Public Health Insurance Notes

Public Health Insurance - Chapter 6

Public Insurance

• Government financing constituted 35% of Americans covered under public programs in 2020, including Medicaid, Medicare, and Tricare.
• These are categorical programs, meaning benefits are designed for defined categories of people.
• Financing is provided by the government, but services are primarily purchased from private sector providers, with the exception of the VA.

Public Financing - Medicare

• Established under Title 18 of the Social Security Act in 1966.
• Initial beneficiaries: 19.1 million in 1966.
• Beneficiaries in 2020: 62.6 million, representing 19% of the US population.
• Medicare is an entitlement program where individuals contribute through taxes and are entitled to benefits regardless of income and assets.
• It's a federal program divided into four parts and administered by the Centers for Medicare & Medicaid Services (CMS), an agency under the U.S. Department of Health and Human Services (DHHS).

Medicare Growth and Challenges

• Expected rapid growth in beneficiaries through 2045 due to the aging population.
• Medicare expenditures are projected to grow faster than both workers’ earnings and the nation’s economy.
• This poses a significant future challenge to taxpayers.

Medicare Primer - Key Questions

• Who is covered by Medicare?
• What services are covered under Medicare?
• What services are not covered by Medicare?

Medicare Eligibility

• Medicare finances medical care for:
  • Individuals 65 years or older.
  • Disabled individuals entitled to Social Security benefits.
  • Those with end-stage renal disease.

Medicare Overview - Four Parts

• Part A: Hospital Insurance
• Part B: Medical Insurance
• Part C: Medicare Advantage Plans
• Part D: Prescription Drug Plans

Medicare Coverage Limitations

• Medicare does not provide comprehensive coverage.
• Main non-covered services include:
  • Vision care
  • Eyeglasses
  • Dental care
  • Hearing aids
  • Many long-term care services

Medigap

• Medigap is private insurance designed to cover gaps in Medicare due to its high cost-sharing.
• Beneficiaries under traditional Medicare spend 23% of their income on out-of-pocket expenses.
• Medicare consists of four parts: A, B, C, and D.

Medicare Basics - Parts A, B and D

• Part A (Hospital Insurance):
  • Inpatient hospital care
  • Skilled nursing facility care
  • Hospice care
  • Home health care
• Part B (Medical Insurance):
  • Services from doctors
  • Outpatient care (tests, procedures, some drugs, ambulance, ER)
  • Home health care
  • Durable medical equipment
  • Preventive services
• Part D (Prescription Drugs):
  • Covers the cost of prescription drugs

Medicare Structure: Original vs. Advantage

• Original Medicare (Fee for Service):
  • Part A (Hospital) or Part B (Medical)
  • Administered by the Centers for Medicare Services
  • Optional: Medigap (private insurance) to help cover cost-sharing in Parts A & B
  • Optional: Part D (Drugs) - Private Insurance Companies
• Medicare Advantage Plan (Managed Care):
  • Part C = A + B + D (Hospital, Medical, and Drugs)
  • Administered by private insurance companies (HMO)
  • Benefits are assigned to a private plan
  • Premium, co-pay, and out-of-pocket limit vary by plan; may offer additional benefits like dental.

Medicare Part A - Financing

• Financed by payroll taxes paid by all working individuals on all income earned.
• Paid equally by both employer and employee (each pay 1.45% of an employee’s income); high-income earners pay more.

Medicare Part A - Coverage

• Covers:
  • Inpatient services
  • Short-term convalescence and rehabilitation in a skilled nursing facility (SNF)
  • Home health
  • Hospice for terminally ill patients

Medicare Part A - Benefit Period

• Timing of benefits is determined by a benefit period, which measures the use of inpatient hospital and SNF services.
• It begins on the day a beneficiary is hospitalized and ends when the beneficiary has not been in a hospital or SNF for 60 consecutive days.
• A new benefit period begins thereafter, and a beneficiary can have unlimited benefit periods in their lifetime.

Medicare Part A - Hospital Benefits

• Payment Structure:
  • Deductible is paid for the first 60 days (average in 2021 was $1484$).
  • Copayment required from 61 to 90 days (average in 2021 was $371$).
  • Higher copayment required after 90 days, and lifetime reserve days must be used (average was $742$).
  • Lifetime reserve of 60 additional days partially covered by Medicare.
  • Total of 150 days of coverage by Medicare for hospitalization and/or SNF.
  • Patient is fully responsible after this period.

Medicare Part A - SNF Benefits

• Eligibility begins after 3 consecutive days of hospital stay.
• Medicare pays for up to 100 days maximum in SNF.
• To be covered under Part A, admission must be within 30 days of hospital discharge and related to the same condition for which the patient was hospitalized.
• First 20 days at no charge to the beneficiary; copayment applies from day 21 to 100 ($185.50$ in 2021).

Medicare Part A - Home Health and Hospice

• Home health benefit:
  • Patient must be homebound.
  • Durable Medical Equipment (DME) is covered with 20% coinsurance.
  • Patient must require intermittent or part-time skilled nursing care and/or rehabilitation care.
• Hospice benefit:
  • Patient must be terminally ill.
  • Only a token copayment is required for prescription drugs.
  • Must be a Medicare-certified hospice.

Medicare Part A Review

• Financing: Payroll taxes.
• Coverage: Inpatient, SNF, Home Health, Hospice.
• Coverage Duration:
  • Hospital: Up to 150 days
  • SNF: Up to 100 days
• Payment:
  • Hospital: 60 days fully covered, days 61-90 with copay, 60 lifetime reserve days with higher copay.
  • SNF: Full coverage for 20 days, days 21-100 with copay.

Medicare Part B - Supplementary Medical Insurance (SMI)

• Covers:
  • Physician services
  • Hospital outpatient services (surgery)
  • Diagnostic tests
  • Radiology

Medicare Part B - Details

• Covers certain screening and preventive services, including an annual wellness exam.
• For most services:
  • Monthly premium based on income ($148.50$ per month in 2021).
  • Annual deductible ($203$ in 2021).
  • 80:20 coinsurance.

Medicare Part D - Prescription Drug Coverage

• Created under the Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003.
• Available to those with Part A or B.
• Requires a monthly premium.
• Annual deductible applies.

Part D – Coverage Gap/Doughnut Hole

• After the deductible is met, copayment/coinsurance apply.
• Beneficiary enters a coverage gap (doughnut hole) after a total amount has been spent by the beneficiary and health plan.
• During the coverage gap, the beneficiary must pay for drugs out of pocket, but no more than 25% of the cost of drugs.
• After maximum out-of-pocket spending is reached, the beneficiary gets out of the coverage gap and pays a small copayment/coinsurance for the rest of the year.

Part D - Coverage Gap/Donut Hole

• Four phases:
  • Deductible Phase
  • Initial Coverage Phase: Pay copays for medications
  • Coverage Gap: Beneficiary pays a certain percentage based on the drug type
  • Catastrophic Coverage Phase: Covers 95% of drug costs.

Part D - Coverage Gap/Donut Hole: 2020

• Cost Sharing in 2020:
  • Deductible: Enrollee pays 100% up to $435$. Plan pays 0%.
  • Initial coverage phase: Enrollee pays 25%, Plan pays 75%, up to $4,020$. Manufacturer pays $0.
  • Coverage gap phase: Enrollee pays 25%, Plan pays 0%, Manufacturer pays 70%, Medicare pays 5%, up to $6,350$.** Corresponds to an out-of-pocket threshold for catastrophic coverage of $5,100$ in 2019 and $6,350$ in 2020.
  • Catastrophic coverage: Enrollee pays 5%, Plan pays 15%, Medicare pays 80%, above $9,719$.

Phase-Out of the Doughnut Hole for Brand-Name Drugs

• The coverage gap phase-out occurred over several years, shifting responsibility among the plan, manufacturers, and consumers.
• In 2020, the consumer responsibility was 25%.
• Government subsidies to plans account for the plan's share of coverage.

Medicare Review - Parts & Phases

• Four Parts: A, B, C, D
• Traditional Medicare Distinctives: Fee for service, Original Medicare
• Four Phases of Part D: Deductible, Initial Coverage Phase, Coverage Gap (Doughnut Hole), Catastrophic Coverage.

Inflation Reduction Act

• Focuses on lowering drug costs and improving Part D coverage.
• Went into effect January 1.

Inflation Reduction Act (IRA)

• Authorizes the Secretary of the Department of Health and Human Services (HHS) to negotiate prices directly with participating manufacturers for selected drugs that are high expenditure, single-source drugs without generic or biosimilar competition.

Inflation Reduction Act - Impact

• Effects on drugs and Part D coverage under Medicare:
  • More vaccines covered
  • Lower out-of-pocket drug costs
  • Medicare negotiates for lower drug prices
  • Lower costs for insulin
• Controversy: Government “interference” in the private sector.

Medicare Structure: Original vs. Advantage (Revisited)

• Original Medicare (Fee for Service):
  • Part A (Hospital) or Part B (Medical)
  • Administered by the Centers for Medicare Services
  • Optional: Medigap (private insurance) to help cover cost-sharing in Parts A & B
  • Optional: Part D (Drugs) - Private Insurance Companies
• Medicare Advantage Plan (Managed Care):
  • Part C = A + B + D (Hospital, Medical, and Drugs)
  • Administered by private insurance companies (HMO)
  • Benefits are assigned to a private plan
  • Premium, co-pay, and out-of-pocket limit vary by plan; may offer additional benefits like dental.

Medicare Part C: Medicare Advantage (MA)

• Took effect January 1, 1998, as mandated by the Balanced Budget Act of 1997.
• Expanded the role of private managed care health plans into Medicare beneficiary coverage.
• Part C gives beneficiaries coverage in the same way a managed care plan does, compared to Medicare A & B, which gives coverage in a fee-for-service program.
• Goal of BBA was to decrease federal spending by $127 billion$ in a 5-year span of time.
• Incorporating MA/Part C reduced Medicare spending by 9.1% in that time frame.

Medicare Part C: Medicare Advantage (MA) - Choice

• Beneficiaries can choose to remain in the original fee-for-service program or sign up for Part C.
• In Medicare Advantage, the beneficiary receives all Part A, B, and D services through an MCO (like a bundled package!).
• Additional benefits (basic vision and dental) may be offered by the private managed care plans.
• Eliminates the need for Medigap coverage.

Medicare Advantage Enrollment

• Medicare private plan penetration has increased over the years.
• Notable Acts influencing enrollment:
  • Balanced Budget Act (BBA) passed in 1997.
  • Medicare Modernization Act (MMA) passed in 2003.
  • Affordable Care Act (ACA) passed in 2010.

Medicare Advantage - Quality and Spending

• Data from 2017 online link indicated.

Hearing on the Medicare Advantage Program

• Held on May 8, 2018.

Medicare Advantage Program - Problem & Solution

• Problem: Process-focused measures of quality, with only 3 focused on outcomes.
• Proposed Solution: Add health outcomes capture to see if the care was actually profitable.

Medicare Advantage vs. Traditional Medicare

• Advantage Plans: More likely to use preventive services (annual wellness visit, flu and pneumonia vaccine) and have a usual source of care or PCP.
• Offers “one-stop shopping,” including a drug plan.
• Caps out-of-pocket expenses at $8300$ for in-network (~$12,000$ for out-of-network), excluding drugs.
• Dental, vision, and hearing coverage varies per plan.
• No Medigap policies.
• Healthier patients tend to have Advantage.

Traditional Medicare vs. Medicare Advantage

• Traditional Medicare beneficiaries experienced fewer affordability problems if they had Medigap policies but worse if they didn’t.
• More likely to use high-quality hospitals and nursing homes.
• No networks; can see any doctor that accepts Medicare.
• No prior authorization is needed.
• No cap on out-of-pocket expenses (therefore, most rely on Medigap policies).
• Patients with more frail or chronic conditions are more likely to have traditional Medicare (fewer limitations of networks and prior authorization).

Challenges with Medicare Advantage

• “Onerous” authorization requirements and high denial rates contribute to a game of “delay, deny, and not pay.”
• 16% of health systems are planning to stop accepting one or more MA plans in the next two years.
• 45% are at least considering dropping MA plans.
• Health systems face significant annual losses on MA contracts.
• Tensions exist between hospitals and MA plans due to differing priorities.

Issues with MA plans

• Healthcare systems are facing financial challenges due to delayed and denied payments from MA plans.
• MA plans reimburse at a lower rate than traditional fee-for-service Medicare.
• Reimbursement issues have caused massive layoffs.
• There is a need for MA reform.

Artificial Intelligence (AI) and Prior Authorizations

• States are considering regulating how insurers can use AI.
• Healthcare systems are deploying AI agents to automate prior authorizations.
• Insurers are planning to cut prior authorization requirements.
• Legislation is being introduced to require payers to notify physicians within a specific timeframe if the medical necessity of a service is being questioned and to disclose a list of the medical services that require a prior authorization review.

Waste in MA Plans

• Medicare Advantage plans allocated $38B$ for supplemental benefits in 2024.
• 42% of rebates for non-Medicare benefits are directed toward dental benefits.
• Policymakers lack sufficient information to evaluate the value of supplemental benefits due to a lack of disclosure of enrollee usage.
• MA enrollees with dental coverage were somewhat less likely to visit a dentist compared to fee-for-service recipients without dental coverage in 2022.

CMS Proposed Changes

• CMS proposes a 2.4% increase in inpatient hospital payment rates for FY 2026.
• Expected to increase hospital payments by $4 billion$, including $1.5 billion$ in additional Medicare disproportionate share hospital payments and $234 million$ in new technology add-on payments.

CMS Payment Rule Changes in 2026

• Changes to payment?
• Changes to quality measures?
• Changes to Social Determinants of Health (SDOH)?

Public Financing - Medicaid

• Established under Title 19 of the Social Security Act.
• Finances health care for the poor (means-tested program).
• Each state administers its own Medicaid program; serving 45 million Americans.
• Jointly financed by state and federal governments.
• Government provides matching funds to states based on per capita income.

Medicaid - State Variations

• Each state establishes its own eligibility criteria according to income and assets.
• Covered services, eligibility, and payments to providers vary from state to state.
• Eligibility depends on incomes and assets (means-tested program).
• Federal law requires coverage of low-income elderly individuals, blind persons, disabled persons receiving Supplemental Security Income, some pregnant women, and children in low-income families.
• Additional categories can be added per state.
• Individuals can be dually enrolled in Medicare and Medicaid.
• Not a federally mandated program, but all states have Medicaid options.

Federally Mandated Services for State Medicaid Programs

• Inpatient hospital services
• Hospital outpatient services.
• Physician, nurse-midwife, and certified pediatric and family nurse practitioner services
• Federally qualified health center and rural health clinic services
• Laboratory and x-ray services
• Freestanding birth center services
• Nursing facility services.
• Home health services
• Medical and surgical services of a dentist
• Early and periodic screening, diagnostic, and treatment services
• Family planning services
• Tobacco cessation counseling for pregnant women
• Transportation to medical care

The Affordable Care Act - Medicaid Expansion

• Expanded Medicaid to 0-138% of the Federal Poverty Level (FPL).
• Changes the nature of qualification for Medicaid to include healthy, single, childless adults.
• Historically had been categorical eligibility plus income/asset limits: SSI, aged, blind, disabled; children; pregnant women.
• Enhanced federal match for the transition period – 100% of the cost of those newly eligible.
• Viewed as inadequate coverage and not politically attractive.
• Expensive, as the government pays all premiums and most cost-sharing.

Federal Poverty Level (2024)

• Provides income thresholds for Medicaid eligibility based on household/family size.
• For example, for a family of 4:
  • 100% FPL: $31,200$
  • 138% FPL: $43,056$
  • 200% FPL: $62,400$

Medicaid - Federally Mandated Populations

• Children through age 18 in families with income at or below 138% of the FPL
• Pregnant individuals with income up to 138% of FPL
• Parents or caretakers with very low income
• Seniors and people with disabilities who receive cash assistance through the Supplemental Security Income (SSI) program

Medicaid - Optional Populations (per State)

• People with higher incomes who need long-term services and supports
• “Medically Needy” individuals whose income exceeds the state’s regular Medicaid eligibility limit but who have high medical expenses e.g., nursing home care
• Non-disabled adults with income to 138% of FPL, including those without children (expansion vs. non-expansion states)
• Seniors and people with disabilities not receiving SSI and income below FPL

Medicaid - Eligibility Limitations

• Not all people with low incomes are eligible for Medicaid.
• In non-expansion states, adults over 21 are ineligible for Medicaid, no matter how low their income is, unless pregnant, caring for children/elderly, or have a disability.
• Non-US citizens, despite lawful immigration status.
• Lawful permanent residents (green card holders) must wait 5 years.

ACA Medicaid Expansion

• Expanded eligibility for Medicaid to 138% of FPL.
• Each state is free to decide whether it expands.
• To date, 41 states have expanded.
• By 2029, 14 million more are expected to enroll.
• Second largest source of health insurance coverage in the US.
• The federal government picks up all expansion costs for the first 3 years, then pays 90% of expansion costs permanently.

Evaluating Medicaid Expansion

• Medicaid expansion benefits: better access, improved health outcomes, reduced debt due to medical bills, reduced uncompensated care for hospitals.
• Other studies find equivocal results comparing access to care and health status before and after Medicaid expansion, with no significant difference in access, utilization, or health trends between expansion & non-expansion states.
• This is an active work in progress trying to evaluate Medicaid’s effectiveness!

Medicaid Beneficiaries - Enrollment and Spending

• Enrollment:
  • Children: 43%
  • Adults: 37%
  • Blind and Disabled: 12%
  • Aged: 8%
• Spending:
  • Children: 20%
  • Adults: 34%
  • Blind and Disabled: 32%
  • Aged: 14%

Medicaid Changes - CMS

• CMS will stop approving or extending Medicaid funding for certain state health programs that fund non-traditional or non-medical services, according to an announcement on April 10.

Medicaid Decision Time

• Cut of $880B$ in targeted cuts.
• Potential fallout for hospitals and rural communities.
• Work requirement debates.
• Hospital leaders’ push to protect Medicaid.

Children’s Health Insurance Program (CHIP)

• Enacted as part of Title 21 of the Social Security Act under the Balanced Budget Act of 1997.
• When this program was created, nearly ¼ of children in low-income families were uninsured.
• CHIP offers federal matching funds to states to expand Medicaid eligibility to enroll children up to age 19 who would not otherwise qualify for coverage because of their family’s income.
• Certain adults are also covered: Pregnant women, Parents, and caretakers.
• States can choose from three models: Separate CHIP program, Medicaid expansion, Combination of the above two.

Issues with Medicaid

• Inadequate reimbursement and issues of physician participation.
• Each state decides whether to expand Medicaid, which was originally required by the ACA.
• ACA-linked Medicaid expansion versus non-expansion has shown mixed results for access to care and utilization.

Reimbursement Methods

• Third-party payers: Insurance companies, managed care organizations, Blue Cross/Blue Shield, government.
• Reimbursement: Payment made by third-party payers to the service providers.

Reimbursement Methods - Medicare

• Fee-for-service:
  • Charges (prices) are set by providers.
  • Each service is billed separately.
  • “Usual, customary, and reasonable” became common.
  • Providers could balance bill.
  • Led to cost escalations & volume > quality.

Reimbursement Methods - Medicare (Bundled Payments)

• Related services are bundled and billed at one price.
• Can align incentives that lead to collaboration among specialties.
• Medicare initiatives seek to bundle payments for an entire episode of care.
• Incentivizes cost consciousness & efficient resource utilization in providers.

Reimbursement Methods - Medicare (RBRVS)

• Medicare developed the Resource-Based Relative Value Scale (RBRVS) to reimburse physicians according to a “relative value” assigned to each service.
• Based on the provider’s work, practice expenses, and liability insurance.
• Medicare Fee Schedule still incentivizes volume > quality.

Reimbursement Methods - Medicare (MACRA)

• Quality Payment Program (MACRA):
  • MIPS: Performance-based payment
  • A-APM: More stringent criteria than MIPS
  • Care coordination and comprehensive care by multi-disciplinary teams
  • 5% bonus payment is added
  • Medicare Shared Savings Program for ACOs

Reimbursement Methods - MCOs

• Reimbursement under managed care:
  • Discounted fees: Used by PPOs.
  • Capitation: Used by HMOs. Per member per month (PMPM) fee to cover all needed services. Prudent delivery of services. Minimize provider-induced demand. Salaried physicians employed by HMOs.

Retrospective vs. Prospective Reimbursement

• From retrospective reimbursement to prospective reimbursement
• Retrospective: Rates are set after evaluating the costs retrospectively. Historical costs are used to determine the amount to be paid. This system creates perverse incentives.

Prospective Reimbursement Methods

• Certain pre-established criteria determine, in advance, the amount of reimbursement.
• Four main methods:
  • Diagnosis-related groups (DRGs)
  • Ambulatory payment classifications (APCs)
  • Resource utilization groups (RUGs)
  • Home health resource groups (HHRGs)

Reimbursement Methods - DRGs

• Diagnosis-related groups (DRGs) are used for acute hospital inpatients.
• Prospectively set bundled price according to the admitting diagnosis (DRG).
• Hospitals earn a profit by keeping costs below the DRG reimbursement.

Reimbursement Methods Value-Based Purchasing

• Penalties for excessive hospital readmissions within 30 days of discharge.
• Payment reductions when patients developed preventable hospital-acquired conditions.
• Other quality and performance measures have been added (Total Performance Score—TPS).
• 2% of payments are withheld and paid to hospitals with higher TPS scores.

Reimbursement Methods - APCs

• Ambulatory payment classifications (APCs)
• Medicare’s Outpatient Prospective Payment System (OPPS)
• Services are classified according to clinical and cost similarities.
• Bundled rate includes anesthesia, drugs, supplies, and recovery.

Reimbursement Methods - SNFs

• Patient-driven payment model for SNFs
• Sum of payments for six components:
  • Nursing
  • PT
  • OT
  • Speech/language pathology
  • Non-therapy ancillaries (NTAs)
  • Room and board
• First five of the above components are adjusted for case mix.
• Final rates paid equal sum of 6 adjusted components

Reimbursement Methods - HHRGs

• Home health resource groups (HHRG)
• Patient-driven groupings model
• Bundled rate includes all services during a 30-day period.
• A base rate is adjusted for the patient’s clinical characteristics.

Rehabilitation Therapies

• Therapies are classified according to the Healthcare Common Procedure Coding System.
• PT and OT are paid in 15-minute increments based on Relative Value Units (RVUs).
• 80-20 coinsurance applies.
• Inpatient rehabilitation is paid by classifying each patient into case-mix groups based on clinical factors and reason for intensive rehabilitation.

National Health Expenditures

• Includes spending for all health services and related activities.
• Evaluated as a percentage of GDP and as amount spent per capita.
• 17.7% of GDP was spent on health care in 2018.

Components of National Health Expenditures (2018)

• 85% of total national health expenses were spent on personal health.
• Remaining 15% was spent on public health services, research, structures and equipment, and administrative services.

Conclusion

• Financing plays a critical function in health care delivery, enabling consumers to obtain health care services through insurance coverage and reimbursing providers for the services they provide.
• Methods of reimbursement have changed from retrospective to prospective.
• Prospective payment and capitation used by HMOs contain incentives for the delivery of cost-effective health care.
• Financing is shared between private and public sources. The government incurs a sizable portion of all health care expenditures in the United States. A quasi-national health care system.