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.