Pay for Care

financing and insurance

Understand the role of healthcare financing

How money is collected, managed, and spent to pay for health services

• effective financing promotes positive outcomes for populations through quality and access to necessary healthcare services

• The complexity of financing in the US healthcare system is defining characteristic compared with other countries 

Apply key terminology & concepts relevant to the financing of the US Healthcare System

• Beveridge 

  • Public financing and delivery of universal healthcare.

  • (TRICARE, VA & IHS)

• Bismark 

  • Employment-based financing of government regulated non-profit insurance programs covering everyone. Providers are mostly private.

  • (Most working-age employed)

• National Health Insurance

  • Single government run universal insurance program financed primarily through taxes. Providers are mostly private.

  • (Medicaid / Medicare / CHIP)

• Out of Pocket 

  • No organized national system

  • No services provided without payment* (EMTALA?)

  • Uninsured or for services not covered by insurance

Discuss the fundamental principles of insurance

• legal entitlement to payment or reimbursement for a beneficiary's health care costs, generally under a contract with a health insurance company.

  • provides financial protection (coverage) in the event of an accident or illness 

  • based on specified services or goods identified within a health insurance plan

  • Insurance: mechanism to protect against risk 

  • Risk: possibility of substantial financial loss from some event 

Nature and Purpose 

• Insured (enrollee or beneficiary): individual or group buying the health insurance policy. 

  • They pay regular amounts (premiums) in exchange for financial help with future medical costs

• Insurer (payer): insurance company or organization that issues the policy. 

  • They collect the premiums, manage the network of providers, and pay out medical claims when the insured gets sick or hurt.

• Underwriter (risk assessor): review the insured’s medical history, age, and lifestyle to determine insurer’s risk for offering coverage to the insured and determine how much premiums should be.

Terminology 

• Premium: amount charged by the insurer to provide coverage 

  • Premium rates are based on perceived “risk” of the individual or group 

• Cost sharing: shifts a portion of healthcare cost onto the insured 

  

• Deductible: the amount a person pays for covered health care services before insurance plans starts to pay 

• Copayment (co-insurance): a fixed amount a person pays for a covered service/product 

  • Can be flat rate ($20) or percentage based (20%)

• Out-of-Pocket Limit: most a beneficiary can pay during a plan’s policy period (usually one year) before the insurer covers 100% of allowed amount.

• Allowable Amount: the maximum amount on which payment is based for covered health care expenses. 

  • In-network providers negotiate the maximum charge for services to be billed to insurers.

  • Sometimes patients can be billed for the remainder of the actual service amount (above the negotiated rate)

• Provider Network: The facilities, providers, and suppliers a health insurer (or plan) has contracted with to provide health care services.

Provider Networks

Exclusive Provider Organization (EPO): managed care plan where services are covered only if patients use doctors, specialists or hospitals in the plan's network (except in an emergency). 

• No out-of-network benefits (except in an emergency)

• Likely to require prior authorization 

Health Maintenance Organization (HMO): health insurance plan that limits coverage to providers who work for or contract with the HMO. 

• Gatekeeping – referrals from primary care to specialists within the network 

• No out-of-network benefits (except in an emergency)

• Likely to require prior authorization 

Preferred Provider Organization (PPO): A type of health plan where patients pay less if they use in-network providers 

• Patients can use doctors, hospitals and providers outside of the network without a referral at higher cost. 

• Allows patients to choose provider at a price (higher premiums)

Point of Service (POS): A type of plan where a patient pays less if using in-network doctors, hospitals and other health care providers

• Gatekeeping – referrals from primary care to specialists within the network 

• Provides out-of-network benefits (at higher cost)

• Hybrid of HMO & PPO

Economic principles of health insurance 

• Asymmetrical information is a gap in knowledge between:

1. The healthcare professional and the individual (patient)

2. The healthcare professional and payers (insurers)

3. The individual (patient) and payers (insurers) 

Adverse selection, risk pooling, moral hazard

• Adverse selection: describes situation in which an insurer attracts a disproportionate share of unhealthy individuals 

  • Individuals with greater health care needs are more likely to purchase health insurance and to purchase health insurance with richer benefits than individuals with fewer health care needs

  • Insurers have high risk of paying higher costs at higher rates of care

 

• Risk pooling: health insurance risk pool is a group of individuals with varying degrees of “risk” whose medical costs are combined to calculate overall premiums

  • Spreads risks across a greater population with different levels of risk all paying a set premium

  • Allows the higher costs of the less healthy to be offset by the relatively lower costs of the healthy

• Moral hazard: fact that having insurance coverage can change the behavior of the person being insured

  • Insured individuals are insulated from the full or incremental costs of receiving health services

  • May lead to higher utilization 

Compare and contrast the structures and functions of public and private insurance programs

• Health care coverage is grouped into two categories:

• Public health insurance

  • Funded through public monies

  • Includes: Medicare, Medicaid, Military, Veterans Affairs, IHS

• Private health insurance

  • Funded through private monies (employers, employees, individuals)

  • Majority of U.S. population are covered through private health insurance
    
    

• Public programs (38%)

  • Funded through public monies 

    • Medicare 

    • Medicaid / CHIP

    • Veterans Affairs 

    • Indian Health Services (IHS)

    • TRICARE

• Private Programs (54%)

  • Funded through private monies (employees, individuals)

    • Employment-based

    • Direct Purchase 

• Uninsured (8%)