Healthcare Mid-Term 1

USA viewed by the world vs. healthcare

USA has best GDP, Education, and wealth → Inefficient Healthcare System with Worse Health Outcomes

What is Health by Definition?

Health is the complete state of physical, mental, and social well-being (not merely the absence of illness)

Examples of Social Determinants and Relationship to Health

• Behaviors, Circumstances, Environment, Genetics, Medical Care, Stress

• Only 10% of Health is attributable to medical care

Market Justice vs. Social Justice

Market Justice: Efficiency

• Healthcare is for economic and should be based on individual’s ability and responsibility

Social Justice: Fairness

• Healthcare needs government and medical services is a basic right

Why don’t markets work well in healthcare?

• Never know when you need care

• Large prices

• Can’t comparison shop or rely on experiences

• Doctors can profit by selling unhelpful services

Ideal Healthcare System in the United States

Combine both Market and Social Justice while the U.S historically favors markets

Examples of Private Insurance (Blue)

• Blue Cross

• Blue Shield

• Employer-Based Private Insurance (EBI or ESI)

History of Prepayment Idea and Definition

• Spread during Great Depression during low occupancy rates in hospitals

• Prepayment - Pay now, receive care later

What did the American Hospital Association (AHA) do when founded

In 1898 they coordinated groups of hospitals for Pre-Payment Plans → Plans united to make Blue Cross → By 1946 there were 20M enrollees

Blue Shield

Created by California Medical Association to make plan for prepayment to cover MD expenses (controlled by states)isH

History of Group Insurance Plans

Unions after WWII negotiated for health benefits as part of their compensation

What is a Tax Subsidy

Financial help from Government

• Regressive - More Benefit to Individuals in Higher Tax Brackets because they pay more in taxe

History of Medicare/Medicaid in 20th Century

• 1948 Truman Heath Insurance Program shut down by AMA

• 1958 House of Ways and Means Committee considered Medicaid, shut down by AMA

• Finally passed in 1965

Fragmented Politics influenced in Healthcare

• Governments control agendas → USA designed to default to inaction

• American Way of Free Markets influence Healthcare

Victor Fuchs 3 Points

• USA has a distrust for gov.

• Reluctance to achieve equitable outcomes

• Political System makes possible for special interests to have more impact

Comparison between Healthcare Insurance and other Insurance

• Similar as it covers rare events

• Different because it protects against most healthcare (all healthcare is expensive)

  • Also different because healthcare is needed for basic human needs (Maslow’s Hierarchy of Needs)

Percent of people who delayed/didn’t get healthcare due to $

• 38% of uninsured

• 15% of insured

Percent of People who had a family member who had difficulty paying medical bills

• 21% of uninsured

• 10% of insured

Percent of people who worry about ability to pay medical bills

• 74% of uninsured

• 42% of insured

Percent of Adults who have no usual source of care

• 41% of uninsured

• 8% of insured

EMTALA: Emergency Medical Treatment and Labor Act 1986

• Cannot turn people away if you accept medicare

• Doesn't work for: Primary, Follow-Up, Cancer, or Medications

Relationship between Insurance, Access to Healthcare, and Better Health

Insurance → Better Access to Healthcare (DOES NOT MEAN) Better Health

Oregon Medicaid Experiment (Experimental Overview)

Oregon had money to give Medicaid to 10K people

10K out of 30K in lottery got Medicaid and were compared to the rest

Results of Oregon Medicaid Experiment

• More use of Healthcare Services

• Increased rates of diabetes detection + lower rates of depression

• Less Financial Strain

• BUT, no significant improvements of measurable health outcomes

Premium Definiton

$ you pay to get insurance

• Out of Paycheck if covered by EBI

• Monthly Bill if you have Direct Purchase Insurance

Deductible Definition

$ you have to pay yourself BEFORE insurance kicks in (more financial risk)

Another name for Very High Deductibles

Catastrophic Coverage because you have to pay a lot before Insurance begins

Copay Definition

FIXED amount that insured has to pay at the time service is provided

CoInsurance Definition

FRACTION of cost of service insured needs to pay

Cost-Sharing

Refers to payments (deductibles, co-pays, and co-insurance) because paid at point of service

What are Insurers Solution to the fact that the Insured know more about their own health (Adverse Selection)

• Medical Underwriting - Access risk of People (became illegal In 2014)

• Rate-Making - Deciding what to charge people w/ different risks

• Risk Pooling - More Predictable Health + Health Costs)

Gaming by Insurance

• Ensure only Health People to avoid the sick (cherry-picking premiums)

• Dumping someone who is ill (lemon dropping)

Who subsidizes who in Health Insurance?

The Health subsidize the Sick

Moral Hazard Definition

Party insulted from financial risk behaves differently if they were exposed to risk

Moral Hazard related to Healthcare

No Insurance → Little Protection against Financial Losses

Too Much/Poorly Constructed Insurance → Unnecessary Utilization of Insurance

How do you counteract Moral Hazard?

Cost Sharing

Results of RAND Health Insurance Experiment in 1980s

• Cost-Sharing through Co-Insurance can reduce utilization to counter effects of Moral Hazard

• Adverse Health Impacts concentrated only in sickest of patients

Problems with Cost Sharing

Providers know more than Patients → Poor Decisions by Insured and Little Price Transparency

Cost-Sharing-Balance

• Too little Cost-Sharing → Market Collapses

• Too much Cost-Sharing → High Deductible Plans

How did the ACA impact Private Health Insurance

• New Regulations to improve employers/direct plans

  • Make EBI and Individual Insurance more Consistent

• Created Marketplace Plans

Private Insurance before ACA

Lots of Flexibility between Insurers → More Variety which can confuse consumers

What basic things did the ACA force to Private Insurance Companies to have?

Ambulance, ER, Hospitalization, Maternity, Disorder, Drugs, Rehab, Labs, Wellness, and Pediatric Care

Percent of People who have Private vs. Public Insurance

66% have Private Insurance

36% have Public Insurance

6% are Uninsured

State-Licensed/Fully Insured Plans in EBI/ESI

• Employer Pays Premiums, risk goes to employee

• For 3-199 employee range

• State-Regulated

Self-Funded/Self-Insured Employee Plans

• Company itself insures + 3rd Party administers benefits

• For Larger Companies

• Regulated by Federal Gov. (ERISA - Employee Retirement Income Security Act)

Are Healthcare Premiums Taxed?

No, not for employers or employees

Problems with EBI Premiums

25% of EBI Premiums paid by Workers + Premiums exceed general inflation

Who Gets EBI?

• Not all Firms offer Insurance (under 50 Employees)

• Not all employees are eligible (First 90 Days + Part-Time)

• Not all eligible take up offer (still have to pay premiums)

Basic Changes of ACA?

• Medicare Changes → Updated Part D, Free Preventive Care Benefits + Reduced pay to Providers

• Medicaid Expansion

• ACA Exchanges for Private Insurance (w/ risk pooling)

ACA Marketplace Fundamentals

Every State has to create insurance exchange place that complies with ACA

• Federal Funding Used + Federal Marketplace as backup

What was the model for the ACA Individual Mandate

2006 MA Healthcare Reform ACT

Supreme Court Decisions on ACA

Individual Mandate was okay (seen as a tax) BUT, forcing Medicaid expansion is optional

Amount of States that have Federal, State, or Both Insurance Marketplace

28 States have Federal, 21 States have State-Controlled Marketplaces, 2 have BothA

ACA before American Rescue Plan

• Medicaid Expansion for unde 138% FPL

• 138%-400% FPL → Individual Insurance w/ tax credits + subsidies

  • Between 138%-250% of FPL, both Tax Credits and CSR Subsidies

  • Between 250%-400% of FPL, tax credits only

• Over 400% FPL → Individual Insurance w/ no subsidies

Metal Levels in ACA Marketplace

Bronze, Silver, Gold, Platinum

Bronze in ACA MarketPlace

Lowest Premiums, Highest Cost SharingilvS

Silver + Gold in ACA MarketPlace

Intermediate

Platinum in ACA MarketPlace

Highest Premiums, Lowest Cost Sharing

Trump 1st Term Influence in Marketplaces

• Defunded Enrollment Support

• Shorten Enrollment Period

• Ended CSR Subsidies (cost gov. money)

  • Insurance Prices increased from 7%-38%

  • Same Premiums for <400% FPL (15% of Population had to pay full price)

• Tax Cuts and Jobs Act repealed penalty w/ individual mandate

American Rescue Plan 2021 (Pandemic Act) (ARA)

• Eliminated 400% subsidize cutoff

• More subsidizes for all + No Premiums for 100%-150% FPL

• Those with Unemployment Insurance eligible for Low-0 Premium)

Inflation Reduction Act 2022 (IRA)

Extended ARPA 3 more years (Until Big Beautiful Bill)

What is Provider Reimbursement?

How Healthcare Providers get paid for delivering services (Different Healthcare Services are reimbursed differently)

All Types of different Provider Reimbursement

• Fee for Service

• Per-Diem

• Episode-Based Payment

• Global Surgical Fee

• Bundled Payments

• Capitation

Fee-For-Service Definition

Payment for each Individual Service

Per-Diem Definition

Hospital gets fixed payment per day of care

Episode-Based Payment

1 payment covers care for whole illness

Global Surgical Fee

One Payment covering a Surgical Procedure

Bundled Payments

• One Payment covering multiple related services

Capitation

Fixed Payment per patient per month/year (amount of service used is irrelevant)

Indemnity Plan in FFS

The Tradiitonal FFS Insurance Arrangement → Insurance Reimburses You for what Doctor billed

UCR (Usual, Customary, Reasonable) in FFS

Older system where physicians set bills (helpful for only physicians)

Fee Schedule in FFS

Replaced UCR, List of predetermined payments for specific services (established by payers)

What is Medicare FFS provider reimbursement based off?

RBRVS (Resource-Based Relative Value Scale)

RBRVS FFS Explained:

Based off Relative Value, Geographic Modifier, and Conversion Factor

Problems with FFS

• More Services → More Revenue for Providers (volume>quality)

• Can encourage unnecessary treatments

• Lowering payment per service may encourage providers to increase service volume

How do you fix problems with FFS

Value-Based Payment/Alternative Payment Models (APMs)

Alternative Payment Models (APMs)

Alternatives to traditional FFS that aim to improve incentives around cost and quality

Payers (Insurers) Perspective in FFS

Bear the financial risk because they must pay for covered services as utilization increases

Providers Perspective in FFS

Little financial risk per service, increase revenue by providing more services

Patients Perspective in FFS

Can access contracted providers and physician-approved services, but may receive unnecessary care

Policy Perspective in FFS

Traditional FFS has limited built-in incentives to control spending or improve quality

Con of FFS

May create over utilization due to Providers being compensated more with more services

Capitation Overview

Insurers give set $ to Providers to use for patients (per patient per month)

Payers Perspective in Capitation

Transfer much of short-term financial risk to providersroP

Providers Perspective in Capitation

Take on greater financial risk, but can retain savings from delivering care efficiently

Patients Perspective in Capitation

May receive more coordinated care, but risk receiving fewer services than needed

Con with Capitation

Underutilization due to Providers having a set amount of money that they can profit on if they don’t go over

Risk Adjusting in Capitation

• Sicker Patients → Higher Payments

• Healthier Patients → Lower Payments

• Occurs because too little payment risks avoiding the sick (Cream Skimming) and too much wastes money

Principal Agent Problem in Capitation

Providers should act in patient’s best interest, but finances may conflict with said interests

FFS vs. Capitation Overview

Payment Type

• FFS = Paid Per Service

• Capitation = Fixed Payment per Patient

Incentives

• FFS = Incentive to do More (over utilization)

• Capitation = Incentive to spend Less (under utilization

Risk Management

• FFS = Payer has more Risk

• Capitation = Provider has more Risk

The 4 Functions of Healthcare Delivery

Financing, Insurance, Delivery, Payment

Financing in Healthcare Delivery

Where healthcare money comes from (premiums, taxes, employers, etc.)

Insurance in Healthcare Delivery

Pooling/managing financial risk for paying for covered care

Delivery in Healthcare Delivery

Providing actual healthcare services

Payment in Healthcare Delivery

How providers are reimbursed

Managed Care Definition

Organized approaches to coordinating healthcare services while controlling costs and improving quality (insurers and providers)

Total Cost Equation in Managed Care

Total Cost = Number of Services x Price per Service

Ways for Managed Care to reduce spending

Reduce Utilization (Number of Services) or Reduce Prices per Service

How do Insurance Companies reduce Utilization to reduce costs?

• Insurer has to approve services before provided and if they are medically needed (Prior Authorization + Utilization Review)

• Formularies - List of preferred medications to manage drug spending

How do Insurance Companies reduce Prices per Service to reduce costs?

• Negotiate lower payment rates with hospitals and providers

• Negotiate drug prices through Pharmacy Benefit Managers (PBMs)

• Use narrow provider networks to obtain lower prices