6. Health Services Financing.100625

Introduction to the US Health Care System

Instructor Information

  • Joe Konen, MD, MSPH

  • Adjunct Faculty

  • Date: October 6, 2025

System Resources

  • Topic: Health Services Financing

Health Services Financing Overview

Key Section Topics

  • Expenditures and General Terms

  • Fee for Service

  • Reasonable, Customary and Accountable Charges

  • Self Pay

  • Private Insurance

  • Government Sponsored Insurance: Medicare, Medicare Advantage, Medicaid, and other programs.

  • Value Based Purchasing

  • Direct Pay and Subscription-based Models

  • Self Insurance

Health Care Financing Principles

Essential Principles Involved

  • EMTALA: Emergency Medical Treatment and Active Labor Act, ensures public access to emergency services regardless of ability to pay.

  • HIPAA: Health Insurance Portability and Accountability Act, protects sensitive patient health information.

  • Insurance Coding: System for classifying diagnoses and procedures in health care billing.

  • Fee-for-Service: Model where providers are paid for each service performed.

  • Usual, Reasonable and Customary Charges: Charges that align with prevailing costs for a service in a geographic area.

  • Cost Shifting: Different prices charged to various payers, such as facilities and pharmaceutical charges.

Health Care Expenditures

Financing and Cost Control

  • Expenditures Formula:

    • extExpenditures=extPriceimesextQuantityext{Expenditures} = ext{Price} imes ext{Quantity}

  • Reference: Shi & Singh, "Delivering Health Care in America: A Systems Approach", 9th edition, p. 240

National Health Expenditures Growth

  • Total National Health Expenditures (1970 - 2024):

    • 1970: $74 billion

    • 2000: $1.45 trillion

    • 2022: $4.5 trillion

    • 2025: Projected $5.6 trillion (Source: Health System Tracker)

Breakdown of Health Dollar (2023)

  • Share Sources of Funding:

    • Out of Pocket: 10%

    • Other Third Party Payers: 18%

    • Government Public Health Activities: 3%

    • Investment: 5%

    • Health insurance: 73% (including Medicare: 21%)

Spending Distribution (2023)

  • Breakdown Where Health Dollar Went:

    • Government Administration & Net Cost: 7%

    • Hospital Care: 31%

    • Prescription Drugs: 9%

    • Physician & Clinical Services: 20%

    • Nursing Care Facilities: 4%

    • Home Health Care: 3%

Factors Contributing to Growth of Health Expenditures

  1. General Population Growth and Aging

  2. Utilization of Services

  3. Prices for Products and Services

    • Notably, increasing prices could account for >50% of growth (reference: Shi & Singh, p. 278).

Key Health Insurance Concepts

Important Terms in Payment

  • Reasonable, Usual, and Customary Charges: Charges aligned with geographically pertinent pricing determined by insurance companies.

  • Third-party Payers: Entities that pay healthcare costs on behalf of the patient (e.g., insurance companies, Medicaid).

Billing and Reimbursement Terms

  • Charge: Amount set by the provider.

  • Rate: Amount set by third-party payers.

  • Claim: A bill sent to a third-party payer.

  • Reimbursement Determination: The process that decides how much a provider gets paid.

  • Fee-for-Service: Each service individually billed, encouraging non-essential care; can lead to billing for bundles of services.

Self-Pay System

Overview of Self-Pay

  • Definition: The patient pays for services out-of-pocket without involving insurance.

  • Historically preferable but seen as a sign of financial strain.

  • Providers used to offer sliding scale fees but