Ch. 15 & 16

Health Insurance Overview

• Health insurance encompasses various plans and systems that cover medical expenses for individuals and their families.

Healthcare Transaction Structure

• Traditional Consumer Transaction:

  • In a standard transaction, a buyer pays money to a seller for goods.

• Healthcare Transaction:

  • Involves a provider (like doctors, hospitals), a consumer (patient, insured employee), and third-party insurers (private insurance, self-insured employers, government programs like Medicare/Medicaid).

• Key Roles:

  • Provider/Seller:
  • Includes doctors, hospitals, drug companies, and medical device manufacturers.
  • Consumer/Buyer:
  • Can be patients, insured employees, or government.

Effects of Three-Party System in Healthcare

• Patient/Insured/Employee:

  • Benefits from a lower "user price" of healthcare, leading to less incentive to manage healthcare spending as a traditional consumer.
  • This may result in over-utilization of healthcare services.

• Healthcare Providers:

  • Operate on a fee-for-service (FFS) payment structure where each service has a separate fee, incentivizing more services provided.

High Costs of Healthcare in the U.S.

• National Health Expenditures (2022):
  • Approximately 4.5 trillion.
  • Represents 16.6\% of the Gross Domestic Product (GDP).
  • Costs about 12,555 per capita.
  • Comparison to other countries (per capita):
  • Switzerland: 8,049
  • Germany: 8,011
  • Netherlands: 6,729
  • Canada: 6,319

Global and U.S. Contributions to High Costs

• Global Factors:

  • Advances in technology (e.g., MRI, organ transplants)
  • Aging population
  • Behavioral factors (lifestyle diseases)
  • Third-party financing leading to lack of cost control and overutilization.

• Specific U.S. Factors:

  • Employer-sponsored health insurance prevalent.
  • High administrative costs of healthcare.
  • Lack of transparency in healthcare cost and quality.
  • Cost-shifting in Medicaid and Medicare leading to increased costs.
  • Defensive medicine practices.

Major Defects in the U.S. Healthcare System

• Rising healthcare costs.
• Large uninsured population.
• Wasted resources and inefficiency in service delivery.
• Harmful insurance practices affecting coverage and care.

Affordable Care Act (ACA)

• Key Components of ACA:
  • Guaranteed Issue: Insurers cannot deny coverage for pre-existing conditions.
  • Community Rating: Insurers limited to a few rating variables only.
  • Minimum Health Standards: No dropping of policyholders, coverage for dependents until age 26, no lifetime coverage limits, essential health benefits.
  • Individual Mandate (now repealed): Required purchase of health insurance or face penalties.
  • Health Insurance Exchanges: Platforms for purchasing health insurance.
  • Subsidies: Financial assistance for low-income families.
  • Employer Mandate: Employers with 50+ employees must provide health insurance or incur fines.
  • Claim Payments: Insurers required to pay at least 85 ext{%} of premiums in claims.

Cost Sharing in Health Insurance

• Types of Cost Sharing:
  • Copayments: A fixed fee for specific services (e.g., 25 for a doctor visit).
  • Deductibles: Total amount paid by the insured before the insurer covers expenses (e.g., 1,000/year).
  • Coinsurance: The percentage of the remaining costs after the deductible has been met (e.g., 20 ext{%}).
  • Out-of-Pocket Maximum: The cap on what the insured has to pay within a year (5,000).

Specific Cost Sharing Scenario Example

• Jon Snow's Medical Bills:

  • For a 4,000 bill:
  1. Deductible: Jon pays 1,000 initially.
  2. Remaining amount after deductible: 4,000 - 1,000 = 3,000.
  3. **Coinsurance applies, Jon pays 20 ext{%} on this:
     • Payments: 3,000 imes 0.2 = 600.
  4. Total Jon owes: 1,000 + 600 = 1,600.
  • For a 30,000 surgery:
  1. Deductible from prior care met: (assumed the same 1,000.)
  2. Remaining: 30,000 - 1,000 = 29,000.
  3. Coinsurance on this: 29,000 imes 0.2 = 5,800.
  4. Total owed: 1,000 + 5,800 = 6,800.

Types of Health Insurance

• Individual Medical Expense Insurance: Provides coverage for individuals unable to acquire group insurance.
• Group Medical Expense Insurance: Offered through employer benefits, covering hospital care, physician fees, and related medical costs.

Managed Care Plans

• Definition: Designed to provide covered services cost-effectively with limited choices of physicians and hospitals.
• Includes types such as HMO, PPO, and POS.

Health Maintenance Organization (HMO):

• Prepaid healthcare system with limited provider choices.

Advantages of HMO:

• Lower overall costs due to cost-sharing benefits.

Disadvantages of HMO:

• Limited out-of-network coverage and requirement for referrals.

Preferred Provider Organizations (PPO):

• Contracted network providing discounted services, with flexibility to see out-of-network providers for higher costs.

Advantages of PPO:

• No referrals needed and broader network access.

Disadvantages of PPO:

• Higher cost-sharing and complicated billing.

Point of Service (POS):

• Hybrid of HMO and PPO with in-network benefits and need for a primary care physician (PCP) who acts as a gatekeeper.

Consumer Directed Health Plan (CDHP)

• Definition: Combines high-deductible health plan with a Health Savings Account (HSA).

Health Savings Account (HSA):

• Tax-exempt savings account for medical expenses, requiring a high-deductible plan for eligibility.
• Money remains available for future use, promoting cost sensitivity.

Advantages of CDHP:

• Lower premiums and savings for retirement if unused funds remain.

Disadvantages of CDHP:

• High initial costs may deter care for low-income individuals.

Flexible Spending Accounts (FSA)

• Definition: Allow employees to pay for unreimbursed medical expenses with pre-tax dollars, emphasizing their non-transferable nature.

Choosing a Healthcare Plan

• Consider key factors such as:
  • Deductibles (in-network vs out-of-network)
  • Coinsurance (in-network vs out-of-network)
  • Out-of-Pocket Maximums
  • Copayments
  • Network of providers
  • Premiums

Plan Comparison Examples

• Analyze different plans based on costs, deductibles, out-of-pocket maximums, coinsurance, and network limitations to select the best individual option.

• Sample Plans: Include different monthly premiums and deductibles for various coverage scenarios. This helps to evaluate which plan aligns with personal health needs and financial capability.