Health Insurance
Paying for Healthcare
The goal of health insurance is to improve health outcomes by making healthcare more affordable to seek.
Learning Objectives
2(B): The student will apply data from tables, charts, and graphs to provide solutions to health-related problems.
2(N): The student will describe the impact of health services on the economy.
2(O): The student will analyze the impact of local, state, and national government on the health science industry.
9(E): The student will research laws governing the health science industry.
Challenges in Healthcare
Causes of Rising Costs
U.S. healthcare expenditure is higher per capita than other countries, yet it does not yield the highest success or satisfaction rates.
Significant factors contributing to high healthcare costs include:
High prices for healthcare services and goods.
Significant administrative costs, including:
Maintenance costs for buildings.
Personnel salaries.
Defensive medicine practices.
Costs associated with technological advancements.
Overuse of specialists.
Waste and fraud in the healthcare system.
Relatively high prices for drugs compared to other products.
High costs for drug development.
An aging population.
Declining health among the younger population.
Decreasing healthy lifestyles among the general population.
Healthcare Institutions
Non-Profit Institutions
Provide healthcare services for all.
Operate as charities, exempt from most taxes but do pay Social Security and Medicare taxes.
Examples vary by community.
For-Profit Institutions
Operate similarly to non-profit but are structured as for-profit businesses and pay local, state, and federal taxes.
Examples include:
Community Health Systems
Community Corporation of America
Tenet Healthcare
VA Austin State Hospital
Texas Health Resources
Baylor Medical System
Governmental Institutions
Provide healthcare services funded by the government.
History of Healthcare Reimbursement
Historically, patients directly paid physician fees for services.
Payment could be made in cash or barter (e.g., vegetables, fresh meat, firewood).
As healthcare service complexity and costs increased, health insurance emerged as the preferred payment method.
Patients pay premiums to insurance companies and visit physicians as needed; physicians determine treatment actions covered by the insurance.
This payment method is known as a Fee-For-Service plan, which is often deemed not cost-effective.
Healthcare Payment Methods
Private Insurance
Patients pay healthcare costs out of pocket, leading to more careful usage of services.
Catastrophic insurance may cover costs exceeding the patient's ability to pay.
Individuals purchase their own insurance or obtain it as an employment benefit, sharing costs with employers.
Various plans exist with differing coverage levels.
Government Plans
Funded by government agencies, examples include:
Healthcare for military personnel and families.
Veterans Administration Hospital System.
Medicaid programs.
Medicaid Direct Pay.
Medicaid
Accounts for 20% of U.S. healthcare spending.
Regulated and partially funded by the federal government.
Coverage is provided through private managed care plans that contract with states.
Eligibility includes low-income individuals, children, pregnant women, parents of eligible children, disabled persons, and the elderly needing assistance with costs not covered by Medicare.
Covers a large portion of nursing home expenses.
Medicaid Eligibility Thresholds
Income ranges for household sizes to qualify:
$16,970-$25,520 for a one-person household.
$22,929-$34,480 for a two-person household.
$28,887-$43,440 for a three-person household.
$34,846-$52,400 for a four-person household.
Medicare
Established by Congress in 1965, part of the Social Security Administration.
Provides health insurance to individuals aged 65 and older and those with disabilities qualifying for social security.
Individuals must pay a monthly premium and cover deductibles and coinsurance out of pocket.
Medicare Coverage Types
Part A: Inpatient Hospitalization coverage.
Part B: Outpatient physician services coverage.
Part C: Medicare Advantage plans (private companies).
Part D: Prescription drug coverage.
Comparison of Medicare vs. Medicaid
Medicare
Federal insurance program.
Funded by a Trust Fund supported by payroll taxes.
Consistent program benefits across the nation, targeted at individuals aged 65 and older.
Participants pay deductibles and are responsible for a portion of their coverage.
Medicaid
Federal and state assistance program.
Benefits individuals with disabilities and low incomes.
Covers 4 parts: A, B, C, & D for various healthcare services.
Funded by federal, state, and local taxes; varies by state.
Participants often pay very little or nothing for coverage, including regular dental and vision exams.
Government Programs in Healthcare
Veterans Health Administration
The largest integrated healthcare system in the U.S.
All veterans with service-related disabilities are entitled to VA healthcare, along with other veterans meeting certain criteria.
Diagnostic Related Groups (DRGs)
Diagnosis-related Groups (DRG): A classification system used to categorize hospital cases.
Impact of DRGs:
Encourage hospitals to be more efficient in patient treatments.
Remove financial incentives for hospitals to over-treat patients.
Managed Care
Developed as a response to rising healthcare costs.
How Managed Care Works
Organizations negotiate with providers to form networks aimed at:
Delivering affordable healthcare.
Ensuring high-quality care.
Discouraging unnecessary costs.
Eliminating duplication of procedures.
Generating profit for the organization.
Types of Managed Care
Health Maintenance Organization (HMO)
Requires patients to stay within the network.
Patients must select a Primary Care Provider (PCP) and obtain referrals to see specialists.
Out-of-pocket expenses are regulated; copays are generally low.
Specialty care requires approval from the HMO, which may deny approval.
Preferred Provider Organization (PPO)
Flexibility in seeking providers, both within and outside the network.
Referral to specialists is not required.
Higher costs for out-of-network services compared to in-network services.
Employers can customize benefits to meet company needs.
Exclusive Provider Organization (EPO)
A hybrid of HMO and PPO models.
Services covered only if providers and hospitals are in network, except for emergencies.
No referrals needed for specialists.
Point of Service (POS)
Another hybrid type where a PCP is required, and referrals are needed for specialists.
Allows for out-of-network care for increased charges.
Approximately 10% of Americans have this type of coverage.
Comparison: PPO vs HMO
PPO
Out of network coverage available.
Provides access to state- or nationwide provider networks.
Generally lower premiums.
Includes benefits such as dental and vision.
Does not cover services out of network comprehensively.
HMO
Smaller provider network compared to PPO.
No out-of-network coverage.
Generally lower copayments.
Requirements for Employer-Provided Health Insurance (Managed Care)
Eligibility contingent upon continuous employment.
Employees must work at least 20 hours a week.
Most companies impose a waiting period before insurance benefits commence.
Employees with pre-existing conditions may face ineligibility.
Vocabulary
Premium: Monthly fee paid for health insurance.
Copay: A fixed amount paid at the time of service for visits, prescriptions, etc.
Deductible: Amount paid out-of-pocket before insurance coverage starts. Higher deductibles typically lead to lower premiums.
Coinsurance: After meeting the deductible, a specified percentage of costs that the patient continues to pay for medical services.
Claim: Request for an insurance company to cover healthcare services.
Reimbursement: Amount paid by Medicare or an insurance company to the provider.
Healthcare or Medical Fraud: Illicit behavior involving healthcare services.
Managed Care Cost Containment Methods
Primary Care Providers
Serve as the control mechanism, also called a gatekeeper.
Require patients to see the PCP first, who then recommends services, potentially adding delays and costs to care.
Ensure consistency of care.
Review of Services
Procedures used by companies to determine which costs are covered.
Preauthorization: Some non-essential medical services and referrals to specialists require pre-approval from insurance companies.
Affordable Care Act
Patient Protection and Affordable Care Act
Health insurance is grounded in the principle of risk spreading.
Companies often attempt to lower costs by screening out those with high medical needs or pre-existing conditions.
Developments in the ACA
Signed into law by President Barack Obama in 2010.
Aimed to enhance access to care and affordability for all Americans.
Major Benefits of the ACA
Insurers cannot deny coverage for individuals with pre-existing conditions.
Tax credits available for businesses covering employee health premiums (50% of premiums for businesses with fewer than 50 employees).
Mandated health insurance (individual mandate), which was repealed in 2017.
Coverage cannot be canceled when a person becomes ill.
Improved Medicare drug coverage for seniors and disabled individuals.
Young adults allowed to remain on parents' plans until age 27.
Development of user-friendly websites to assist individuals in finding coverage.
Essential Health Benefits under ACA
According to the ACA, essential health benefits include:
Hospital stays.
Prescription drugs.
Emergency services.
Mental health services and counseling.
Preventive & wellness services and chronic disease management.
Pediatric services including oral and vision care.
Laboratory services.
Maternity & newborn care.
Impact of the ACA
Since 2010, at least 20 million more Americans have obtained health insurance.
Despite increased access, significant concerns remain about controlling overall healthcare costs.
Other Types of Insurance
Types of Coverage
Cancer Insurance: Specific insurance for cancer treatment; additional cost to basic healthcare coverage.
Disability Income Insurance: Provides income continuity when unable to work due to injury or illness; typically covers about 60% of monthly income, with potential waiting periods.
Vision Insurance: May cover portions of eye exams and corrective lenses.
Dental Insurance: Covers parts of dental procedures, including cleanings and orthodontics.
Life Insurance: Financial benefit paid to beneficiaries upon the policyholder’s death, amount varying per individual and family needs; commonly offered by employers as equivalent to annual salary.
Worker’s Compensation: Benefits for medical care for employees harmed or ill due to job conditions.
Cost Control in Healthcare
Expenditures in Healthcare Facilities
Expenditures relate to all money spent in conducting business and must be properly managed.
Major expenditure areas include:
Financing.
Technology and supplies.
Facilities.
Personnel.
Key Areas for Cost Management
Financing: Resources utilized to operate a healthcare business.
Technology and Supplies: Cost of medical equipment and supplies used for patient care, e.g., diagnostic tools, medication, surgical tools.
Facilities: Costs associated with physical premises, including maintenance and utility costs.
Personnel: Labor costs for all staff within the facility, representing one of the largest expenditure items.
Billing and Coding Practices for Lowering Costs
Correct billing and coding practices are essential for cost management and revenue recovery:
ICD-10 Coding: Codes assigned for diseases/conditions guiding provider charges.
CPT Code: For documenting and reporting healthcare services provided.
DRGs: Introduced efforts by the government and managed care systems to curtail healthcare costs.
Role of Healthcare Professionals in Cost Management
Personal efficiency in work, including punctuality and appropriate use of diagnostic tests, reduces wastage and medical errors.
Proper management of supplies and equipment prevents additional costs.
Accurate use of coding ensures revenue stability and avoids fraudulent billing claims.
Encouraging healthy lifestyles and preventive care minimizes the need for costly interventions later.
Cross-training of healthcare workers can lead to cost-effective practices in delivery of care.
Copay – A fixed fee you pay for a healthcare service, usually at the visit.
Coinsurance – Percentage of costs you pay after meeting deductible; shared cost.
CPT Codes (Current Procedural Terminology) – Standardized codes for medical procedures and services.
Insurance Deductible – Amount you pay out-of-pocket before insurance starts covering costs.
Diagnostic Related Groups (DRGs) – System classifying hospital cases for payment purposes.
EPO (Exclusive Provider Organization) – Insurance plan covering services only from network providers.
Expenditures – Total money spent on healthcare services or insurance.
Fee-for-service Insurance Plan – Payment model where providers are paid for each service performed.
Insurance Claim – A request to your insurer for payment of covered medical services.
Financing – Process of funding healthcare or insurance through payments or loans.
Healthcare or Medical Fraud – Intentional deception to gain unauthorized insurance benefits.
HMO (Health Maintenance Organization) – Insurance plan requiring network providers and primary care referral.
ICD-10 Codes (International Classification of Diseases, 10th edition) – Codes for diseases, conditions, and symptoms.
Managed Care – Healthcare system controlling costs and quality through networks and guidelines.
Medicaid – Government health insurance for low-income individuals and families.
Medicare – Federal health insurance for people 65+ or with certain disabilities.
Negotiated Fees – Agreed-upon payment amounts between providers and insurers.
Point of Service (POS) – Hybrid plan combining HMO and PPO features, requiring referrals.
Pre-existing Condition – Medical condition existing before obtaining new insurance coverage.
Preauthorization – Insurer approval required before certain medical services are covered.
PPO (Preferred Provider Organization) – Insurance plan allowing out-of-network care at higher cost.
Premium – Regular payment to maintain health insurance coverage.
Prepaid Plans – Insurance plans where providers receive fixed payment in advance for services.
PCPs (Primary Care Physicians) – Doctors providing general healthcare and referrals.
Primary Care Physician – Main doctor responsible for overall health management and referrals.
Profit – Financial gain earned after subtracting costs from revenue.
Reimbursement – Payment from insurer to provider or patient for covered services.
Veterans Health Administration – Government system providing healthcare to military veterans.
Deductible – Same as insurance deductible; out-of-pocket cost before coverage begins.
Out-of-Pocket Maximum – Maximum amount you pay for covered healthcare in a year.
Capitation – Payment model where providers are paid a set amount per patient per period.
CMS (Centers for Medicare & Medicaid Services) – Federal agency managing Medicare, Medicaid, and health regulations.
Marketplace – Platform to compare and purchase health insurance plans under the ACA.
EOB (Explanation of Benefits) – Statement from insurer explaining what was paid and what you owe.
COBRA (Consolidated Omnibus Budget Reconciliation Act) – Law allowing temporary continuation of health coverage after job loss.