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USHealthCareSystemIntroLect03btopost4.pptIntro to the U.S. Health Care System, Cont’d
Diana M. Tisnado, PhD
Associate Professor, Health Science
California State University Fullerton
Spring, 2019
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Employer-based Insurance: Understanding Certain Holes in the System
- Those early health insurance plans: “the Blues” were non-profits that used “community rating” to set premiums
- With the spread of employers offering health insurance, for profit insurance companies began offering “experience rating” to compete
Explain community rating, dynamic and vicious cycle of adverse selection vs cherry picking or cream skimming
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Lingo Related to Experience and Community-Rating
- Cherry-Picking or Cream-skimming
- Adverse selection
Employer-based Insurance: Holes in the System
- Elderly
In the late 1950’s, <15% of elderly had health insurance
- Unemployed
Poor
Disabled
- Employed with no health benefits (or no affordable health benefits)
Insurance became widespread, but was increasingly tied 1) to employment – which is why we have been discussing employer-based insurance so much; and 2) experience rated. Both of these phenomena meant that there were groups who were less likely to have insurance: the unemployed, the sick, the disabled, and the poor (more likely to not have a plan offered to them, and/or to be unable to afford a plan)
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Government Health Insurance for Elderly: Medicare
- Law passed 1965
- “No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy savings … so that they might enjoy dignity in their later years.” –President Johnson
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Government Health Insurance Coverage: Medicare
- A federal “Social Insurance” program
- Eligibility
Elderly age 65+ who have paid into social security for 10 yrs, or spouse of eligible indiv
Disabled
Chronic dialysis
- 46.6 million enrollees in 2010
Medicare is a federal health insurance program enacted in 1965 to help individuals pay for medical expenses. Individuals are eligible if they are 65 or older, or if they are disabled or require chronic dialysis. We will discuss health policy in more detail in the later chapter, but it is important to understand that passage of Medicare in the 1960’s was not politically easy, and was opposed by many physician organizations. Many political compromises were made to get the legislation passed, and among them were certain agreements to ensure that the federal government would not be interfering with the practice of medicine. While that may sound nice, what this really did was to set a pattern of limiting the degree to which the government paid attention to quality of care and value of the services for which it was paying. There are many examples of services, procedures, and medications which Medicare will pay for although their cost-effectiveness is questionable. This incredible tension has persisted, with the federal Centers for Medicare and Medicaid needing desperately to find ways to control costs while preserving access to quality medical care, yet finding exceedingly difficult political battles in both directions: both when it is accused of overspending, and when it attempts to control costs by limiting coverage. We will examine approaches to understanding the empirical bases for effectiveness and value throughout this course but for now it is important to understand that all the things we do in medicine, including tertiary and preventive medicine, are not always supported by a strong evidence base, so we pay for many interventions that may not be highly effective, while imposing opportunity costs by diverting funds that could be better spent elsewhere to achieve more bang for our buck.
Government Financed Insurance
What taxes, from what taxpayers? – actually employers and employees both pay taxes on wages, or payroll taxes into the Social Security system to finance Medicare part A.
Part B: there is a monthly premium (so just like regular private health insurance) and part comes from general revenue (ie personal income and other federal taxes
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Medicare: What is Covered?
- Part A (automatic for everyone eligible)
Hospital acute care
Psychiatric hospital care
Post-hospital skilled nursing facility care
Post-hospital home health care visits
- Part B (voluntary, must pay monthly premium)
Most physician services
Clinical laboratory services
Home health care
Medical equipment
Part A can be thought of as “hospital insurance.” Medicare Part A covers hospitalizations, and a limited amount of inpatient skilled nursing care for individuals just discharged from hospitalizations, and a limited amount of inpatient psychiatric care. Part A does not require people to pay monthly premiums: it is coverage that enrollees paid into through employment taxes when they were working.
All of these Part A benefits have limits – some have some pretty serious limits.
Part B covers physician services, outpatient care, and some physical and occupational therapy and home health care. Part B is optional and requires individuals to pay a monthly premium.
Medicare: What is Covered?
- Part C
Allows enrollment in a variety of types of private plans, often managed care (e.g., various HMO and PPO) plans, many with comprehensive benefits including preventive services. Involvement of private plans sometimes critiqued.
- Part D
Prescription drug benefits
Controversial due to complex rules and sometimes high costs, involvement of private plans, and lack of government negotiation power.
Part C and D were added by additional legislation later on. Part C, Medicare Advantage, allows enrollees instead of traditional Medicare to select a plan, such as a managed care plan, which is often more comprehensive than traditional Medicare benefit, but may limit the network of providers a patient can see. These plans had a particular advantage in the past because they could cover prescription drugs, which Medicare did not do under the original legislation. Part D was passed to offer a prescription drug benefit. It is optional. At first it was controversial because of the complicated cost structure, whereby it covered a certain percentage until you had spent a certain amount, then the coverage went to zero, but after more spending the coverage kicked in again. (this was called the “doughnut hole”, which you may have heard of). Some of these features such as the doughnut hole have now been phased out.
It is important to note the things that Medicare does not cover. Although Medicare does cover many medical devices, oddly enough it does not cover eyeglasses or hearing aids. It also does not cover dental care, and does not cover most long-term care services. Now, I want to point out that your textbook makes a rather puzzling statement, saying that “chronic condition for the most part are not covered by Medicare.” I have to tell you I am really not sure what Haber means by this, except perhaps that most conditions are not specifically covered by name. Generally speaking, payments for outpatient care are made according to the medically necessary services the clinicians provide, and not by diagnosis. So for example, “diabetes” is not covered as such, but the physical examinations, blood tests, counseling, and medications for the management of diabetes are what is covered. For inpatient care, payments are actually determined according to a formula that is largely based on the diagnosis responsible for the hospitalization.
“Holes” in Medicare
- Long term nursing home and long term in-home care not covered
- Hearing Aids, Dental, and Vision generally not covered
- Large deductibles if long hospital stay
Private Medi-Gap policies purchased by those who want more coverage
- Physicians can choose to participate or not – geographic variation in participation
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Other Challenges for Medicare
- Financing challenges:
- Increase in enrollment expected from 40 to 70 million Americans as baby boomers (born 1946-1964) grow older and retire in large numbers
- Fewer younger workers paying into fund more costs may be shifted to patients
- However, “social insurance model” has provided good political support
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3.8 workers/retiree vs. 2.2 in 2020
We didn’t have so many in those days
We didn’t live as long
How can costs be shifted to patients/beneficiaries?
Government Health Coverage for Poor: Medicaid
- Financed by Federal-State Partnership; Administered by states
- Eligibility
Generally low income families: criteria vary by state
Poor elderly; also disabled and blind on SSI: can receive Medicare and Medicaid
- Low payments to healthcare providers limits participation, access
- Most important payer for long-term care, pays for 60% of long term care services
- Substantial portion of Medicaid budget is spent on long-term care for poor elderly
Medicaid is the medical care assistance program generally intended to cover low income individuals. It is a federal-state partnership, with approximately half of funding coming from the federal level and the rest from the states. Many key regulations and a core set of required services set forth by the federal government, but with states having a fair amount of discretion in eligibility decisions and additional coverage decisions. Medicaid is key because it is the main payor for long-term care services for the elderly. About a third of Medicaid’s budget goes to pay for long-term care services, paying for about 60% of all long-term care services. To qualify, individuals must spend their assets until they meet their state’s eligibility definition for being “low income.”
Medicaid: Challenges
- Application lengthy, must reapply often
- Generally pays poorly to physicians many physicians choose not to participate
- Strict rules about what is covered
- May carry stigma of “welfare” for recipients
- Costly for states!
- “Public assistance model” can mean weaker base of political support
Welfare or charity
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Individual Insurance Market
- What about those with none of the above?
Don’t have employer-based health insurance
Don’t qualify for Medicare or Medicaid
- Must shop for insurance on individual market
- Do we expect plans to be more or less affordable than employer-based plans? Why?
Now we have the extremes of experience-rating: when you’re pool is an employer-based pool, it is often on the healthier side on average. Individual plans may not be like that. They are underwritten with that individual’s profile and own experience in mind. – This is where the issue of pre-existing conditions loomed as a huge issue prior to the ACA.
Have a history of cancer? Maybe your policy won’t cover cancer. Or maybe you would have to purchase a separate rider at an exhorbitent cost. Or maybe you won’t be offered coverage at all – you could just be denied.
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More Ongoing Challenges: Medical Inflation
- 1970’s and early 80’s saw significant inflation everywhere but especially in health care
- Concept emerged of ways to improve management of how doctors practiced medicine and simultaneously to control costs
- Organizations were called Health Maintenance Organizations (HMO’s)
Welfare or charity
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What is “Managed Care”?
- Integration of delivery and finance of healthcare
- Different healthcare provider reimbursement models to change incentives
- Management of physicians practice style to control costs AND (in theory) quality
- Became popular in both the private and public sector
Idea was developed by researchers and policy wonks, and was promoted by the Nixon administration in the 1970’s with the Health Maintenance Organization Act of 1973.
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Types of “Managed Care”
HMO
- “Health Maintenance Organization”
- Set network of physicians and hospitals
- Advantage: lower patient costs
- Disadvantage: not as much choice
PPO
- “Preferred Provider Organization”
- Can choose any physician
Preferred providers: more coverage (e.g., 80% vs. 60%)
- Advantage: more choice
- Disadvantage: Often higher patient costs
Another set of terms that are useful to know are HMO and PPO.
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Changing Trends in Reimbursement
- Hospitals in past charged “Usual, Customary, Reasonable (UCR)
Whatever price is demanded is what insurers paid
- Physicians in past paid “Fee for Service”
The more you do, the more you get paid
- Now trends are towards finding new payment models that don’t simply reward doing more things to patient
More detail on this when we discuss provider payment/ reimbursement
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The Backlash
- Patients were suspicious of the cost-cutting motivation and became angry
- Some physicians frustrated by the erosion of their autonomy and became angry
- Nevertheless, almost all care is now managed care!
- Private and public sector have been continuously experimenting with new payment models that reward value
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Summary
- Only major industrialized nation without truly comprehensive, national health care/health insurance system
- US Healthcare has been built like a patchwork quilt, with gradual “incremental” additions
- Complex and in some ways fragile
- Even with reforms, large numbers of uninsured and vulnerable populations
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