Medical Insurance in America

1
Medical Insurance in America
2

• Money is the mothers milk of health care.
• William Hsiao, Health Affairs, August
  2007

3

• Money is the mothers milk of health care.
  However, money does not automatically produce
  efficient, equitable, and effective health care.
• W. Hsiao, Health Affairs, 2007

4
Important point to remember

• Insurance (and insurance companies) do not
  determine who gets funding for care and who
  doesnt those who finance health care make that
  decision
• Financing of health care (putting the money in)
  powers the engine
• Insurance companies just decide where the vehicle
  goes

5
Where insurance fits in
Health Care Financers (Businesses, individuals ,
etc.)
Insurance Industry
Pay For Care
Cover Their Expenses
Make a Profit
6
Where insurance fits in
Health Care Financers (Businesses, individuals ,
etc.)
Insurance Industry
Pay For Care 80
Cover Their Expenses 10-15
Make a Profit 5 10
7
Purpose of insurance

• Coverage by contract whereby one party agrees to
  indemnify or guarantee another against loss by a
  specified contingent event or condition
• The Webster Dictionary

8
Reason to have insurance

• Want to protect against substantial or
  catastrophic loss in the event of an unusual and
  unpredictable event
• Fire insurance
• Life insurance
• Automotive insurance
• Flood insurance
• Disability insurance

9
Medical care in U.S. early-mid 1900s

• Medical care was cheap unsophisticated
• Only real possible economical catastrophe would
  be if someone was hospitalized
• Three forces shaped health insurance in U.S.
• Social/political forces
• Technologic forces
• Economic forces

10
U.S. health plans

• First real plan in 1929 Kimball plan at Baylor
  University
• Offered hospital coverage to teachers at Baylor
  University
• Limited to care at Baylor University Hospital
• Early model for Blue Cross which was first used
  in Minnesota for multi-hospital plan

11
Expansion of insurance coverage

• In 1935, FDR proposed Health Security Act,
  companion legislation to the Social Security
  Act
• Health Security Act would have set up national
  health insurance plan to cover all Americans
  against sickness and hospitalization
• Hospitals and doctors very worried about HSA
  likely that universal coverage would set fees

12
Blue Cross/Blue Shield

• As a reaction against HSA, Michigan and
  California Medical Associations started Blue
  Shield
• Similar to the Blue Cross hospital plan, but
  offered to pay doctors bills
• Gave a private alternative to any federal plan
• Problem was who would pay?

13
Employer-based insurance

• In 1938-9, wage and price freezes were enacted to
  combat rampant inflation
• Big employers, especially those likely to benefit
  from war economy, could not raise salaries to
  compete for employees
• BC/BS convinced big employers in CA and MI to
  offer health insurance as an additional benefit
  to compete for workers

14
Managed care

• Another option for industry was to set up their
  own hospital and hire their doctors
• Could work for very large industry with lots of
  workers
• Strategy of shipbuilder Henry Kaiser in
  SF/Oakland area set up his own health system
  with his own hospitals and doctors
• Has evolved into national staff model managed
  care system (Kaiser-Permanente)

15
The insurance value dilemma

• Consumers want the most value for what they spend
• Value What you need / what it costs
• Problems
• Consumers dont know what they need (they need to
  rely on their doctors)
• Consumers dont know what it costs
• Since consumers arent paying the bill, they want
  as much as possible irregardless of the cost --
  called a moral hazard in economics

16
Another problem

• 3 problems with physicians deciding what is
  needed
• Since physicians have no financial risk, they
  also do not know what most things cost
• In fact, since physicians are paid for what they
  do, physicians have a financial incentive to do
  as much as possible
• Physicians have an incentive to give a patient
  what she/he wants rather than what they need

17
How has insurance changed?

• Over time, has changed from insurance to
  assurance
• No longer protects against catastrophes
• Pays for routine or expected events as well as
  unexpected events
• Patient participation or sharing of costs may be
  limited or non-existent

18
How have employers reacted?

• In early-mid 1990s, embraced managed care
• Gave them predictable costs
• Thought to shift the financial risk for health
  care to insurers and providers instead of
  employer
• In 2000s, shifting to fixed cost plans
• Employers shouldering greater burden of coverage,
  both in premium and medical costs

19
Types of insurance available

• Traditional indemnity plan
• Covers everything, go anywhere
• Usually very expensive
• Employer on the hook for most of the expenses
• Insurance company mainly manages the health care
  needs of the employee and then the company pays
  the costs (plus insurance company expenses)
• Providers usually paid a negotiated rate with the
  insurance company
• The more people in the insurance plan, the more
  power the plan has to negotiate provider rates

20
Types of insurance - II

• Preferred provider option
• Covers most things with co-pay
• Co-pay varies depending which provider used
• Less expensive than indemnity plans because plan
  can channel patients to doctors and hospital that
  offer them a bigger discount on prices
• Bigger the plan (i.e., more enrollees) the bigger
  discount they can demand
• Better the provider network (more accessible,
  more services, better hospitals) the more they
  can demand

21
Types of insurance - III

• Managed care/HMO option
• Covers most things with small co-pay
• Two kinds of models
• Staff model HMO insurance company actually
  employs the doctors and owns the hospitals (i.e.
  Kaiser)
• Group model HMO insurance company contracts with
  doctors and hospitals to form a network
• Usually benefits covered may be limited no
  cosmetic procedures, limited mental health
  benefit, etc.

22
Types of insurance - IV

• HMO payment methods
• Discounted fee-for-service hospital or doctor
  gets a percentage of their current fees that are
  negotiated with the plan
• Capitation hospital or doctor gets a set amount
  of money per month to provide health care to the
  patients assigned to them

23
Types of insurance - V

• Medicare and Medicaid
• Federal programs started in mid-1960s to address
  two patient populations unlikely to be covered by
  employer-sponsored health insurance
• Elderly and disabled covered by Medicare
• Children and poor covered by Medicaid
• Now covers about 40 of all Americans who need
  health care (and likely to go up as population
  ages)

24
Issues with health insurance

• Motivation of all participating partners not
  aligned
• Employers (financers) want to pay as little as
  possible
• Insurers want to make the most money possible
• Employees want most care with little contribution
  of their own
• Providers want to make the most money that they
  can

25
How does this actually work?

• Insurance company makes contract with
  company/employer
• In agreement, benefits are spelled out what is
  covered, how much it will cost employer/employee,
  etc.
• Some companies offer multiple options for
  coverage many offer only 1 option
• Employer will cover some or all of cost for
  employee employee can pay more for family

26
Insurer contracts with docs

• Insurer then has to have an agreement with
  doctors about what they will pay for and how much
• Insurer contacts doctors and negotiates fee
  schedule
• Usually the more people covered by the insurer,
  the more leverage they have
• The more services offered by the medical group,
  the more leverage they have

27
Person gets sick

• Person gets sick and goes to doctor

28
Person gets sick

• Person gets sick and goes to doctor
• Doctor provides service

29
Then what happens?

• Person gets sick and goes to doctor
• Doctor provides service
• Doctor generates bill and sends to
  insurer

30
Then what happens?

• Person gets sick and goes to doctor
• Doctor provides service
• Doctor generates bill and sends to
  insurer
• Insurer reviews claim Is person covered? Is
• service covered? Is service necessary

31
Then what happens?

• Person gets sick and goes to doctor
• Doctor provides service
• Doctor generates bill and sends to
  insurer
• Insurer reviews claim Is person covered? Is
• service covered? Is service necessary
• Insurer pays Insurer rejects
  Insurer asks
• claim claim for more
  info

32
The EOB

• After deciding what to do, the insurer issues an
  EOB to the patient and providers
• An EOB is Explanation of Benefits
• It verifies that a claim was made, what decision
  was made about the claim, and what was paid

33
Might look like this

• Service Service Charge Contractual
  Claim Your
• Provider provided allowance
  paid portion
• MUSC Outpatient 135 65
  52 13
• Pediatrics Extended
• Visit
• Usually will say on it This is not a bill and
  If you believe this is an error, please contact
  us at

34
The end of the story or is it

• You then get a check from the insurer for 52
• But what about the 13 from the patient
• You have to bill the patient separately
• And you HAVE to bill them
• If you dont bill them and attempt to collect
  the
• Your charge really isnt what you negotiated with
  the insurer (they are paying 80 of your charge)
• You could be accused of bribery if this is a
  Medicare patient or another health professional

35
Are there better ways to do this?

• Examples
• Medicare/medicaid Government both funds the
  service and pays out (serves as financier and
  insurer) overhead costs
• Employer-run HMOs (staff models) company
  provides the financing, serves as insurer, and
  hires own providers
• Other health care reform ideas
• All three are subjects of subsequent sessions