Financing Health Care in the US: History, Role of Government, and Models of Care

1. Introduction to Health Care and Public Health in the U.S. Financing Health Care, Part 1 Lecture a This material (Comp 1 Unit 4) was developed by Oregon Health & Science University, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number 90WT0001. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/4.0/.

2. Financing Health Care, Part 1Learning Objectives - 1 • Describe the history and role of the health insurance industry in financing health care in the United States, and Federal laws that have influenced the development of the industry. (Lecture a) • Explain the importance of the health care industry to the U.S. economy and the role of financial management in health care. (Lecture b)

3. Financing Health Care, Part 1Learning Objectives - 2 • Describe models of health care financing in the U.S. and in selected other countries. (Lecture c) • Explain the differences among various types of private health insurance and describe the organization and structure of network-based managed care health insurance programs. (Lecture d)

4. Financing Health Care, Part 1Learning Objectives - 3 • Describe the various roles played by government as policy maker, payor, provider, and regulator of health care. (Lecture d) • Describe the organization and function of Medicare and Medicaid. (Lecture e)

5. The U.S. MultipayorSystem • U.S. Health Care Financing • History of U.S. health insurance • Role of Government • Private payors vs. Government (Public) payors

6. History of Health Care Financing in the U.S. • Late 19th and early 20th century • Care provided at patient’s or doctor’s home • Self-pay/charity payment for services • Increasing advancement of medicine • AMA standardizes medical education • Medical care moves • Commercial health insurance not available • Unpredictability of health • Moral hazard

7. Early Hospital & Physician Health Plans • 1929: Dallas school teachers contract with Baylor Hospital • Hospital service plans • Exempt from most state insurance regulations • Later becomes Blue Cross • 1939: Physicians form own associations • Physicians form pre-paid health care services plan • Blue Shield Association

8. Employer Pre-paid Plans • Ross-Loos Medical Group • Believed to be first HMO in U.S. • 1930s: Surgeon Dr. Sidney Garfield • Organizes employer pre-paid plan • Fixed payment per employee per month • Formed Permanente Health Plan • Open to the public • Union support boosted growth

9. Social Security Act • Passed in 1935 • Established system of old-age benefits • Also created: • Unemployment insurance • Benefits for victims of industrial accidents • Aid for dependent mothers and children, the blind, and the physically handicapped • Social Security Act: Medicare and Medicaid

10. Early Commercial Health Insurance • 1940s: Commercial Insurance • Compete against the Blues • Employer (group) enrollment spread risk and addressed “moral hazard” • Experience rating vs. community rating

11. Factors Influencing Development of Commercial Health Insurance • 1940s • WWII wage controls • IRS favorable tax treatment • Employer sponsored health contracts non-cancellable • 1949: Unions may negotiate health insurance benefits as part of wages

12. Hill-Burton Act • Hospital Survey and Construction Act, passed in 1946 • Stimulated construction of facilities • Foundation of today’s hospitals and health care organizations • Continues to authorize funding • Requires participation in Medicare and Medicaid • Imposes anti-discrimination rules

13. Medicare and Medicaid Laws: SSA Amendments 1965 • Medicare: Title XVIII • Social Insurance addresses care for elderly • Funded through FICA • Medicaid: Title XIX • Social welfare or social protection • Joint funded through Federal and state tax revenues • Administered through the states • Funded through general tax revenues

14. Health Maintenance Organization Act of 1973 • Federal grants and loans to encourage HMOs • Required employers offering traditional health plans to offer HMO option • HMOs thought to lower costs • Gave pre-paid health plans access to the employer-based insurance market

15. Employee Retirement Income Security Act of 1974 (ERISA) • Regulates employer self-insured health plans • Employer not required to establish plan • Requires plans to meet certain standards • Establishes standards of conduct for plan administrators • Requires a grievance and appeals process • Allows employees the right to sue for benefits

16. Affordable Care Act • The most major recent health care insurance legislation is the Patient Protection and Affordable Care Act (PPACA), also known as • The Affordable Care Act (ACA) • Obamacare • The ACA has two major goals • Expansion of health insurance coverage • Improving quality of care while reducing cost

17. ACA Expansion of Health Insurance Coverage – 1 • Subsidies for those who do not receive employer-provided health insurance up to 400% of U.S. poverty level • Medicaid expansion by the states for those earning up to 133% of poverty level • Coverage for children on adults’ policies up to age 26 • Disallows denial for pre-existing conditions or becoming ill

18. ACA Expansion of Health Insurance Coverage – 2 • Small business tax credits • Requirement for larger (>50) employers to offer health insurance coverage • Close Medicare “donut hole” • Individual mandate for health insurance

19. Benefits of ACA • Rate of uninsurance has fallen from 18% to 11% (Gallup, 2016) • Continued slowing of spending growth; amount due to ACA unknown (Martin, 2016) • No change in employment or reported hours worked (Moriya, 2015) • Increased economic growth, especially in states expanding Medicaid (ASPE, 2015) • Reduced uncompensated care (ASPE, 2015)

20. State-LicensedInsurance Organizations - 1 • Commercial Health Insurers • Most are owned by stockholders or stock companies • Mutual insurance companies are owned by their policyholders • BlueCross BlueShield • Association of 39 different companies in 50 states • Locally operated; some are for-profit • Largest insurer, covering 1 in 3 Americans

21. State-LicensedInsurance Organizations - 2 • Managed Care Organizations • Combine health insurance and health care services • Cost control and utilization control • Some hire their own doctors and have their own facilities • 3 main types: • Health maintenance organizations (HMOs) • Preferred provider organizations (PPOs) • Point-of-service (POS) plans

22. Self-Funded Employer Plans • Health benefit plans regulated by federal law • Created by employers, employee organizations, or a combination • Employer assumes risk for workers and pays for care directly • Employer may choose to have a third-party administrator administer the plan

23. Publically-Funded Health Care • Government programs, some of them funded through income taxes and payroll taxes • Begin in federal legislation • Voted into law by Congress • Help specific population groups • Run by federal government and federal-state partnerships

24. Examples of Government Health Care Programs - 1 • Affordable Care Act (ACA) • Medicare • Medicaid • Children’s Health Insurance Program • Veterans Health Administration • TRICARE • Indian Health Service

25. Examples of Government Health Care Programs - 2 • Government payors: Programs whereby the government pays health care organizations to provide health care services • Government operated delivery systems: Self-contained systems that operate facilities and have government-employed providers

26. Roles of U.S. Government - 1 • 3 key roles: provider, payor, and lawmaker • Provider of health care services • Veterans Health Administration and TRICARE • Indian Health System • Supports research into new models of health care • Payorof third-party services • Outsources health care services, claims paperwork, grants for research

27. Roles of U.S. Government - 2 • Lawmaker role 1: Ensure fair competition • Sherman Anti-Trust Act, 1890 • Clayton Act, 1914 • Lawmaker role 2: Protect the public • Food, Drug, and Cosmetic Act created FDA, 1938 • Hatch-Waxman Act, 1984 • American with Disabilities Act, 1990

28. Financing Health Care, Part 1Summary – 1 – Lecture a • U.S. health care payors • Historical and governmental influences for the unique U.S. system • Federal and state laws have influenced the development of different types plans • Privately funded plans • Publically funded or government programs

29. Financing Health Care, Part 1 Summary – 2 – Lecture a • Government Role in Health Care • Enact laws • Regulate • Protect • Provide services • Payor

30. Financing Health Care, Part 1References – 1 – Lecture a References Anonymous. U.S. Uninsured Rate at 11.0%, Lowest in Eight-Year Trend. 2016. Washington, DC, Gallup. http://www.gallup.com/poll/190484/uninsured-rate-lowest-eight-year-trend.aspx. Accessed January 23, 2017 BlueCross Blue Shield Association. http://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association. Accessed January 23, 2017. California Office of the Patient Advocate. What is an HMO? 2016. http://www.opa.ca.gov/Pages/WhatisanHMO.aspx. Accessed January 23, 2017. Centers for Medicare and Medicaid Services. Medicaid program: General Information. https://www.cms.gov/medicare/medicare-general-Information/medicareGenInfo/index.html. Updated July 2014. Accessed January 23, 2017. U.S. Department of Health and Human Services. Health Insurance Coverage and the Affordable Care Act, 2010 – 2016. https://aspe.hhs.gov/pdf-report/health-insurance-coverage-and-affordable-care-act-2010-2016. Accessed January 23, 2017. Illinois Department of Human Services. Health insurance carriers and managed care. http://www.dhs.state.il.us/page.aspx?item=31583. Accessed January 23, 2017.

31. Financing Health Care, Part 1References – 2 – Lecture a References Indian Health Service. Indian Health Service fact sheet. https://www.ihs.gov/newsroom/factsheets/. Accessed January 23, 2017. Kaiser Family Foundation reference 2011 Key Facts about the Uninsured Population. http://kff.org/uninsured/fact-sheet/key-facts-about-the-uninsured-population/. Accessed January 23, 2017. OurDocuments.gov. Social Security Act (1935). http://www.ourdocuments.gov/doc.php?flash=true&doc=68. Accessed January 23, 2017. U.S. Department of Health and Human Services. Hill-Burton Free and Reduced-Cost Health Care. http://www.hrsa.gov/gethealthcare/affordable/hillburton/. Accessed January 23, 2017. U.S. Department of Health and Human Services. Health information privacy. http://www.hhs.gov/ocr/privacy/hipaa/understanding/index.html. Accessed January 23, 2017.

32. Financing Health Care, Part 1References – 3 – Lecture a References U.S. Department of Health and Human Services, Office of the General Counsel. Drug Price Competition and Patent Term Restoration Act. http://library.findlaw.com/1999/Mar/10/130703.html. Accessed January 23, 2017. U.S. Department of Justice, Civil Rights Division. Americans with Disabilities Act: Questions and Answers. http://www.ada.gov/q%26aeng02.htm. Updated February 4, 2009. Accessed January 23, 2017.

33. Introduction to Health Care and Public Health in the U.S.Financing Health Care, Part 1Lecture a This material was developed by Oregon Health & Science University, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number 90WT0001.