Issues Related to Health Care Financing

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Issues Related to Health Care Financing

• Overview of the size and growth of the health
  care sector
• The distribution of personal health care services
• Flow of Funds for Health Care
• Nature of Financing Decisions
• Judith R. Lave, Ph. D.
• January 2004

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Share of National Health Expenditures, By Type
2002
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Notes on Data

• Summary Information Jan/Feb Issues of Health
  Affairs (K. Levit et al. Health Spending Rebound
  Continues. Health Affairs. 23(1), 2004.
• Complete datawww.cms.gov Search National
  Health Expenditures, Click Health Accounts.
  Click Tables

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Annual Percent Change in National Health
SpendingSelected YearsCurrent Dollars
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Many Definitions of Healthcare Costs

• Healthcare Expenditures (p x q)
• Prices of Individual Services
• Premiums for Health Insurance
• Out-of-Pocket Payments
• of GDP to Health Care (14.9)

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National Health Expenditures as a Percent of
GDP1970-2010
Managed care and BBA impacts one- time effects
on price and volume levels
Moderate Growth
Accelerated growth
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Distribution Expenditures on Personal Health Care
2002
Nursing-- home care
Prescription drugs
12.1
10.4
Other health services
Physician Clinical Services
15.9
25.3
8
Percentage Change in Expenditures2000-20002
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The Financing of Health Care
premiums, general taxes, payroll taxes
premiums, general taxes, payroll taxes, state
lotteries
fee-for-service, budgets, capitation
claims
Providers (doctors, hospitals, dentists, etc.)
Patients
medical services
Households Tax payers
out-of-pocket payments
Financing Side
Reimbursement Side
10
Nonelderly Americans With Selected Sources on
HealthInsurance Coverage 2002
Population 250.8 million Does not add up to
100 because people can have more than one
source of health insurance
11
Sources of Supplemental Coverage Among
Non-Institutional Medicare Beneficiaries 1999
Other 2
Medicare Only 13
Medicare HMOs 17
Employer-Sponsored 33
Medigap 24
Medicaid 11
Total 34.7 million non-institutional Medicare
beneficiaries
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No Standard Health Plan

• Health Insurance Policies Vary With Respect to
• covered services
• covered providers
• administrative terms under which services are
  accessed
• methods for paying providers

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Importance of Insurance Coverage

• Use of services is a function of price (which
  depends on insurance structure and coverage)
  (i.e., Claritin)
• Decisions to cover or not cover certain
  providers/technologies/services can make or break
  an industry (i.e., physical therapy, mammograms,
  obesity surgery)
• Medicare is often pace-maker on ways to pay
  providers

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Brief Discussion of HealthCare Financing Terms

• Insurance policies vary considerably. They
  vary with respect to which services will be
  covered, how much cost sharing will be borne by
  the policy holder, administration conditions
  under which consumers/patients access care, what
  providers will be covered, how much providers
  will be paid.
• Private Health Insurance Health insurance
  is purchased in the market by groups (either
  through the place of business or through
  professional associations) or by individuals.
  The premium is the price paid for the insurance
  policy. Under employer sponsored group health
  insurance plans, the cost of the premiums is paid
  in whole or in part by the employer.

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Definitions of Terms in the Following Charts

• Direct Patient Payments This is the total
  amount paid out of pocket by the patient or by
  the patients family for a given service.
• Private Third Parties This is the total amount
  paid for a given service on the behalf of the
  consumer or services. This would include
  payments made by blue cross, blue shield, a
  health maintenance organization, Aetna, etc.
• Public Federal This is the total amount paid by
  the federal government for health care. It
  includes expenditures made under Medicare,
  Medicaid, The Veterans Administration, etc.

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National Health Expenditures By Source of Funds
Selected Calendar Years1970-2002
2002
1993
1980
1970
Source of Payment
100
100
100
100
Total
54.1
56.0
57.3
62.1
Private Funds
Out of Pocket Payments
13.7
16.5
23.7
34.3
33.6
27.7
21.2
Private Health Insurance
35.4
5.0
5.9
5.9
6.6
Other
45.9
44.0
42.6
37.8
Public Funds
32.5
30.9
29.0
24.0
Federal
13.4
13.1
13.6
13.7
State Local
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Percent of Personal Health Care ExpendituresPaid
Out of Pocket
This is for 1992
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Source of Payment for Personal Healthcare
Percent Distribution for Selected Services
(2002)Note only selected sources enumerated
Source of Expenditure ()
Private
Government
Medicaid (Fed State)
Medi-care
Out of Pocket
Private Insu-rance
Total Private
Total
Expendi-tures (billions)
Type of Service
Total Personal Healthcare
17.4
19.3
15.8
35.8
55.8
100.0
1,340.2
17.2
30.7
3.0
33.9
41.1
100.0
486.2
Hospital Care
12.4
20.3
10.1
49.2
66.2
100.0
339.5
Physician Services
Dental Services (99)
5.4
.
44.0
49.5
93.6
100.0
70.3
17.6
0.2
30.0
47.8
77.7
100.0
162.4
Prescription Drugs (99)
49.3
12.5
25.1
7.5
35.9
100.0
103.2
Nursing Home Care
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• What are some of the problems that people have
  with current insurance?

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Employer Sponsored Health Insurance

• 90 of Private Health Insurance Obtained Through
  Employer
• Employer Share of Premium Excluded from Taxes
• Employer Selects Plan
• Who Bears the Cost?
• Economists The Employee in lower wages
• Others The Employer in lower profits

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Question

• What are the advantages/disadvantages of
  getting health insurance through the employer?

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New WrinkleDefined Contribution

• Pay same amount towards all plans offered by
  employer.
• Pay employee fixed amount divided between cash
  and a catastrophic cap. Employee selects a plan
  from a network of providers.
• Pay employee fixed amount to purchase insurance
  privately.

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A Very Conservative Position

• Decide how much you want to subsidize health
  carewho do you want to help?
• Get rid of the incentives that encourage people
  to obtain their health insurance through their
  employers.
• Eliminate the tax subsidy of employer based
  health insurance treat all health insurance
  equallyprobably with a tax credit.
• Let people use their own dollars to purchase
  medical care/insurancelet them make their own
  trade-offs. (could be defined contribution)

Note Similar to the A.M.A. position.
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Selected Policies By Third Parties

• Control Over Prices
• Government Administered Prices
• Prospective Payment System
• Hospitals DRGs
• Nursing Home RUGs
• Home Health Agencies
  HHRG
• Outpatient Department
  - APC
• Rehabilitation Facilities
  FIM-FRG

DRG Diagnoses Related Group RUG Resource
Related Group HHRG Home Health Related
Group APC Ambulatory Patient
Classification FIM-FRG Functional Independence
Measure- Function Related Group
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Development of Managed Care Strongly Encouraged
By Capitation

• Selection of Physician/Providers who Practice
  Cost-Effectiveness Care
• Capitation of Primary Care (Gate-Keeper and Other
  Providers)
• Utilization Management
• Care management
• Preadmission screening
• Concurrent review
• Guidelines
• Disease management
• Introduction of Best Practices

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Percent Distribution of Medicare Enrollees
and Program Payments Under Medicare CY 1998
29.3 Million Enrollees
168.2 Billion in Program Payments
25,000 or More
10,000-24,999
5,000-9,999
2,000-4,999
25,000 or More
Amount of Program Payments
500-1,999
10,000-24,999
5,000-9,999
1-499
2,000-4,999
500-1,999
Percent of Persons Served
Percent of Program Payments