Health insurance major finance mechanism
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Health Insurance: Major Finance Mechanism. Chapter 6 Dr. Tracey Lynn Koehlmoos. Chapter Overview. Insurance Concepts Evolution of Health Insurance Private Health Insurance Public Health Insurance Pending Policy Reforms This chapter will not cover managed care. General Concept.

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Health insurance major finance mechanism

Health Insurance:Major Finance Mechanism

Chapter 6

Dr. Tracey Lynn Koehlmoos

HSCI 678 Intro to US Health Services System

Chapter overview
Chapter Overview

  • Insurance Concepts

  • Evolution of Health Insurance

  • Private Health Insurance

  • Public Health Insurance

  • Pending Policy Reforms

  • This chapter will not cover managed care

General concept
General Concept

  • Insurance protects against infrequent, large loss by establishing contractual relations between the insured and the insurance provider and spreading the risk across a larger population.

General risk assessment
General Risk Assessment

  • Underwriting Process-actuarial risk

  • Experience Rating

  • Cherry Picking/Cream Skimming

  • Adverse Selection

  • Redlining

  • Insurers goal:

    premium $ received > benefit $ paid

Specific health concepts
Specific Health Concepts

  • Early days:

    • Linked to Employment

    • Hospitalization Only (1:13 among non-elderly)

  • Conceptual Shift

    • Expanded scope of interactions

    • Non-random, non catastrophic events

    • Commercial v. social purpose

Risk assessment
Risk Assessment

  • 35% of insured—no claims

  • 5% of insured = majority of claims

  • Most insurers require medical screening

  • Pre-existing conditions

    • Excluded

    • HIPAA (1996)

Direct risk adjustment
Direct Risk Adjustment

  • Medical Underwriting

    • Tier rating—by member and industry

    • Durational rating—Low $ to start, increases over time

  • Redlining

    • Excludes individuals or groups based on perceived hazards, life-style or claims history

Indirect risk adjustment
Indirect Risk Adjustment

  • Co-payments

  • Limited Benefits Packages (procedures/pharmaceuticals)

  • Caps/Ceilings

  • Waiting period for effectiveness

  • Results in inequitable access across the US

Growth of commercial health insurance
Growth of Commercial Health Insurance

  • Provider-Organized Plans—dominant before WWII

  • Post-WWII: Growing Non-for Profit Hospitals, more plans based on employment groups

  • 1947 Taft-Hartley Act: Health benefits as a condition of employment for which labor was entitled to negotiate

Availability in small businesses
Availability in Small Businesses

  • Smaller businesses <100 employees

  • 50% of US labor firms

  • Nature of business too high risk

  • Unaffordable premiums—cannot spread risk

  • Part-time work force

  • One claim could increase all premiums

  • 10 to 40% higher cost to small v. large business

Retiree health insurance
Retiree Health Insurance

  • Larger companies offer this as a benefit

  • Hard to capture this group as data

  • Jeopardy of benefits due to shake-ups in the mid-1980’s

  • Medicare eligible—Medicare 2nd payor

  • Employers seek higher cost share

  • Medicare Part D; Patient’s Bill of Rights

Self funded health insurance
Self-Funded Health Insurance

  • Large group of employees

  • Eliminates need for insurance company

  • ERISA exemptions

  • Pay only what is used

  • Can negotiate rates

  • Insurance companies can be hired to bear excessive financial risk

  • Third Party Administrator can handle admin.

The cost of doing business
The Cost of Doing Business

  • Health Insurance is a major expense

  • Premium growth rates—on the rise, again

  • $4,692 per employee & family per year

  • $2,088 per employee per year

  • 75% of business health expenditures are on health insurance premiums

  • 16% Medicare Contributions

  • 8% Workman’s Compensation

Cost containment measures
Cost Containment Measures

Cost Sharing/Co-payments

  • Limiting Scope of Benefits

  • Caps on Insurance Expenditures

  • Controls on Utilization

    • Prior Authorization

    • Second opinions

    • Pre-certification (nursing home stay)


  • Employee Retirement Income and Security Act of 1974

  • Allows large employers to self-insurer

  • Response to concerns on pension mismanagement

  • Protects health services benefits packages


  • Established requirements for carriers at the individual, small and large group markets

  • Portability from group to individual plan

  • Limits pre-existing condition waiting periods

  • Also, state reforms in the early 1990’s


  • Health Insurance Portability and Accountability Act of 1996

  • Allows employees to “carry” insurance to the next job without a waiting period

  • Allows employees in small companies to bring in previous insurance

  • Addresses confidentiality issues

Summary of private insurance
Summary of Private Insurance

  • Covers 2/3 of US population

  • Mostly as employee benefit, large group

  • New laws and regulations to protect the benefits of the insured

  • Ineligible people—may use individual policies

Public health insurance
Public Health Insurance

  • Tricare

  • Medicare

  • Medicaid

  • State insurance programs for the uninsurable

  • State Child Health Insurance Programs


  • Military dependents and retirees

  • Supplemental to Military Health Service System

  • 8.4 million beneficiaries

  • Outside of the military system, Tricare functions as an HMO with contracts awarded to regional civilian companies.


  • Social Security Act of 1965

  • Originally only for >65 years of age

    • Currently: 87% of beneficiaries

  • 1972: End Stage Renal Disease (ESRD)

  • 1973: Any age, Medicare disability

    • Currently: 13% of beneficiaries

Do you know your abcd s
Do you know your ABCD’s?

  • Part A: Hospital Insurance (HI)

    • SNF, HH, Hospice

    • Deductible $840 per benefit period

    • Financed by Fed Trust Fund (payroll deduction, employer contributions)

  • Part B:

    • Supplemental Medical Insurance (SMI)

    • Physicians, tests, outpatient services

    • Monthly premiums 75% & by Fed Trust Fund

More medicare abcd s
More Medicare ABCD’s…

  • Part C: Medicare + Choice, 1997

    • Managed Care with mixed results

    • Patients were slow to sign up

    • Providers found it costly

  • Part D: Prescription drug plans

    • New and confusing

    • Threats to Medicaid/Medicare

    • Slow patient sign up


  • Social Security Act of 1965

  • State and Federal Program 50/50

  • No or Low co-pay or deductibles

  • State offerings vary

    All include: Inpatient, outpatient, x-ray, HH, preventive services for children, family planning

    Some: Podiatrist, Dentist, Physical therapy,

    case management, eyeglasses

Medicaid eligibility
Medicaid Eligibility

  • Eligibility varies—almost all “Low Income”

  • Pregnant woman

  • Infants, children < 6

  • Elderly, blind, disabled, poor Medicare

  • Special groups who qualify because of the disease (HIV/AIDS, NBCCEDP)

Other state run programs
Other State Run Programs

  • Medically Indigent Programs

  • State Sponsored Health Insurance Programs for the Uninsurable

  • State Children’s Health Insurance Program (SCHIPs)—BBA 1997

Other types of insurance
Other types of insurance

  • Workers’ Compensation Insurance

  • Viatical Settlements

  • Health Ins Purchasing Cooperatives


  • 70% of US and almost all elderly have health insurance

  • Medicaid covers 10% of US population

  • 20% of US population NO insurance

  • Cost of premiums continue to rise

  • Employer sponsorship remains link

  • No basic set of benefits in the US