Health Insurance and Managed Care

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Health Insurance and Managed Care

• RMI 3500
• Intro. to Risk Mang. Ins.
• Robert Klein

Revised 10-7-07
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Topic Objectives

• Understand major health care problems.
• Describe basic medical expense coverages.
• Explain major medical insurance in detail.
• Explain purpose/motivation of managed care.
• Review managed care devices to control costs.
• Outline major types of managed care plans.
• Discuss issues re managed care practices.
• Discuss long-term care insurance and disability
  insurance.

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Health Care Financing Problems
Problems
Causes

• Soaring Costs
• Cost Shifting
• Inadequate Access
• Large Number of Uninsured
• Uneven Quality
• Waste and Inefficiency

• Inflation
• New Technology
• Prescription Drugs
• Population Aging
• Mandated Benefits
• More Treatable Conditions
• Insurance
• Tax Subsidy

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Market Responses

• Employers, under competitive pressures have
  sought to contain rising employee health benefit
  costs.
• Industry has developed managed care as one
  solution.

• Other Trends
• More cost shifting to employees
• Employers dropping health coverage
• Incentives for employees to improve their health

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Rising National Health Care Expenditures
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Types of Health Coverages

• Hospital-Surgical Insurance
• Major Medical Insurance
• traditional indemnity plans
• preferred provider organizations
• health maintenance organizations
• Long-Term Care Insurance
• Disability Income Insurance
• Group vs. Individual Plans

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Hospital-Surgical Insurance

• Covers routine but not catastrophic medical
  expenses.
• Low limits
• Many policies still in force, few new policies
  sold.
• Coverages
• hospital expenses
• surgical expenses
• Outpatient services
• physician hospital visits

Our current medical plan offers a 3-day stay for
a bullet in the groin or torso, a 2-day stay for
a bullet in an extremity and an overnight for
superficial wounds.
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Major Medical Insurance

• Preferable predominant form of health insurance
  now purchased.
• Broad coverage for significant proportion of
  routine and catastrophic medical expenses.
• High lifetime limits 1 million ? unlimited.
• Benefit period benefits will be paid for
  specified number of years for specific illness
  without new deductible.

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Major Medical (cont.)

• Deductibles
• Eliminate handling cost of small claims
• calendar-year
• family
• common accident
• Coinsurance
• Discourages over-utilization
• (Total expense - deductible) x CF Benefit
• Coinsurance Factor (CF) typically 80
• Stop-Loss Limit
• total expense paid by insured after co-insurance
  but not including deductible.
• Protects insured against high out of pocket costs

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Example

• Assume policy with 500 CY deductible 80
  coinsurance 5,000 stop loss limit 1 million
  total limit.
• Insured has medical expenses of 4,000
• Benefits (4,000-500) x .8 2,800
• Insured has medical expenses of 50,000
• without stop loss, B (50,000-500) x .8
  39,600 insured would have to pay 10,400.
• with stop loss, B 44,500 insured pays 5,500
  stop loss limit triggers at 25,500 in medical
  expenses.

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Major Medical (cont.)

• Exclusions
• elective cosmetic surgery
• dental and eye care
• pregnancy and childbirth
• experimental surgery
• Internal Limits
• alcohol/drug treatment
• Managed Care Elements
• Pre-certification, preferred provider
• Critical Illness Policies
• e.g., cancer policies

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Health Savings Accounts

• Allows people to deposit funds into trust
  account to cover qualified medical expenses up to
  established limits.
• Funds deposited are tax-deductible ? allows you
  to cover out-of-pocket expenses with pre-tax
  dollars.
• Good strategy to use HSAs for anticipate
  non-covered medical expenses.
• However, unused funds do not roll over.
• Bush seeking to expand HSA limits/usage and allow
  roll over of unused funds.

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Medical Contract Conditions

• Renewal provisions
• optionally renewable (insurer choice)
• non-renewable for stated reasons
• guaranteed renewable (rates can rise)
• non-cancelable (rates cannot rise)
• Pre-existing conditions clause
• Pre-existing conditions not covered for specified
  period of time.
• Grace periods and reinstatement

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Managed Care
Your husband will receive the best care known to
medical coverage.

• Medical expense plans that provide broad covered
  services to members with strong emphasis on cost
  control.
• Contrast with standard indemnity
  (fee-for-service) plans with unlimited choice of
  providers.
• Cost control mechanisms substitute for financial
  incentives in indemnity plans.

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Managed Care Cost Controls

• Limited choice of physicians
• Utilization review
• Control of provider reimbursement
• Preventive care

Good news, hon! Your treatment has been
authorized.
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Managed Care Plans

• Health Maintenance Organizations
• Preferred Provider Organizations
• Exclusive Provider Organizations
• Provider Sponsored Organizations
• Point-of-Service plans

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Health Maintenance Organizations (HMOs)

• HMO both provides and finances medical care
• Broad coverage with low deductibles and copays
• Prepaid health coverage

• Doctors not compensated by fee-for-service
• Salaried employees
• Capitation set fee per insured, patient, or
  procedure
• Other cost controls
• most limited choice of providers
• gatekeepers

Very scary Jennifer does anyone else have an
HMO horror story?
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Pros/Cons of HMOs

• Cons
• Less freedom to choose doctor
• What do you do when you are outside the area?
• Quality of care?

• Pros
• Comprehensive care
• Lower deductibles, lower copayments
• Fewer exclusions
• Preventive care
• No claim forms to file
• Lower cost

Were in HMOs - the closest to legit weve been
in years.
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Preferred Provider Organizations

• Doctors who contract with insurer or group to
  offer services at reduced rates.
• Not the same as HMO
• Independent doctors
• Doctors paid by negotiated fee
• Insured chooses provider within PPO

• Advantages
• Lower cost than indemnity plans
• Greater choice than HMOs
• Help new doctors build up practices
• Disadvantages
• Only works well with large groups
• More expensive than HMOs
• Limited to PPO providers

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Other Managed Care Plans

• Point-of-Service
• combines HMO or PPO with greater provider choice
• In-network care fully reimbursed.
• Out-of-network services option subject to
  deductible and large copay.

• PSOs
• Owned by providers
• Response to HMO PPO controls
• Hold harmless clause
• Solvency issue
• Providers encountering cost vs. quality of care
  issue

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National Employee Enrollment in Health Care
Plans, 19932005( of All Covered Employees)
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Federal Laws HIPAA

• Health Insurance Portability and Accountability
  Act (HIPAA)
• employer-sponsored plans cannot limit coverage
  for pre-existing condition for more than 12
  months
• health status discrimination by employer
  prohibited
• portability between employers
• small-group guarantees

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Federal Laws COBRA

• Consolidated Omnibus Reconciliation Act of 1985
• if worker leaves job, worker can continue
  coverage under employers plan for up to 18
  months at 102 of group rate.

Uninsured? That wont be a problem. We can refer
you to a very good doctor in Ottawa.
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Long-Term Care Insurance

• 39-49 of persons reaching age 65 will spend some
  time in nursing home.
• 50,000-80,000 cost per year.
• Includes skilled/immediate nursing, custodial and
  home health care.

• Aggregate benefits elimination periods.
• Inflation protection, renewability.
• Expensive rates rise exponentially with age at
  inception of policy.
• Difficult choices
• benefits
• viability of insurer

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Disability Insurance

• Probability of person age 25 becoming disabled
  for 90 days is 54.
• DI provides income when insured is unable to work
  because of illness/injury.
• To reduce moral hazard, benefits replace 60-80
  of income.
• Disability definitions become stricter as time
  length of disability increases.
• Partial and residual liability coverage.
• Benefit and elimination periods.

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Consumer Considerations

• Choices among employer health plans.
• Buying individual policy if you do not have group
  insurance coverage.
• uninsured tend to receive lower quality care
• premium versus coverage provisions
• Choices
• type of plan (indemnity, PPO, HMO)
• covered expenses
• deductibles and limits

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General Principles

• Insure for catastrophic loss.
• Consider group insurance if available.
• Use preferred providers.
• Consider disability income insurance.
• Avoid limited policies.
• Be aware of restrictions.
• Use deductibles, elimination periods.

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Health Ins Options for You