Lecture 12-15: Healthcare Financing

U.S. Legislators have tried to pass healthcare reform for

over 100 years. 

• 1847: Massachusetts Health Insurance Company of Boston “Sickness Insurance”

• 1853: French Mutual Aid Society – Prepaid Hospital Care in SF.  Precursor of HMO

• 1870: Railroad/Mining Industries Provide Company Doctors Funded by Deductions from Workers Wages

• 1910: Montgomery Ward Offers Group Insurance Plan

• 1915-1920: Efforts to Establish Compulsory Insurance Programs Fail in 16 states

Into the 20th century (pre and post WW2): Health insurance was linked to

employment.

• 1935: Social Security Act

• 1943: War Labor Board Freezes Wages, Employers Use Benefits to Lure Workers

• Post WWII: Truman pushed Universal Coverage, failed, Eisenhower pushed Health insurance as Tax-Free Benefit – Which solidified the linkage between healthcare and employment 

• 1956: Disability Insurance Program Added to Social Security

• 1965: ½ of 65 and Older Have Health Insurance.  High Rates of Elderly Poverty.  Medicare/Medicaid Signed Into Law

• 1974: Employee Retirement Income Security Act (ERISA) Establishes Standards for Benefit Plans to Get Tax Credits

• 1986: Emergency Medical Treatment and Labor Act (EMTALA)

“Opt-Out” of Healthcare as an option was limited/ceased in

1986.

• 1996: Health Insurance Portability and Accountability Act (HIPAA) Makes It Easier to Change Jobs and Keep Insurance.

• 1997: Children’s Health Insurance Program Expanded Coverage to 11 Million Uninsured Children.

• 2003: Medicare Prescription Drug Improvement and Modernization Act

• 2007: Massachusetts Healthcare Reform Law – Required All to Have Health Insurance or Face Tax Penalties

• 2010: Affordable Care Act

• 2017: ACA Individual Mandate Repealed (through making the penalty $0)

What is The Inflation Reduction Act of 2022?

• Requires the federal government to negotiate/barter prices for prescription drugs (usually were set-in-stone by private drug companies)

LO: Understand the key financial contributions to the US Healthcare System

Healthcare is a very large sector of the US economy and continues to grow It is Linked intrinsically to

the US economy

Provided by people living in the US to people living in the US.

Around 25% of the federal budget goes

Into healthcare (approximately 4 trillion).

Catch 22”: If we reduce healthcare spending, we’re reducing the amount of money going into the US economy. 

While the US spends significantly more on healthcare than other developed countries, we have surprisingly

poor outcomes relative to other countries.

• Looked at healthcare quality, access, efficiency, and equity.

• Looked at metrics/indicators such as maternal health and infant mortality.

• Healthcare inequities are strongly linked to SES.

  • African American life expectancy is 6 years less than whites.

  • Infant mortality is higher for black mom’s with masters degrees than white mom’s with an 8th grade education level. 

  • African American women are more likely to get breast cancer and die from it than white women. 

Is Medicare as wasteful as people say it is?

• Short Answer: No.

• Only 1.8 cents of every dollar spent by the federal government on healthcare is used by administration costs (cost of Medicare administering itself). 

• Private insurance options are significantly more wasteful with funds on administrative costs. 

  • They are for-profit institutions after all…

• 

Why is US healthcare so expensive?

• Training: US Doctors need to make enough money to pay off loans.

• Administrative Costs: Upkeep of a regulated hospital environment.

• Certification and Compliance regulations.

• Technology

• Medications

• End-of-life care

• Defensive medicine/treatments

• American health behaviors.

What is a review of the US Healthcare Finances Review

• US Health Care is Very Expensive 

• Outcomes Not as Good as Expected

• Structural Discrimination Baked In 

• National Health Expenditures = 25% of Federal Budget and 30% of State Budgets

• Around Half of Health Care Funding Comes From Taxes

• 3 Health Care Payment Systems in the U.S.

  • Private: Market Based

  • Public: Medicare/Medicaid/VA

  • Uninsured

LO: Differentiate between Medicaid, Medicare, and Managed Care

What is Employer Based Healthcare?

Healthcare system in which employee wages are withheld, pooled, and used to pay for health insurance for the employee’s and their families. 

• Prices are negotiated by the employing company/insurance/healthcare companies.

• Money paid towards employer based insurance is tax free. 

• Benefits middle and upper SES people the most

• Rising healthcare costs have led to both employer and employee paying more for health insurance. 

  • Leads to wage stagnation. 

What is the Market Based Care Model for Employer-Provided Private Health Insurance?

• Employer takes money from employees, pools it, and then hands it over to a private insurance company to administer it. 

• Employer negotiates with insurance companies.  For X dollar amount, you’re going to cover Y. 

• Insurance companies then negotiate with hospitals/doctors/pharmacies to determine costs. 

• Hospitals/doctors/pharmacies negotiate with drug companies, labor unions, and medical equipment suppliers.  

• Every involved party is negotiating to get the best deal possible.

Every single private insurance plan (in terms of what is covered, where it’s covered, and how it’s covered) is

entirely unique to the employer.  

• If a group has too many health expenses, the insurer will raise rates, and then the employer must decide to cut care or raise fees.

Why is the Health Savings Account?

An alternative spin on Employer Based Healthcare.  Rather than paying the money to the insurance companies, money allocated for health expenditures is placed into a health savings account. 

• Usually has a high deductible.  You will have to pay a significant amount of money out-of-pocket before accessing funds in the HSA. 

• Both employers and employees will pay into this account.

• All money deposited into an HSA is tax free.

• Funds will roll over from year to year and if not used, this money can be used in retirement to pay for general living expenses (still tax free). 

• Benefits people who can make a lot of money (to afford those high deductibles) and those who are healthy (who won’t use funds within the HSA). 

How are Physicians and Health Insurance Costs set?

• Physician(s) will set fees for healthcare that govern what we can charge.

• Antitrust laws exist to prevent physicians/hospitals from colluding to drive up prices and profits.

• Insurance companies establish “Usual and Customary Fees” for a particular healthcare service.

• During price negotiations, healthcare service costs are discounted (usually by 40%). 

  • Explains why initial hospital bills are absurdly expensive at first and then are reduced to only somewhat absurdly expensive once paid for by insurance.

• Physicians have to play this game (setting an absurdly high initial cost) rather than just bill what we know we’ll get paid because of the risk for price fixing and collusion with other institutions.

• We have to set this rate so that we can negotiate with insurance companies.

What is the Market-Based Individual Health Insurance (From the Affordable Care Act)

• Health Insurance Exchanges: People who do not have health insurance can purchase health insurance for themselves on the market.

  • Prior to the ACA, the individual paid enormous rates for health insurance

    • Exclusions for preexisting conditions and lifetime maximums.

    • Unable to negotiate pricing with the insurance companies. 

  • State will pool all the people who want private health insurance and negotiate for you. 

    • Health insurance companies set coverage based on standards in the ACA. 

    • Competition across state lines: You can get health insurance from a different state (previously could not do before ACA implementation). 

What is Managed Care?

Method to organize how health insurance is paid out and delivered on the physician side.  Two main approaches: Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO).

What is the Preferred Provider Organization (PPO)?

Patient care services are provided through a “network”.

• The patient pays less if they receive care from a provider/location within their covered network (90% covered by insurance)

• The patient pays more if they receive care from a provider/location outside their covered network (50% covered by insurance). 

• Ultimately gives patients discretion to choose where they receive care. 

• Pays providers for services rendered (Fee-for-service model).

What is the Health Maintenance Organization (HMO):

Patient care services are controlled through a medical home (usually their primary care physician's office). 

• Patient health outcomes are usually better in an HMO

  • Primary care doctors know how to better navigate the complex medical system.

  • HMOs are usually cheaper due to negotiations. 

  • Decreased patient choice and autonomy.

  • Insurance companies will pay the network a “premium” per covered life each month. 

    • Costs usually end up being cheaper due to negotiations (around 1k per family). 

Explain Medicare in general terms?

(Publicly funded system):  Non-market based federal health insurance for the elderly.

• Federally run program: Managed by the Centers for Medicare and Medicaid Services (CMS) 

  • Partially funded by Medicare Payroll tax (1.5% tax on income)

• Covers all seniors (aged 65 and above) who have paid into the medicare system for at least 10 years (advantages people who are employed). 

What are the four different parts of Medicare healthcare?

Part A, B, C and D

What is Part A of the Medicare?

Hospital care, covering inpatient care, skilled nursing, and some home health services.

• Monthly premium of $0 if the patient or their spouse has paid into Medicare for at least ten years. 

  • If not, you can buy into Medicare for $506 a month. 

• Has a deductible of $1,600 for a hospital stay of 1 to 60 days. 

  • Days 60-90, you pay $400 per day.

  • Days 91-150, you pay $800 per day. 

  • Days 151+, you pay the entire cost. 

What is Part B of the Medicare?

Covers out-patient physician services, out-patient hospital services, certain home health services, and durable medical equipment for home.  

• Not free to those who paid into Medicare; Has a monthly premium anywhere from $164.90 to $500 (depends on financial need). 

• Deductible: $233.00

• Co-Insurance: 20% of costs. 

What is Part C of the Medicare?

Medicare Advantage Status

• Medicare pays private insurance companies, you pay the extra premiums.

  • Insurance companies will manage medicare contributions during negotiations with hospitals/healthcare providers.  

• Usually the most expensive in how much it costs to administrate it.  (Insurance companies are raking in the cash). 

• Medicare Advantage is a replacement for Medicare, you are waving your medicare and agreeing to let the private insurance company take what Medicare would provide to you.

What is Part D of the Medicare?

Drug Coverage

• Complicated (around 27 different part D plans) and varies significantly depending on the plan.

  • Best advice for patients is to ask your pharmacist to see what plan you would pay the least on (for your drugs). 

• Coverage is run through private insurance companies (regulated at the state level). 

  • Average monthly premium: $34.

  • Average Deductible: $390. 

  • Average Co-Insurance: 15% of costs.  

• (HISTORICAL): Donut Hole (prior to 2020) had insurance only to cover $2500 for drugs.  Everything else was out of pocket. 

• (CURRENT): Inflation Reduction Act of 2022 is empowering Medicare to negotiate drug prices.

Supplemental Medicare: Privately purchased insurance (reinsurance) on top of Medicare. 

• Advantages for patients

  • Covers some medical services that are not covered under Medicare. 

    • Can help cover copays and coinsurance amounts 

  • Gives the patient a greater choice in physicians/who they’re receiving care from. 

    • Since the supplemental add-on pays physicians more money, physicians are more likely to accept you as a Medicare patient.  (advantages wealthy folks).

What is Supplemental Medicare?

Supplemental Medicare: Privately purchased insurance (reinsurance) on top of Medicare. 

• Advantages for patients

  • Covers some medical services that are not covered under Medicare. 

    • Can help cover copays and coinsurance amounts 

  • Gives the patient a greater choice in physicians/who they’re receiving care from. 

    • Since the supplemental add-on pays physicians more money, physicians are more likely to accept you as a Medicare patient.  (advantages wealthy folks).

How does Medicare Pays Physicians?

• CMS will assign a numerical value to all healthcare work depending on how much they deem the service/services are worth.  Incentivized to provide the most expensive care.

  • Numerical value is an RVU: Relative Value Unit.

  • Physicians/hospitals are paid $36 per RVU by Medicare.

  • Physicians/hospitals are paid $56 per RVU by Private Insurance.

  • Medicare is NOW able to negotiate for drug prices. 

• Physicians/hospitals are unable to negotiate with Medicare/Medicaid, we have to accept what they give us. 

  • We are also unable to Opt Out/refuse care through EMTALA (Emergency Medical Treatment and Labor Act).

• Refusing Medicare and Medicaid patients is not really an option. 

  • Causes a moral injury to healthcare workers (doctors are in it to help everyone, not just the rich). 

  • Not enough money from just private health insurance (it’s only 35% of dollars).  You’re gonna go bankrupt if you only select private insurance (rather than a mix of medicare, medicaid, private insurance, and uninsured). 

Physicians/hospitals are unable to

• negotiate with Medicare/Medicaid, we have to accept what they give us. 

  • We are also unable to Opt Out/refuse care through EMTALA (Emergency Medical Treatment and Labor Act).

Refusing Medicare and Medicaid patients is not…?

• really an option. 

  • Causes a moral injury to healthcare workers (doctors are in it to help everyone, not just the rich). 

  • Not enough money from just private health insurance (it’s only 35% of dollars).  You’re gonna go bankrupt if you only select private insurance (rather than a mix of medicare, medicaid, private insurance, and uninsured).

What is Medicaid and who is funds it?

Funded by both State and Federal Levels): 

• Ran at the state level: Managed by different organizations depending on the state. 

• Covers the uninsured poor. 

  • In Illinois…

    • Children (0-18) who’s families make less than 140% of the federal poverty level. 

    • Pregnant Women <213%

    • Working Parents <138%

    • Disabled People <100% FPL

    • As of the ACA Medicaid Expansion

      • Covers regular individuals up to 138% FPL

LO: Define key insurance terms (KNOW THESE)

What is a Premium?

Monthly amount you pay to the insurance company to have health insurance.

• Includes both what the individual pays and what their employer pays.

What is Co-pay?

A fixed amount of money that the individual pays every time they visit/receive care from a provider. 

• Exists to disincentivize people from accessing care; To make people think twice about going to the doctors.

What is Deductible?

The amount of money you have to pay out-of-pocket as you start incurring healthcare expenses before your insurance will kick in. 

• Both disincentivizes people from accessing care and shifts cost onto individuals.

• Different deductibles for different types of care.

  • For example, you can have both a physician/hospital deductible and a pharmacy deductible.

What is Co-Insurance?

The percentage that you pay per episode of care.

• For example, if you are in a PPO, your insurance will cover 90% of those costs.  You are responsible for 10% of those costs.  That 10% of costs is your co-insurance payment. 

• Yet another way to disincentivize people from accessing care and also will shift cost onto individuals.

• Incentivizes people to receive care from certain places (like staying in-network for certain providers within a PPO) 

LO: Illustrate the impact of the uninsured on the US Healthcare System

Why is Being uninsured is devastating on your health?

• In 2012, 55 million people (32% of 19-64 year olds) were uninsured. 

• 18,000 uninsured people die each year prematurely. 

• 3.2 times more likely to die in a hospital due to sickness.

• Uninsured women with breast cancer have a 49% higher risk of death than their insured counterparts. 

• Many uninsured people will only seek/find healthcare in emergency situations.

What are the consequences on the healthcare costs for the uninsured being shifted onto those paying insurance. 

• Has significant consequences on society…

  • Emergency clinics, and hospitals in major cities (Chicago and LA) closed due to high volumes of the uninsured causing a strain on the system. 

  • Many community programs folded due to similar reasons.

  • Hospital and clinic closures affect people of color, and other disadvantaged communities disproportionately. 

• Has significant consequences on the individual themselves…

  • Losing their life savings

  • Losing their retirement funds

  • Declaring bankruptcy due to high amounts of medical debt. 

    • In 2007, 62% of all bankruptcies were due to medical debt.

Why are some impacts of the uninsured on the insured?

• Cost Shifting: Due to the uninsured being able to fully cover their care, 

  • Hospitals and physicians recoup lost costs by increasing the cost of healthcare.

  • Insurance costs will rise, causing employers to increase the amount of money they’re taking from their employees to cover health insurance. 

• Emergency Care wait times go up.

  • Due to uninsured people disproportionately receiving their healthcare in emergency departments rather than primary care doctors offices. 

• Emergency rooms and Hospitals in disadvantaged areas close down due to high volumes of the uninsured burdening their finances. 

  • Can then increase the strain and stress on hospitals in more advantaged areas after. 

• Medical Bankruptcy impacts everyone through a snowball effect. 

  • The cost of bankruptcy will shift debt onto someone else indirectly through raising costs of other items. 

  • Less money will be going into local communities. 

• All of these impacts will impact BIPOC the most significantly. 

Does health insurance make a difference?

• Massachusetts’ mandate for health insurance demonstrated…

  • A 2.9% drop in mortality for all causes. 

  • Mortality from healthcare amenable causes dropped 4.5%

What are the takeaways from this graph?

Takeaways: Non-hispanic whites have the highest percentage of private health insurance.  BIPOC generally have lower rates of private health insurance

What are the takeaways from this graph?

Takeaways:  BIPOC make up a larger percentage of uninsured individuals in the US.

What are the takeaways from this graph?

Takeaways: The southern states have a higher incidence of uninsured individuals. 

What are the takeaways from this graph?

Takeaways: Medical insurance coverage not being affordable is the most common reason for being uninsured.

LO: Understand how political and structural determinants of health impact US healthcare financing.

How do policy, economic systems, and social hierarchies impact health outcomes?

Policy, economic systems, and social hierarchies influence factors like poverty, inequalities, and socio-economic status. They often perpetuate systemic inequalities, including racism, and create barriers to accessing affordable healthcare and purchasing adequate health insurance, which play key roles in determining health outcomes.

Voting influences policies, government, and other institutions. In turn, these institutions influence  

equity and inequity in our society.

What are the goals of US healthcare reform according to the IHI (Institute for Healthcare Improvement)?

The goals include decreasing costs, making healthcare provision more efficient, emphasizing prevention and wellness, lowering the cost of health insurance, implementing payment reform, instituting an individual mandate for employers to offer insurance, improving patient outcomes, and enhancing patient and provider satisfaction.

What is the concept behind the "All in" approach in healthcare, and what solution was implemented to address it?

The "All in" approach spreads costs evenly across everyone, decreasing premiums for all those currently insured and preventing large employers from shifting costs onto the public. The solution that aimed to address this approach was the Affordable Care Act.

How did the Affordable Care Act expand coverage in healthcare?

The Affordable Care Act expanded coverage through measures like the individual mandate, requiring health insurance or a fee to opt out, obligating large businesses to provide insurance, providing tax credits for small businesses offering coverage, expanding Medicaid eligibility, and offering subsidies for health insurance to lower-income individuals who don't qualify for Medicaid.

What improvements did the Affordable Care Act bring to healthcare products?

The Affordable Care Act improved healthcare products by mandating that all health plans cover preventive services and pre-existing conditions, allowing young adults to stay on their parent's plan until age 26, abolishing lifetime maximum payouts for healthcare, ending the cancellation of policies, and implementing payment reform to prioritize the quality and value of care over volume of care.

How does the Affordable Care Act aim to contain costs in healthcare?

The Affordable Care Act aims to contain costs in healthcare by establishing Health Exchanges for health insurance, enabling insurers to compete across state lines, implementing payment reform that prioritizes the quality and value of care over the volume of care, and setting limits on health insurance premium rate increases.

How did the Affordable Care Act impact medical coverage rates among BIPOC communities?

The Affordable Care Act increased medical coverage rates among BIPOC (Black, Indigenous, People of Color) communities. The ACA led to gains in health coverage for all racial and ethnic groups, with significant improvements, especially for minority groups and individuals with incomes below 139 percent of the federal poverty level. The disparity-reducing effects of the ACA were more pronounced in states that participated in the Medicaid expansion.

What were some key observations regarding private health insurance companies and healthcare facilities in March 2020 during the COVID-19 pandemic?

In March 2020, private health insurance companies observed record profits as elective procedures were canceled, patient visits to hospitals and clinics significantly decreased, and the treatment of COVID-19 patients became expensive due to the need for personal protective equipment (PPE).

What were some key components of the federal response to COVID-19, including programs and actions taken to address the pandemic?

The federal response to COVID-19 included the Paycheck Protection Program (PPP) to support businesses, COVID relief packages, vaccine rollout efforts, as well as state relief responses involving the provision of personal protective equipment (PPE), ventilators, and mask mandates. Healthcare was the only industry that had to pay back funds from the PPP.

How did the COVID-19 pandemic disproportionately affect BIPOC (Black, Indigenous, and People of Color) and individuals with lower socioeconomic status (SES)?

The COVID-19 pandemic disproportionately impacted BIPOC and individuals with lower SES by making them more likely to work high-risk essential jobs, leading to higher infection rates, hospitalization rates, and death rates. They also faced reduced access to reliable health information, limited access to COVID-19 testing tools, and experienced a high rate of job loss due to COVID-19.

What is the impact of COVID-19 on healthcare workers (HCWs)?

The impact of COVID-19 on healthcare workers has resulted in health systems struggling to cope, burnout rates as high as 70%, a massive shortage of healthcare workers since the start of the pandemic, with half a million workers lost by 2021, and high rates of depression and mental health struggles among HCWs.

LO: Consider possibilities for future change.

What are Accountable Care Organizations (ACOs) and how do they operate?

ACOs are healthcare systems that can keep a percentage of the money saved if they can reduce healthcare costs. ACOs may involve shared risk between insurers and health systems or full risk where the healthcare system takes full responsibility.

How do ACOs Save Money?

• They focus on providing preventive care. 

  • Improve health in chronic conditions.

    • Thereby decreasing ER visits and hospitalizations. 

    • Patient centered medical home (PCMH)

  • Increase dollars into primary care.

    • RN’s dieticians, social workers, care coordinators, home visits.

Did the Affordable Care Act (ACA) expand health insurance coverage in the United States?

Yes, the ACA expanded health insurance coverage. Before the ACA, 18% of individuals aged 18-64 and 16% of the overall population were uninsured. After the ACA in January 2017, the uninsured rates decreased to 13.1% for individuals aged 18-64 and 10.9% for the overall population. However, as of December 2018, the overall uninsured rate increased to 13.7%.- This is show by the ACA Report Card

What could have been done to improve the COVID-19 response in the United States?

Several steps could have been taken to improve the COVID-19 response, including the activation of the National Emergencies Act, reorienting U.S. industry to manufacture PPE, testing tools, and treatments, empowering the CDC for national protocols, establishing national telehealth platform standards, requiring healthcare systems and private insurers to report to the US Department of Health and Human Services (HHS), continuing insurance payments to healthcare systems and clinics, and implementing uniform electronic medical records (EMR) standards. These measures could have facilitated a transition towards a single-payer healthcare system, leading to significant healthcare reform.

What issues indicate that the current healthcare system in the United States is not sustainable and requires change?

The current healthcare system faces several issues, including the absence of a standard of care for most people, health outcomes being linked to one's ability to pay and socioeconomic status (high SES), overwhelming administrative burdens, complexity that needs simplification, and the need to address political determinants of health, such as poor environmental conditions, inadequate transportation, unsafe neighborhoods, and a lack of healthy food options. These factors highlight the need for reform in the healthcare system.

What was the outcome of the vote regarding support for a single-payer healthcare system by the American Medical Association (AMA) in 2019?

In 2019, the American Medical Association (AMA) held a vote on supporting a single-payer healthcare system. The outcome of the vote was 47% in favor and 53% against supporting a single-payer system. The AMA is a lobbying organization that aims to address healthcare issues and reform.