must carry health insurance or pay a penalty (tax), except those:
For whom the cost would exceed 8 % of income
With income is below federal tax filing requirement
Religiously exempt
Undocumented immigrants
Incarcerated
Members of Indian tribes
Healthcare Financing Provisions of the ACA (2)
Medicaid expansion: states may expand eligibility levels for non-elderly parents & childless adults with incomes ≤ 133% of FPL.
State funds expansion @ 100%, 2014-2016; 95%, 2017; 94%, 2018; 93%, 2019; 90%, 2020 & future.
2012 Supreme Court decision: state participation voluntary; June 2013: 26 states will participate, 13 will not participate; 7 are undecided; 4 will pursue alternative plans
Health Insurance Exchanges (HIEs)
States must establish health benefit exchanges (American Health Benefit Exchanges) & create separate exchanges for small employers of up to 100 employees. (Small Business Health Options Program) or Federal government will establish within states
June 2013: 17 states accept; 28 decline; 6 states elect partnership arrangement with federal government
Health Insurance Exchanges (HIEs)
Web-based, consumer-friendly, comparative information in standard formats to facilitate consumer choice on benefits, pricing
For exchange participation, health plans must meet federal requirements for minimum coverage, “ten essential benefits:”
Ambulatory patient services
Emergency services
Hospitalization
Health Insurance Exchanges (HIEs)
Maternity and newborn care
Mental health and substance use disorder services, including behavioral health treatment
Prescription drugs
Rehabilitative and habilitative services and devices
Laboratory services
Preventive and wellness services & chronic disease management
Pediatric services, including oral and vision care
Health Insurance Exchanges (HIEs)
Exchanges must be governmental entities or not-for-profit corporations
Eligibility: American citizens, legal immigrants whose employers do not provide coverage or for whom the cost of employer-supplied coverage is prohibitive; guaranteed consumer acceptance
Federal government provides premium & cost-sharing subsidies by advance & refundable tax credits based on personal income of 100-400% of the FPL
Penalties, Taxes and Fees help Pay for ACA
Employer health insurance: no requirement to provide, but…
Employers of ≥ 50: assessed $2,000/ FT employee if do not offer coverage & at least 1 employee receives a premium credit through an HIE; if do offer coverage & at least one employee receives a premium credit through HIE assessed lesser of $3,000 for each premium credit receiver or $2,000 per non-enrolled employee
Penalties, Taxes and Fees help pay for ACA
Large employers offering coverage must automatically enroll employees into lowest cost plan if employee does not enroll in employer coverage or does not opt out of coverage.
Imposed tax on high-cost health plans, annual fee on health insurers as % of premiums; annual fees/taxes on medical device manufacturers; tax on indoor tanning services; 2010-2019 revenue: $142B
Penalties, Taxes and Fees help pay for ACA
Increased Medicare payroll taxes for high income earners; modifications to health savings and flexible spending accounts; increase in floor for tax deductions for medical expenses: $ 249 B
Other revenue producers: $ 5.1 B; total= $ 396.1 B
CBO estimate: total cost of insurance expansion approx. $ 1.1 trillion
Reimbursement Experimentation (1)
ACA pilot programs conducted over several years experiment with payment reforms with dual goals of slowing spending growth & improving quality
Pilot results will provide information valuable for planning and refine future initiatives with the same goals
Accountable care organizations (ACOs)
Groups of providers, suppliers of health care, health-related services, others voluntarily join to coordinate services for Medicare patients
Avoid fragmentation across multiple providers; timely, appropriate care to reduce service duplication, unnecessary hospitalizations & costs based on Medicare per-capita benchmarks
Combine fee-for-service with shared savings & bonus payments
Hospital value-based purchasing program (VBP)
CMS began pilot projects in 2003; replicated by private insurers
ACA requires VBP for 3,000+ Medicare-participating hospitals; incentive payments based on clinical outcomes & patient satisfaction; discourages inappropriate, unnecessary, costly care.
Funded by annual % reduction in hospital Medicare payments
Bundled Payments for Care Improvement Initiatives (BPCI)
Created by the ACA’s Center for Medicare & Medicaid Innovation, will test whether reimbursing providers on the basis of the full spectrum of Medicare patient- required services for an episode of illness, rather than piecemeal for individual services, can achieve lower costs & improved patient outcomes.
Independent Payment Advisory Board (IPAB)
Purpose: decrease Medicare spending growth through recommendations on care coordination, waste elimination, best practices, primary care
15 Presidentially- appointed expert members confirmed by Senate; recognizes need to offset political interest group influences on Congressional members
Recommendations in form of legislation with Congressional deadlines for action
Independent Payment Advisory Board (IPAB)
Absence of Congressional action allows DHHS Secretary to implement legislation, not subject to reversal by the Executive Branch or courts
Periodic public reports: standardized, system-wide information on health care costs, access to care, service utilization, quality of care with comparisons by region, types of services, types of providers for Medicare and private payers
Independent Payment Advisory Board (IPAB)
IPAB cannot recommend policies to: ration care, raise taxes, increase Medicare premiums or cost-sharing, restrict benefits, modify eligibility
Beginning in 2015: Biennial recommendations to President & Congress on slowing national healthcare expenditure growth.
Continuing Challenges
Payment reforms entail an array of challenges issues for policymakers
Most difficult issues may be changing prior philosophies, value systems & politics that resulted in the paradox of profit, rather than value- driven reward systems; “Why are the bills so high?” rather than “Who should pay them?”
U.S. costs unjustifiable compared with other developed nations’ health status & expenditures
