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Sources of Health Care Financing. Health care in the U.S. is financed directly by the recipients of services, by government, and by private insurance 1. Federal and state government 47% 2. Private insurance 35% 3. Private out-of-pocket 19%. Coverage by Social Insurance Programs.

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sources of health care financing
Sources of Health Care Financing
  • Health care in the U.S. is financed directly by the recipients of services, by government, and by private insurance
  • 1. Federal and state government 47%
  • 2. Private insurance 35%
  • 3. Private out-of-pocket 19%
coverage by social insurance programs
Coverage by Social Insurance Programs
  • 1. Workers compensation pays medical expenses for work-related injuries.
  • 2. Federal Government is a major source of health care financing under two programs:
    • Medicare for persons over age 65.
    • Medicaid, a needs-based program for the poor.
private medical expense insurers
Private Medical Expense Insurers
  • 1. Commercial insurance companies
  • 2. Blue Cross and Blue Shield
  • 3. Capitating health care providers
  • 4. Self insurers
    • corporate employers
    • Multiple Employer Trusts
    • MEWAs
  • 5. Federal CHAMPUS program
extent of medical expense coverage
Extent of Medical Expense Coverage
  • 1. Most individuals under 65 (slightly less than two-thirds) are covered as employees or dependents under employer-sponsored medical expense plans.
  • 2. Where employer-sponsored coverage is not available, individual coverage may be purchased.
  • 3. Approximately 85% of Americans under age 65 were covered by private medical expense insurance in 1998.
traditional medical expense insurance plans
Traditional Medical Expense Insurance Plans
  • 1. Less than 10 million persons (under 5% of population) are insured under individually purchased medical expense insurance.
  • 2. Overwhelming dominance of group approach is due to
    • lower cost of group insurance
    • favorable tax treatment of employer-provided health insurance
traditional medical expense insurance fee for service plans
Traditional Medical Expense Insurance Fee-For-Service Plans
  • Historically, commercial insurers and Blue Cross/Blue Shield organizations have provided fee-for-service benefits.
    • 1. insured sought services from a provider.
    • 2. insurance would pay some or all of the providers charge, directly or by reimbursing the insured.
    • 3. provider and insured agreed on the level of care and the insurer paid the bill.
managed care plans
Managed Care Plans
  • 1. Many experts argued that the fee-for-service approach provided an incentive to overutilize health care.
  • 2. Trend in recent years is away from traditional indemnity fee-for-service plans toward programs with a more direct relationship between the provider and the insurer.
  • 3. Newer approach includes HMOs, PPOs, and point-of-service plans.
  • 4. These programs are often referred to as managed care plans.
traditional fee for service medical expense insurance plans
Traditional Fee-For-ServiceMedical Expense Insurance Plans
  • 1. Hospital expense coverage
  • 2. Surgical expense
  • 3. Physician’s expense coverage
  • 4. Major medical coverage
hospitalization insurance
Hospitalization Insurance
  • 1. Hospital service benefit contracts
  • 2. Hospital reimbursement contracts
  • 3. Indemnity (cash payment) contracts
surgical and physician s expense contracts
Surgical and Physician’s Expense Contracts
  • 1. Surgical service plans
  • 2. Surgical expense reimbursement contracts
  • 3. Physician’s expense reimbursement insurance
major medical insurance
Major Medical Insurance
  • 1. High maximum (or unlimited)
  • 2. Deductible
  • 3. Coinsurance or share-loss provision
comprehensive major medical
Comprehensive Major Medical

$1,000,000 maximum

Insurer pays 100% of costs up to maximum


Coinsured Layer of Coverage


pays 20%

of Costs

Insurer pays 80% of costs

$250 per person/$500 family Deductible

illustrated payment under major medical
Illustrated Payment Under Major Medical
  • Amount of loss $20,000
  • Less deductible 250
  • ______
  • 19,750
  • Insured pays 20% of expenseover deductible up to $10,000 $2,000
  • Insurer pays balance $17,750
the health insurance market today
The Health Insurance Market Today
  • Although about 1,200 insurers that offer health insurance for medical expenses, traditional insurance plans no longer dominate the insurance market.
  • Many employers now offer health care coverage under alternative mechanisms.
  • 1. Health Maintenance Organizations
  • 2. Preferred Provider Organizations
  • 3. Point-of-Service Plans
general nature of hmos
  • Provide a wide range of comprehensive health care services to members in return for a fixed periodic payment.
  • Sponsored by a group of physicians, hospital, employer, labor union, consumer group, insurance company, or Blue Cross/Blue Shield plans.
  • HMO provides for the financing of health care and also delivers that care.
provider sponsored organizations
Provider Sponsored Organizations
  • 1. Also sometimes called
    • Physician-Hospital Organizations (PHOs)
    • Integrated Delivery Systems (IDS’s)
  • 2. Similar to HMOs
    • PHO’s are paid a capitated fee
    • fee is divided among providers on a prenegotiated basis
preferred provider organizations ppo s
Preferred Provider Organizations (PPO’s)
  • 1. Doctors or hospitals with whom employer or insurer contracts to provide medical services.
  • 2. Provider discounts services and sets up utilization control programs to control costs.
  • 3. Employees not required to use PPO, but if they go elsewhere they must pay more.
point of service plans pos
Point of Service Plans (POS)
  • 1. POS plans are the newest development in health insurance field.
  • 2. In one respect, POS plans operate like a PPO, since the employee retains right to use any provider but will pay a higher part of the cost for a provider outside network.
  • 3. At same time, POS is like an HMO, since care received through network is managed by primary care physician or “gatekeeper.”
  • 4. POS plans were created when HMOs allowed subscribers to use nonnetwork providers.
cost containment provisions
Cost Containment Provisions
  • In addition to managed care arrangements such as HMOs, PPOs, and POS plans, most traditional indemnity plans have adopted cost control provisions.
  • 1. Increased employee cost sharing
  • 2. Coordination of benefits
  • 3. Covering alternative sites of care
  • 4. Addressing utilization
dental expense insurance
Dental Expense Insurance
  • Written with a dollar reimbursement limit or on a service basis.
  • Coinsurance may require different cost-sharing in earlier years (e.g., 50% first year, 60% second year, 70% third year, 80% fourth year and 90% thereafter).
  • Coinsurance may also be structured to encourage or discourage utilization (100% for preventive care, 50% for orthodontics)
prescription drugs
Prescription Drugs
  • Usually written on a group basis, as an adjunct to other coverage.
  • Reimbursement Basis Coverage
    • Generally a coinsurance or deductible.
    • Deductible per prescription or annual.
  • Service basis Coverage
    • Operates similar to the Blue Cross model.
    • Insurer payments directly to pharmacists.
    • Payment limited to the amount payable to a participating pharmacy.
  • Title XIX of the Social Security Act, known as Medicaid, is a federal-state program of medical assistance for needy persons that was enacted simultaneously with the Medicare program.
    • provides medical assistance to low income persons and certain needy persons who are not at the poverty level.
    • the federal government sets regulations and minimum standards.
    • federal share of cost is based on a formula tied to state per capita income and varied from 50% to 80% in 1998.
medicaid benefits
Medicaid Benefits
  • Medicaid benefits are quite comprehensive.
  • Benefits includes services traditionally included in a commercial group-health-insurance plan and some services, such as long-term care, that are not.
  • Mandatory benefits in all states include inpatient and outpatient hospital services, physician services, and home health care.
  • Optional services include outpatient prescription drugs, prosthetic devices and hearing aids, and dental services.
taxes and health care costs
Taxes and Health Care Costs
  • 1. Cost of employer-provided group plans is deductible by employer and nontaxable to the employee.
  • 2. For the individual,
    • health insurance premiums receive no special tax treatment.
    • premiums are combined with other health care costs and deductible to extent total exceeds 7.5% of AGI.
health insurance for self employed
Health Insurance for Self-Employed
  • TRA-86 authorized self-employed persons to deduct 25% of cost of health insurance. The 25% later increased to 30% and then 40%.
  • TRA-97 phases in 100% deductibility.
  • Fiscal Year% Deductible
  • 1998-99 45%
  • 2000-01 50%
  • 2002 60%
  • 2003-2005 80%
  • 2006 90%
  • 2007 100%
the health insurance problem
The Health Insurance Problem
  • Access to health care
  • High cost of health care
the access problem
The Access Problem
  • 40 million Americans have no health insurance coverage
  • Another 70 million are underinsured
  • Over 85% of the population with private insurance obtain coverage through employment
high cost of health care
High Cost of Health Care
  • 1. Medical care costs growing faster than the average cost of living
  • 2. Consuming an increasing share of GNP
    • 1950 4.4% of GNP
    • 1998 13.+% of GNP
some causes of high cost of health care and health insurance
Some Causes of High Cost of Health Care and Health Insurance
  • Aging population
  • Improved (high-cost) medical technology
  • Excessive capacity
  • Defensive medicine
  • Insurance-encouraged utilization
  • Cost-shifting from government funded plans
  • Mandated benefits