Introduction to Healthcare and Public Health in the US: Financing Healthcare (Part1)
Audio Transcript
Slide 1
Welcome to Introduction to Healthcare and Public Health in the US: Financing Healthcare (Part1). This is Lecture (d).
The component, Introduction to Healthcare and Public Health in the US, is a survey of how healthcare and public health are organized and services delivered in the US.
Slide 2
The objectives for Financing Healthcare (Part 1) are:
· Understand the importance of the healthcare industry in the US economy and the role of financial management in healthcare.
· Describe the models of healthcare financing found in the US and in selected other countries.
· Describe the history and role of the health insurance industry in financing healthcare in the US, and Federal laws that have influenced the development of the industry.
· Understand the differences among various types of private health insurance and describe the organization and structure of network-based managed care health insurance programs.
· Understand the various roles played by government as policy maker, payer, provider, and regulator of healthcare.
· Describe the organization and function of Medicare and Medicaid.
Slide 3
This lecture discusses payers in the US healthcare system. It will describe how health insurance works and how insurers pay healthcare providers for their services. It will cover the two sources for healthcare financing, who is allowed to offer insurance, and the different types of health insurance plans. It will also introduce the the concept of managed care, the types of managed care plans, and how managed care affects and controls insurance costs. Finally, this lecture will describe the role of state and federal laws in regulating private health insurance companies.
Slide 4
Health insurance spreads the financial risk for healthcare expenditures for a group of people by pooling money or premiums paid on their behalf into a large fund. A payer uses the pool of money to pay or reimburse for healthcare services provided to the individual members of the group.
In a given year, approximately five percent of the people enrolled in a health insurance plan consume about half of all the money available in the pool. Health plans stay solvent in most cases because each year all of its members contribute more money than they use.
The cost of health insurance is influenced most by prescription costs, technology, an aging population, the prevalence of chronic conditions, government subsidies, and health plan administrative costs.
Slide 5
Before beginning this discussion of health insurance, it is important to understand how providers receive payment from payers or insurance companies. Whenever a patient sees a doctor, gets tests run, or goes to the hospital, the provider prepares one or more claims to receive insurance reimbursement. Information about the patient and the services received is described in two kinds of codes – a diagnosis code and a procedure code. A diagnosis code is called an ICD-9-CM code. ICD stands for International Classification of Disease and CM stands for Clinical Modification, to designate that this collection of codes was revised from an earlier version. A procedure code is called a CPT code, which stands for Current Procedural Terminology in the case of physicians, and a DRG, or diagnosis related group, in the case of hospitals billing Medicare. The procedure code describes the services provided by the provider.
Most claims are sent electronically to the insurance company, where the medical claims examiner or adjuster processes it according to the insurance plan’s guidelines. The examiner subtracts from the bill any amount considered in excess of the plan’s so-called usual and customary charge. The examiner also subtracts any patient co-payment, co-insurance, or deductible, as well as the provider’s pre-negotiated discount for services. The balance is then remitted to the provider in an explanation of benefits or remittance advice.
An explanation of benefits (EOB) or remittance advice (RA) is a document issued by the payer stating the status of the claim; whether it is paid, suspended (pending), rejected, or denied. The purpose is to provide detailed payment information relative to the claim and, if applicable, to describe why the total original charges have not been paid in full.
Slide 6
If a claim isrejected the reason must be stated in the explanation of benefits or remittance advice. Claims can be denied because of coding errors or insufficient information, because a service is not covered under the policy, or because a procedure is still considered experimental.
Many employer-provided insurance plans have a process for allowing patients to appeal a rejected claim. Under the recent healthcare reform law, more companies are required to establish this process as well as allow patients to have a rejected claim reviewed by an independent third party.
Slide 7
As mentioned previously, contributors to healthcare financing include private and public or government sources. Private sources include employers who purchase insurance policies or pay directly for healthcare expenditures through a self-insured plan. Individuals and families contribute through the employee portion of health insurance premiums and through out-of-pocket expenses.
Federal, state, and local governments collect payroll taxes from employer and employees and general tax revenues that is used to fund government financed insurance. Occasionally special tax methods are used such as a sales tax.
The money contributed from government and private sources is pooled into large funds and distributed by payers. Payer was previously defined as a pool of funds, without reference to any specific payer. The next slides will expand this definition to include different organizations or plans that pay for the healthcare services either through a private health insurance plan or through a government insurance program. Each insurance pool or fund pays or reimburses on behalf of the individuals who meet the eligibility requirements for the group represented by the plan or program. For example, eligibility may be due to age as in Medicare and the Children’s Health Insurance Program (CHIP), socioeconomic category as in Medicaid, or employment status for a large corporation that self-insures.
Slide 8
The two basic types of health insurance are public and private with the difference being who is responsible for the programs.
Public insurance is run by the federal government, state government, or both, meaning the government provides the coverage and pays the providers. Medicare is for people age 65 and older and for certain people with disabilities. Medicaid is for low-income people. CHIP [chip] provides low-cost health insurance coverage to children in families that earn too much qualify for Medicaid but cannot afford private health insurance. Medicaid and CHIP [chip] receive federal funding, but are administered by the states.
Private health insurance is funded and run by individual organizations that are licensed by a state. Consumers usually obtain private insurance through their employer. In some cases, employers self-insure in which case they finance and pay for all the healthcare expenditures of their employees. These plans usethe guidelines in the Employee Retirement Income Security Act or ERISA legislation (discussed later in this lecture). In these plans, the employer administers the plan and assumes all the risk for the healthcare expenditures of its employees. An employer may contract the claims paperwork to a third-party administrator, or TPA.
This remainder of this lecture will focus on private health insurance, followed by government health insurance in the next lecture.
Slide 9
The contract that an insurance company offers is either an indemnity plan or a managed care plan. Generally, the contract for insurance is between the individual or family and the insurance company or payer, and not between the insurance company and provider. There are two types of private health insurance plans.
Indemnity plans are “traditional” plans based on a fee-for-service model. Under these plans, providers are paid according to the services they perform. For example, if you break your arm, the company pays a different fee for each service provided, such as a fee for the x-ray and a fee for applying a cast. Today, relatively few indemnity plans exist. Instead, most health plans are managed care plans.
Managed care is a term to describe the techniques designed to provide comprehensive healthcare, manage outcomes and quality, and control costs through a managed care organization. Managed care became popular in the 1970s with health maintenance organizations, or HMOs. Managed care controls costs by providing financial incentives to providers and patients.
A key difference between the two types of plans is indemnity plans simply finance healthcare by paying reimbursements to providers. In contrast, managed care plans integrate the financing and delivery of care into one system. The current delivery of "managed care" services is considerably different than the HMO models of the 1970s, 80s, and 90s.
Slide 10
Before continuing with the discussion of managed care, Blue Cross/Blue Shield is a special case that deserves separate mention here. It is a collection of private insurance organizations, each of which is independent and licensed by a state. Blue Cross reimburses hospitals and Blue Shield reimburses physicians, but the two organizations function as a whole.
Historically, Blue Cross/Blue Shield consisted of not-for-profit associations organized to circumvent state insurance licensing requirements. Today, some Blue Cross/Blue Shield organizations operate as commercial for-profit insurance companies.
Slide 11
A managed care organization, or MCO, is a business model that integrates financing and delivery of healthcare, using managed care techniques. Managed care can be separated into two distinct functions - one is the methodology and techniques used for provider reimbursement, and the other is the provision of comprehensive quality medical care.
Managed care organizations share common features. All have controlled access to comprehensive care and manage the care provided using various techniques designed to reduce costs yet improve the quality of care.
Patient concerns about rationing and the quality of care received through withholding of services by early health maintenance organizations resulted in new managed care models.
Slide 12
HMO plans were the prototype MCOs, and provided care to members during sickness, and encouraged prevention and wellness. Original HMOs used an episode of care reimbursement methodology called capitation, and limited member access only to designated plan providers.
The newer models of MCOs listed on this slide developed as concerns grew that care was being withheld at the expense of patients. The new models mixed-and-matched reimbursement methodologies, permitting greater patient choice of providers, but increasedthe cost of care from the original HMO model. These four MCO models will be discussed in more detail later in this lecture.
Slide 13
Managed care “manages” the accessibility, cost, and quality of healthcare. Managed care plans control what contracted providers are paid and use cost-containment strategies, such as incentives for physicians and patients to choose less costly forms of care, and utilization reviews to determine the medical necessity of services. For this reason, many people consider managed care a gatekeeper.
Today, many versions of managed care plans exist, their heir differences based primarily on cost and provider choice.
Slide 14
Managed care plans differ with regard to the number of choices its members have which has a direct relationship to healthcare costs. Fewer choices, usually in the form of restricting a patient’s selection of healthcare providers, translates to lower insurance premiums and lower out-of-pocket costs. However, some people prefer the freedom to choose their own doctors and this choice and the additional costs involved is an important issue.
There are three types of managed care plans: health maintenance organizations, or HMOs; preferred provider organizations, or PPOs; and point-of-service plans, or POS [P-O-S]. A variation of the PPO is the exclusive provider organization or EPO. The next slides will detail the varying degrees of choice and cost in each of these models.
Slide 15
HMOs represent the lowest cost managed care organization. There are various types of HMOs, with the differences depending mainly on the working arrangement providers have with the organization.
In a staff model HMO, the physicians are salaried employees. They see only patients who are enrolled in that HMO, and they see patients in a clinic operated by the HMO.
In a group model HMO, the physicians are employed by an independent, physician-owned group practice, and the HMO contracts with them for services. In this arrangement, HMO patients are the bulk of a physician’s business, and again, patients are seen in a clinic run by the HMO.
In an open-group HMO, the organization contracts with individual physicians, who are free to contract with multiple plans. Patients are often seen in a clinic operated by the HMO.
In an independent physician association, or IPA, the HMO contracts with physicians who are organized into a group such as a corporation, partnership, or foundation. The physicians retain their independence to see other patients, and they see patients in their own offices, not a clinic operated by the HMO. The IPA model is now used in the majority of HMO plans.
In a network model, the HMO contracts with multiple independent physicians, group practices, and/or IPAs.
Reimbursement is only made to providers within the HMO. No reimbursement is available for healthcare services by providers outside the HMO.
Slide 16
In a PPO, reimbursement is provided using a fee-for-service methodology where patients receive discounts and savings for using network providers. This includes lower deductibles, copayments, and coinsurance. In a PPO, a patient is free to seek care from any provider they choose outside the network and receive some reimbursement.
A variation of the PPO is the exclusive provider organization, or EPO. It is similar to a PPO, but care must be obtained through network providers only. Healthcare services supplied by providers outside the network are not reimbursable through the EPO.
In both the PPO and EPO plans, a gatekeeper does not control access to medical services and individuals may seek care from any provider.
Slide 17
The point of service plan, or POS, includes a primary care physician, or gatekeeper, who controls access to plan only providers, similar to an HMO. The primary care physician becomes the point of service for delivery of all healthcare services. In a POS plan, referrals can be made out of network at the discretion of the primary care physician.