SOME ASPECTS OF HEALTH INSURANCE IN THE USA

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SOME ASPECTS OF HEALTH INSURANCE IN THE USA
IIRM Workshop on Health Insurance Global
Practices

• Edgar Balbin
• Senior Manager and Chief of Party
• Bearing Point
• Hyderabad

11/15/2009
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Principal Types of US Health Insurance

• Government Insurance
• Medicare
• Medicaid
• Military Health cover
• Employment Based
• Other Private Health Insurance Plans

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Some facts and figures US Health Insurance

• 85 of population covered by some insurance plan
• By far the Employment based coverage is the
  largest about 60
• Government health insurance schemes cover about
  27 of the population
• Direct Purchase of health insurance plans cover
  about 9 of population
• Health expenditure per capita 5274
• Public expenditure on health 5.8 of GDP
• Source US Census Bureau reports and World Health
  report of WHO

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Main Types of Health Insurance

• Medical Expenses coverage
• Benefits treatment of sickness or injury
• Disability income coverage
• Benefits when the insured is unable to work
  because of sickness or injury
• Both these types of health insurance coverage are
  available in India, but in underdeveloped stages

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Forms of Medical Expenses Coverage

• Hospital Surgical Expenses
• Covers hospital room, board and associated
  hospital services such as X-ray, laboratory fees,
  pathology, medicines, etc.
• Limits in terms of maximum dollar amounts or as
  equivalent to cost of semi private room.
• Surgeons and physicians fees during hospital stay
• Amounts are usually specified and covers
  Surgeons fees, Anesthesiologist fees other
  physicians
• Specified outpatient expenses
• Extended care like nursing home costs,
  convalescence costs

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Forms of Medical Expenses Coverage (contd..)

• Major Medical - designed for economic protection
  of the insured and covers
• All benefits of hospital-surgical coverage
• Outpatient treatment
• Services of Private Nurses and Caregivers
• Rent or purchase of treatment equipment and
  medical supplies
• Purchase of prescribed medicines
• Generally the maximum benefit is capped

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Forms of Medical Coverage - Types of Major Medical

• Supplemental Policy
• Issued in conjunction with hospital-surgical
  expense coverage to pay for expenses that exceed
  the benefit level of hospital-surgical expense
  policy.
• Insured deductibles as a corridor expressed in
  fixed dollars operable on exhaustion of
  hospital-surgical expenses benefits
• Coinsurance and stop loss provision as applicable
  in comprehensive policy

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Forms of Medical Coverage - Types of Major Medical

• Comprehensive Policy
• Combines hospital-surgical policy and
  supplemental major medical policy and provides
• Insured share of medical expenses in fixed
  dollars as a deductible
• Coinsurance by the insured in addition to
  deductibles most policies require a 20 insured
  participation
• Limit of co insurance amount when the policy
  begins to pay 100 all all eligible medical
  expenses

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Forms of Medical Expenses Coverage (contd..)

• Social Insurance Supplement
• These policies pay for specified medical expenses
  not covered by government health insurance
  programs including deductibles and coinsurance
• In the US, Social Security includes Medicare
  benefits for people receiving social security
  benefits
• In Canada, each province provides a health
  insurance program for its residents

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Forms of Medical Expenses Coverage (contd..)

• Hospital Confinement
• Terms fix the benefits amount for each day the
  insured is hospitalized
• Offers a variety of fixed daily benefits insured
  elects what best suits his needs and ability to
  pay
• Some policies offer a higher daily benefit while
  the insured is confined to specialized hospital
  facilities such as ICU or cardiac care unit

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Forms of Medical Expenses Coverage (contd..)

• Specified Expenses Coverage
• Offered as a standalone policy or as riders to
  medical expenses policy
• Reimbursements for treatments obtained and/or
  purchasing of medical supplies
• Most common specified expense coverage include
• Dread diseases
• Dental
• Prescription drug/s
• Vision Care

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Forms of disability income coverage

• Provides specified income benefit when insured is
  unable to work because of an illness or
  accidental injury 
• Does not provide medical expense coverage because
  the purpose is to provide protection for
  financial losses resulting from the insureds
  inability to work while disabled
• The nature of disability must meet with the
  policys definition of total disability 
• Total disability Each insurer specifies the
  definition of disability that qualifies for
  policy benefit payments. Various definitions are
  available in the marketplace.

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Total Disability Common Definitions

• Current and Usual
• Two stages of disability specified period of
  time
• Benefits at the onset Benefits at the after
  completion of a specified period of time.
• Own Previous Occupation
• Most liberal
• Deemed totally disable if unable to perform
  essential duties of previous
• occupation
• Adoption of disability income coverage for
  members of particular profession
• Disability Income Loss
• Income protection insurance very popular in the
  upper income market
• Deemed disability if suffers from income loss
  because of disability
• Benefit payment is a specific maximum in case of
  total loss of income and variable in case of
  partial income loss

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Presumptive Disability

• Policy provisions classify certain conditions as
  presumptive disability
• Insured is entitled to full benefit even if
  he/she did not lose or has regained full time
  employment in a former occupation
• Presumptive disabilities include total or
  partial loss of sight loss of use of any of the
  two limbs and loss of speech or hearing.
•  

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Methods of establishing benefit for disability

• Express benefits as a of pre disability
  earnings
• Specify a flat amount at the time of coverage and
  on issue of the policy
• Insurers carefully limit the maximum benefit
  amount that an individual can purchase
• Determinants include (i) usual earned income (ii)
  unearned income that will continue during insured
  disability (iii) additional sources such as group
  disability income, government sponsored
  disability income programs

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Exclusions from Disability coverage

• Disability caused by
• Injuries or sickness that result from military
  service or war
• Self inflicted injuries
• Occupation-related disability or sickness for
  which the insured is covered under workers
  compensation.
• Pregnancy and childbirth (rarely used in group
  policies).

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Individual Health Insurance Contracts

• Policy design and Pricing
• Choice for applicant to choose covers for
  benefits, coinsurance, renewals and elimination
• Premiums correspond to the choices of the insured
• Classes of renewal provisions
• Cancelable
• Optionally renewable
• Conditionally renewable
• Guaranteed renewable
• Non-cancelable

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Individual Health Contracts

• Common Policy Provisions
• Reinstatement subject to conditions
• Pre-existing conditions
• To prevent anti or adverse selection
• Most accepted definition
• An injury that occurred or a sickness that
  appeared or manifested itself before the policy
  was issued and that was not disclosed in the
  application.
• Some policies even specify that the insured
  person must have experienced symptoms of the
  condition during a 2 or 5 year period before the
  policy was issued in order for the insurer to
  exclude that condition from coverage.
• Almost all state regulations in the US limit this
  period to 2 years
• Any condition disclosed in the application is not
  considered pre-existing
• Insurer can issue the policy specifically
  excluding a disclosed condition or may cover that
  condition but require higher rates.

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Individual Health Contracts

• Common Policy Provisions (contd)
• Time limit on certain defenses
• Claims- timely notification, investigation and
  payment
• Legal actions
• Change of occupation
• Over Insurance

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Group Health Contracts

• Privity of Contract
• Employer as a master policy holder more than 90
  of group health business in US is employment
  based
• Cost containment features
• Premiums linked to experience in addition to
  several other factors

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Group Policies-Common Provisions

• Physical examination
• Pre-existing conditions
• More liberal than the definitions contained in
  individual policies
• Typical definition A condition for which a
  member received medical care during the three
  months immediately prior to the effective date of
  the coverage
• In addition, a condition will not be deemed
  pre-existing if
• The member has not received treatment for that
  condition for 3 consecutive months, or
• The member has been covered under a group plan
  for 12 consecutive months, or
• All eligible members were previously covered by
  another group plan at the time the contract
  becomes effective.

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Group Health Policies-Common Provisions

• Conversion
• Gives the member who leaves the group the right
  to purchase an individual health insurance policy
  without poof of insurability
• Right to convert is limited
• Insurer may not issue a conversion policy if it
  results in over-insurance of the member
• The benefits available in the individual policy
  will not be similar to the benefits offered in
  the group plan
• The premiums rates will be higher and
• The benefits more restricted.
• Required in the all states in the US. Not
  required in Canada 
•  EPB1

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Underwriting of Health Insurance - Rating factors

• Morbidity Risk
• Morbidity statistics
• Morbidity factors
• Age Health Sex Occupation Avocations Work
  history
• Habits and Lifestyles
• Risk differentiation for Individual policies
• Standard risk
• Sub-standard risk
• Declined risk

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Managed Care Some Aspects

• HMO - group insurance that entitles members to
  services of participating hospitals and clinics
  and physicians

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What is managed care?

• Managed care refers, in general, to efforts to
  coordinate, rationalize, and channel the use of
  services to achieve desired access, service, and
  outcomes while controlling costs.
• Care is managed through the use of a number of
  tools. Most importantly, care is channeled to an
  established network of hospitals and outpatient
  clinics.

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Key tools of managed care

• Prospective pricing
• Capitation based funding
• Diagnosis related groups and other case-based
  payments
• Physician gatekeepers
• Formularies
• Utilization reviews
• Preventative medicine/health education
• Pharmacy benefit managers
• Disease management

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Prospective Pricing Managing Risk

• Capitation a rupee amount established to cover
  costs of health services per person for a defined
  period of time, usually specified per month.
• DRG a payment made to a hospital for a case
  defined by diagnoses and adjusted for other
  variables.
• Global budget a negotiated budget for a
  specified volume of services subject to a risk
  corridor. Services may be defined by DRGs.

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Tools for coordinating care while controlling
costs

• Gatekeeper a primary care provider who serves
  as the patients agent, arranges for and
  coordinates appropriate medical care and other
  necessary and appropriate referrals. (Can be a
  gate-opener)
• Utilization management/review process of
  evaluating the necessity, appropriateness and
  efficiency of care against established guidelines
  and criteria.

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More tools for achieving outcomes while
controlling costs

• Preventative medicine, health education and
  disease management reducing the incidence of
  expensive health care services while improving
  health status.
• Formularies and use of generic drugs where
  available establishes the list of drugs that
  will be fully or partially covered under the
  plan. Drugs not listed may be prescribed but will
  be paid out-of-pocket.
• Negotiated discounts on drug prices based on
  volume.

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Why develop managed care tools?

• Escalating costs are the biggest problem facing
  health care systems across the globe.
• Fee-for-service health care encourages provision
  of health care services, even if of questionable
  benefit.
• Managed care discourages use of care unless
  necessary. Provides only the services absolutely
  necessary in treating patients and tries to
  maintain the health of its members.
• Medical errors and uneven quality of care
  contribute to the high cost of care another
  global problem. Managing care is also managing
  quality.

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U.S. Experience with Managed Care Organizations
MCOs/HMOs

• 1930s beginning of Blue Cross hospital care
  subscription plans, escalating costs
• 1973 HMO Law contain costs, emphasize primary
  care and prevention to keep people well
• 1980s for-profit MCOs enrollment
  fraud, bankruptcies, dissatisfied customers,
  angry doctors
• 1990s NCQA pursuing quality of service
  and quality of care

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Experience in Europe

• Physician Gatekeepers France, Italy, Spain, UK,
  and others, Central Eastern Europe (CEE)
• Use of Formularies/Reference Pricing - France,
  Italy, Spain, UK, and others, CEE
• Capitation with FFS many countries
• Other prospective pricing DRGs many countries
• Disease Management most OECD countries
• Subscription plans offered by hospitals CEE
  the beginning of prepaid care

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Managed Care in India

• Hospital Subscription Plans
• Tied to Insurance Companies
• Various limited inpatient coverage
• Limited marketing adverse
  selection
• Many subscription plans cancelled
• Police Health Coverage Plan in Hyderabad has been
  successful
• Disease Management Plan in Hyderabad
• Healthy Heart now has 1000 enrolled patients
• BreatheEasy Asthma control has 3500 enrollees
• Partnership between the hospital and Pfizer
• Promotes quality of care associated with the
  hospital

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Making It Work pay for choices

• How much choice? How much access?
• Access to specialists and hospitals -gatekeepers
• Preferred Providers/Network - may not include
  customary doctor
• Access to tests - clinical protocols to establish
  norms for ordering tests
• Access to medications - based on formulary
• Point Of Service Planexpanded choice for higher
  co-pay
• Rural areas a cautionary tale

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Making it work incentives

• Incentive Under-service in managed care to
  minimize costs and maximize profit.
• Goal align incentives to create a more effective
  delivery system all stakeholders benefit if
  illness is prevented or treated before it
  requires hospitalization and other expensive
  services.
• Solution mixed payment system to balance
  incentives, e.g., capitation FFS
  withholds/bonuses co-insurance.

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Making it work risk-sharing

• Capitation paid by insurer - provider at risk
• Capitation paid by insurer with co-pays - the
  provider and the patient share risk
• Fees for Service (FFS) paid by insurer - insurer
  at risk
• Fees for Service with co-insurance - risk is
  shared by the insurer and the patient
• Capitation,FFS coinsurance - risk is shared
  by insurer, provider and patient
• Salaries or Capitation plus Bonuses -
  performance is included in the risks borne by the
  provider

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Making it work Managing Care

• Disease management is a system of coordinated
  healthcare interventions and communications for
  populations with conditions in which patient
  self-care efforts are significant
• Think in terms of episodes of care rather than
  simple incidents bundled grouping of services
  into a single payment
• Use evidence-based practice guidelines
• Aggressively monitor high-risk patients to reduce
  the subsequent use of expensive hospital care

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Making it work Managing Costs

• Lower costs for individual services e.g.,
  negotiated discounts
• Improve the efficiency of service across the full
  spectrum of an individual's illness, for
  examples,
• More effective care early
• Less costly modes of care (out-patient instead of
  in-patient surgery, nursing home care instead of
  hospital care, nurse practitioner instead of
  M.D.)
• Reduce/eliminate redundant/duplicated services
• Use generic medications
• ,

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Making it work Cost Coverage

• Health risks are different from other insurable
  risks insurer is able to modify both the
  probability of occurrence and the cost of the
  event.
• Cost effective policy focus on primary care,
  define an essential benefit package, include a
  strong preventive component.

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Making it work Managing Quality

• Encounter Forms - Reports cards
• Process improvement - Medical Record
• Pay for performance
• Productivity
• Procedures
• Relative Value Units
• Adherence to clinical practice guidelines,
• CME and eventually, outcomes

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Measuring Performance

• Productivity
• Number of patients actually seen
• Per provider
• Per nurse
• Per other staff
• Per clinic or health center

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Measuring Productivity RVUs

• Resource Value Utilization (RVUs can be simple
  evaluation and management codes)
• Code from 1-5
• 1 is least labor intensive (immunization or
  recheck blood pressure)
• 5 is most labor intensive (evaluate complicated
  history, review referral result, evaluate lab,
  change medications, require additional referrals)
• Encourages treating complicated patients in the
  primary care setting

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Measuring Quality

• Continuing medical education (CME)
• Define what is considered CME
• Reward compliance with recommended CME hours
•  Adherence to clinical practice guidelines (CPGs)
• Develop CPGs for common problems
• Evaluate compliance with a limited number of
  CPGs
• Bonus partially based upon CPG compliance

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Measuring Quality by Outcomes

• Eventually monitor health of the enrolled
  population, for examples
• Percentage of diabetic patients who are in ideal
  blood sugar control
• Percentage of chronically ill who are in DMPs
• Percentage of children with age appropriate
  immunizations

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Legislation/regulation of MCOs in U.S.

• Federal Qualification conferred by the Ministry
  of Health after conducting an extensive
  evaluation of the HMO's organization and
  operations under the HMO Act
• Fiscal Soundness must have sufficient operating
  funds, on hand or available in reserve, to cover
  all expenses associated with services for which
  they have assumed financial risk.
• Insolvency a legal determination occurring when
  a managed care plan no longer has the financial
  reserves or other arrangements to meet its
  contractual obligations to patients and
  subcontractors.
• NCQA Accreditation- - Voluntary but important to
  employers and consumers

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Regulatory Authorities

• External Quality Review Organization (EQRO)-- An
  independent organization to review quality of
  care of MCOs/HMOs annually including
  appropriateness of admissions, readmissions and
  discharges for State or Central government
  subsidized beneficiaries.
• State Licensing--A process which involves the
  review and approval of applications from HMOs
  prior to beginning operation. Areas examined
  include
• fiscal soundness,
• network capacity,
• Management Information System, and
• quality assurance.
• The applicant must demonstrate it can meet all
  existing statutory and regulatory requirements
  prior to beginning operations.