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Health Insurance and Managed Care. RMI 3500 Intro. to Risk Mang. & Ins. Robert Klein. Revised 10-7-07. Topic Objectives . Understand major health care problems. Describe basic medical expense coverages. Explain major medical insurance in detail. Explain purpose/motivation of managed care.

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Health insurance and managed care

Health Insurance and Managed Care

RMI 3500

Intro. to Risk Mang. & Ins.

Robert Klein

Revised 10-7-07


Topic objectives
Topic Objectives

  • Understand major health care problems.

  • Describe basic medical expense coverages.

  • Explain major medical insurance in detail.

  • Explain purpose/motivation of managed care.

  • Review managed care devices to control costs.

  • Outline major types of managed care plans.

  • Discuss issues re: managed care practices.

  • Discuss long-term care insurance and disability insurance.


Health care financing problems

Soaring Costs

Cost Shifting

Inadequate Access

Large Number of Uninsured

Uneven Quality

Waste and Inefficiency

Inflation

New Technology

Prescription Drugs

Population Aging

Mandated Benefits

More Treatable Conditions

Insurance

Tax Subsidy

Health Care Financing Problems

Problems

Causes


Market responses
Market Responses

  • Employers, under competitive pressures have sought to contain rising employee health benefit costs.

  • Industry has developed “managed care” as one solution.

  • Other Trends

    • More cost shifting to employees

    • Employers dropping health coverage

    • Incentives for employees to improve their health



Types of health coverages
Types of Health Coverages

  • Hospital-Surgical Insurance

  • Major Medical Insurance

    • traditional indemnity plans

    • preferred provider organizations

    • health maintenance organizations

  • Long-Term Care Insurance

  • Disability Income Insurance

  • Group vs. Individual Plans


Hospital surgical insurance
Hospital-Surgical Insurance

  • Covers routine but not catastrophic medical expenses.

  • Low limits

  • Many policies still in force, few new policies sold.

  • Coverages

    • hospital expenses

    • surgical expenses

    • Outpatient services

    • physician hospital visits

“Our current medical plan offers a 3-day stay for a bullet in the groin or torso, a 2-day stay for a bullet in an extremity and an overnight for superficial wounds.”


Major medical insurance
Major Medical Insurance

  • Preferable & predominant form of health insurance now purchased.

  • Broad coverage for significant proportion of routine and catastrophic medical expenses.

  • High lifetime limits: $1 million  unlimited.

  • Benefit period: benefits will be paid for specified number of years for specific illness without new deductible.


Major medical cont
Major Medical (cont.)

  • Deductibles

    • Eliminate handling cost of small claims

    • calendar-year

    • family

    • common accident

  • Coinsurance

    • Discourages over-utilization

    • (Total expense - deductible) x CF = Benefit

    • Coinsurance Factor (CF) typically 80%

  • Stop-Loss Limit

    • total expense paid by insured after co-insurance but not including deductible.

    • Protects insured against high out of pocket costs


Example
Example

  • Assume policy with: $500 CY deductible; 80% coinsurance; $5,000 stop loss limit; $1 million total limit.

  • Insured has medical expenses of $4,000

    • Benefits = (4,000-500) x .8 = 2,800

  • Insured has medical expenses of $50,000

    • without stop loss, B = (50,000-500) x .8 = $39,600; insured would have to pay $10,400.

    • with stop loss, B = $44,500; insured pays $5,500; stop loss limit triggers at $25,500 in medical expenses.


Major medical cont1
Major Medical (cont.)

  • Exclusions

    • elective cosmetic surgery

    • dental and eye care

    • pregnancy and childbirth

    • experimental surgery

  • Internal Limits

    • alcohol/drug treatment

  • Managed Care Elements

    • Pre-certification, preferred provider

  • Critical Illness Policies

    • e.g., cancer policies


Health savings accounts
Health Savings Accounts

  • Allows people to “deposit” funds into trust account to cover qualified medical expenses up to established limits.

  • Funds deposited are “tax-deductible” → allows you to cover out-of-pocket expenses with pre-tax dollars.

  • Good strategy to use HSA’s for anticipate non-covered medical expenses.

  • However, unused funds do not roll over.

  • Bush seeking to expand HSA limits/usage and allow roll over of unused funds.


Medical contract conditions
Medical Contract Conditions

  • Renewal provisions

    • optionally renewable (insurer choice)

    • non-renewable for stated reasons

    • guaranteed renewable (rates can rise)

    • non-cancelable (rates cannot rise)

  • Pre-existing conditions clause

    • Pre-existing conditions not covered for specified period of time.

  • Grace periods and reinstatement


Managed care
Managed Care

  • Medical expense plans that provide broad covered services to members with strong emphasis on cost control.

  • Contrast with standard indemnity (fee-for-service) plans with unlimited choice of providers.

  • Cost control mechanisms substitute for financial incentives in indemnity plans.

“Your husband will receive the best care known to medical coverage.”


Managed care cost controls
Managed Care Cost Controls

  • Limited choice of physicians

  • Utilization review

  • Control of provider reimbursement

  • Preventive care

“Good news, hon! Your treatment has been authorized.”


Managed care plans
Managed Care Plans

  • Health Maintenance Organizations

  • Preferred Provider Organizations

  • Exclusive Provider Organizations

  • Provider Sponsored Organizations

  • Point-of-Service plans


Health maintenance organizations hmos

HMO both provides and finances medical care

Broad coverage with low deductibles and copays

Prepaid health coverage

Doctors not compensated by fee-for-service

Salaried employees

Capitation – set fee per insured, patient, or procedure

Other cost controls:

most limited choice of providers

gatekeepers

Health Maintenance Organizations (HMOs)

“Very scary Jennifer – does anyone

else have an HMO horror story?”


Pros cons of hmos

Pros

Comprehensive care

Lower deductibles, lower copayments

Fewer exclusions

Preventive care

No claim forms to file

Lower cost

Cons

Less freedom to choose doctor

What do you do when you are outside the area?

Quality of care?

Pros/Cons of HMOs

“We’re in HMOs - the closest to legit we’ve been in years.”


Preferred provider organizations

Doctors who contract with insurer or group to offer services at reduced rates.

Not the same as HMO

Independent doctors

Doctors paid by negotiated fee

Insured chooses provider within PPO

Advantages

Lower cost than indemnity plans

Greater choice than HMOs

Help new doctors build up practices

Disadvantages

Only works well with large groups

More expensive than HMOs

Limited to PPO providers

Preferred Provider Organizations


Other managed care plans

Point-of-Service at reduced rates.

combines HMO or PPO with greater provider choice

In-network care fully reimbursed.

Out-of-network services option subject to deductible and large copay.

PSOs

Owned by providers

Response to HMO & PPO controls

Hold harmless clause

Solvency issue

Providers encountering cost vs. quality of care issue

Other Managed Care Plans


National employee enrollment in health care plans 1993 2005 of all covered employees
National Employee Enrollment in Health Care Plans, 1993–2005(% of All Covered Employees)


Federal laws hipaa
Federal Laws: HIPAA 1993–2005

  • Health Insurance Portability and Accountability Act (HIPAA)

    • employer-sponsored plans cannot limit coverage for pre-existing condition for more than 12 months

    • health status discrimination by employer prohibited

    • portability between employers

    • small-group guarantees


Federal laws cobra
Federal Laws: COBRA 1993–2005

  • Consolidated Omnibus Reconciliation Act of 1985

    • if worker leaves job, worker can continue coverage under employer’s plan for up to 18 months at 102% of group rate.

“Uninsured? That won’t be a problem.

We can refer you to a very good doctor in Ottawa.”


Long term care insurance

39-49% of persons reaching age 65 will spend some time in nursing home.

$50,000-$80,000 cost per year.

Includes skilled/immediate nursing, custodial and home health care.

Aggregate benefits; elimination periods.

Inflation protection, renewability.

Expensive; rates rise exponentially with age at inception of policy.

Difficult choices:

benefits

viability of insurer

Long-Term Care Insurance


Disability insurance
Disability Insurance nursing home.

  • Probability of person age 25 becoming disabled for 90+ days is 54%.

  • DI provides income when insured is unable to work because of illness/injury.

  • To reduce moral hazard, benefits replace 60-80% of income.

  • Disability definitions become stricter as time length of disability increases.

  • Partial and residual liability coverage.

  • Benefit and elimination periods.


Consumer considerations
Consumer Considerations nursing home.

  • Choices among employer health plans.

  • Buying individual policy if you do not have group insurance coverage.

    • uninsured tend to receive lower quality care

    • premium versus coverage provisions

  • Choices

    • type of plan (indemnity, PPO, HMO)

    • covered expenses

    • deductibles and limits


General principles
General Principles nursing home.

  • Insure for catastrophic loss.

  • Consider group insurance if available.

  • Use preferred providers.

  • Consider disability income insurance.

  • Avoid limited policies.

  • Be aware of restrictions.

  • Use deductibles, elimination periods.



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