Introduction to Healthcare and Public Health in the US: Financing Healthcare (Part1)

Introduction to Healthcare and Public Health in the US: Financing Healthcare (Par t1)

Audio Transcript

Welcome to Introduction to Healthcare and Public Health in the US: Financing Hea lthcare (Part1). This is Lecture (d). The component, Introduction to Healthcare and Public Health in the US, is a survey of how healthcare and public health are organized and services delivered in the US.

The objectives for Financing Healthcare (Part 1) are:  Understand the importance of the healthcare industry in the US economy and the role of financial management in healthcare.  Describe the models of healthcare financing found in the US and in selected other countries.  Describe the history and role of the health insurance industry in financing healthcare in the US, and Federal laws that have influenced the development of the industry.  Understand the differences among various types of private health insurance and describe the organization and structure of network-based managed care health insurance programs.  Understand the various roles played by government as policy maker, payer, provider, and regulator of healthcare.  Describe the organization and function of Medicare and Medicaid.

This lecture discusses payers in the US healthcare system. It will describe how health i nsurance works and how insurers pay healthcare providers for their services. It will cover the two sources for healthcare financing, who is allowed to offer insurance, and th e different types of health insurance plans. It will also introduce the the concept of man aged care, the types of managed care plans, and how managed care affects and control s insurance costs. Finally, this lecture will describe the role of state and federal laws in r egulating private health insurance companies.

Health insurance spreads the financial risk for healthcare expenditures for a group of pe ople by pooling money or premiums paid on their behalf into a large fund. A payer uses the pool of money to pay or reimburse for healthcare services provided to the individual members of the group.

Health IT Workforce Curriculum Introduction to Healthcare and Public Health in the US 1 Version 3.0 / Spring 2012 Financing Healthcare (Part 1) Lecture d

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. In a given year, approximately five percent of the people enrolled in a health insurance plan consume about half of all the money available in the pool. Health plans stay solve nt in most cases because each year all of its members contribute more money than they use. The cost of health insurance is influenced most by prescription costs, technology, an agi ng population, the prevalence of chronic conditions, government subsidies, and health p lan administrative costs.

Before beginning this discussion of health insurance, it is important to understand how p roviders receive payment from payers or insurance companies. Whenever a patient se es a doctor, gets tests run, or goes to the hospital, the provider prepares one or more cl aims to receive insurance reimbursement. Information about the patient and the service s received is described in two kinds of codes – a diagnosis code and a procedure code. A diagnosis code is called an ICD-9-CM code. ICD stands for International Classificatio n of Disease and CM stands for Clinical Modification, to designate that this collection of codes was revised from an earlier version. A procedure code is called a CPT code, whic h stands for Current Procedural Terminology in the case of physicians, and a DRG, or di agnosis related group, in the case of hospitals billing Medicare. The procedure code de scribes the services provided by the provider. Most claims are sent electronically to the insurance company, where the medical claims examiner or adjuster processes it according to the insurance plan’s guidelines. The exa miner subtracts from the bill any amount considered in excess of the plan’s so-called us ual and customary charge. The examiner also subtracts any patient co-payment, co-ins urance, or deductible, as well as the provider’s pre-negotiated discount for services. The balance is then remitted to the provider in an explanation of benefits or remittance advic e. An explanation of benefits (EOB) or remittance advice (RA) is a document issued by the payer stating the status of the claim; whether it is paid, suspended (pending), rejected, o r denied. The purpose is to provide detailed payment information relative to the claim a nd, if applicable, to describe why the total original charges have not been paid in full.

If a claim isrejected the reason must be stated in the explanation of benefits or remittanc e advice. Claims can be denied because of coding errors or insufficient information, bec ause a service is not covered under the policy, or because a procedure is still considere d experimental. Many employer-provided insurance plans have a process for allowing patients to appeal a rejected claim. Under the recent healthcare reform law, more companies are required to establish this process as well as allow patients to have a rejected claim reviewed by a n independent third party.

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. Slide 7 As mentioned previously, contributors to healthcare financing include private and public or government sources. Private sources include employers who purchase insurance po licies or pay directly for healthcare expenditures through a self-insured plan. Individuals and families contribute through the employee portion of health insurance premiums and through out-of-pocket expenses. Federal, state, and local governments collect payroll taxes from employer and employee s and general tax revenues that is used to fund government financed insurance. Occasi onally special tax methods are used such as a sales tax. The money contributed from government and private sources is pooled into large funds and distributed by payers. Payer was previously defined as a pool of funds, without refe rence to any specific payer. The next slides will expand this definition to include differen t organizations or plans that pay for the healthcare services either through a private heal th insurance plan or through a government insurance program. Each insurance pool or f und pays or reimburses on behalf of the individuals who meet the eligibility requirement s for the group represented by the plan or program. For example, eligibility may be due to age as in Medicare and the Children’s Health Insurance Program (CHIP), socioecono mic category as in Medicaid, or employment status for a large corporation that self-insur es.

The two basic types of health insurance are public and private with the difference being who is responsible for the programs. Public insurance is run by the federal government, state government, or both, meaning t he government provides the coverage and pays the providers. Medicare is for people a ge 65 and older and for certain people with disabilities. Medicaid is for low-income peop le. CHIP [chip] provides low-cost health insurance coverage to children in families that earn too much qualify for Medicaid but cannot afford private health insurance. Medicaid and CHIP [chip] receive federal funding, but are administered by the states. Private health insurance is funded and run by individual organizations that are licensed by a state. Consumers usually obtain private insurance through their employer. In some cases, employers self-insure in which case they finance and pay for all the healthcare e xpenditures of their employees. These plans usethe guidelines in the Employee Retirem ent Income Security Act or ERISA legislation (discussed later in this lecture). In these pl ans, the employer administers the plan and assumes all the risk for the healthcare expe nditures of its employees. An employer may contract the claims paperwork to a third-par ty administrator, or TPA. This remainder of this lecture will focus on private health insurance, followed by govern ment health insurance in the next lecture.

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. Slide 9 The contract that an insurance company offers is either an indemnity plan or a managed care plan. Generally, the contract for insurance is between the individual or family and t he insurance company or payer, and not between the insurance company and provider. There are two types of private health insurance plans. Indemnity plans are “traditional” plans based on a fee-for-service model. Under these pl ans, providers are paid according to the services they perform. For example, if you brea k your arm, the company pays a different fee for each service provided, such as a fee fo r the x-ray and a fee for applying a cast. Today, relatively few indemnity plans exist. Ins tead, most health plans are managed care plans. Managed care is a term to describe the techniques designed to provide comprehensive healthcare, manage outcomes and quality, and control costs through a managed care o rganization. Managed care became popular in the 1970s with health maintenance organ izations, or HMOs. Managed care controls costs by providing financial incentives to prov iders and patients. A key difference between the two types of plans is indemnity plans simply finance healt hcare by paying reimbursements to providers. In contrast, managed care plans integrat e the financing and delivery of care into one system. The current delivery of "managed care" services is considerably different than the HMO models of the 1970s, 80s, and 90 s.

Before continuing with the discussion of managed care, Blue Cross/Blue Shield is a spe cial case that deserves separate mention here. It is a collection of private insurance org anizations, each of which is independent and licensed by a state. Blue Cross reimburse s hospitals and Blue Shield reimburses physicians, but the two organizations function as a whole. Historically, Blue Cross/Blue Shield consisted of not-for-profit associations organized to circumvent state insurance licensing requirements. Today, some Blue Cross/Blue Shiel d organizations operate as commercial for-profit insurance companies.

A managed care organization, or MCO, is a business model that integrates financing an d delivery of healthcare, using managed care techniques. Managed care can be separa ted into two distinct functions - one is the methodology and techniques used for provider reimbursement, and the other is the provision of comprehensive quality medical care. Managed care organizations share common features. All have controlled access to co mprehensive care and manage the care provided using various techniques designed to reduce costs yet improve the quality of care.

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. Patient concerns about rationing and the quality of care received through withholding of services by early health maintenance organizations resulted in new managed care mod els.

HMO plans were the prototype MCOs, and provided care to members during sickness, and encouraged prevention and wellness. Original HMOs used an episode of care reim bursement methodology called capitation, and limited member access only to designated plan providers. The newer models of MCOs listed on this slide developed as concerns grew that care w as being withheld at the expense of patients. The new models mixed-and-matched reim bursement methodologies, permitting greater patient choice of providers, but increasedt he cost of care from the original HMO model. These four MCO models will be discussed in more detail later in this lecture.

Managed care “manages” the accessibility, cost, and quality of healthcare. Managed car e plans control what contracted providers are paid and use cost-containment strategies, such as incentives for physicians and patients to choose less costly forms of care, and u tilization reviews to determine the medical necessity of services. For this reason, many people consider managed care a gatekeeper. Today, many versions of managed care plans exist, their heir differences based primaril y on cost and provider choice.

Managed care plans differ with regard to the number of choices its members have which has a direct relationship to healthcare costs. Fewer choices, usually in the form of restricting a patient’s selection of healthcare providers, translates to lower insurance premiums and lower out-of-pocket costs. However, some people prefer the freedom to c hoose their own doctors and this choice and the additional costs involved is an importan t issue. There are three types of managed care plans: health maintenance organizations, or H MOs; preferred provider organizations, or PPOs; and point-of-service plans, or POS [P- O-S]. A variation of the PPO is the exclusive provider organization or EPO. The next slides will detail the varying degrees of choice and cost in each of these models.

HMOs represent the lowest cost managed care organization. There are various types o f HMOs, with the differences depending mainly on the working arrangement providers h ave with the organization. In a staff model HMO, the physicians are salaried employees. They see only patients w ho are enrolled in that HMO, and they see patients in a clinic operated by the HMO. Health IT Workforce Curriculum Introduction to Healthcare and Public Health in the US 5 Version 3.0 / Spring 2012 Financing Healthcare (Part 1) Lecture d

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. In a group model HMO, the physicians are employed by an independent, physician-own ed group practice, and the HMO contracts with them for services. In this arrangement, H MO patients are the bulk of a physician’s business, and again, patients are seen in a cli nic run by the HMO. In an open-group HMO, the organization contracts with individual physicians, who are fr ee to contract with multiple plans. Patients are often seen in a clinic operated by the HM O. In an independent physician association, or IPA, the HMO contracts with physicians wh o are organized into a group such as a corporation, partnership, or foundation. The phys icians retain their independence to see other patients, and they see patients in their own offices, not a clinic operated by the HMO. The IPA model is now used in the majority of HMO plans. In a network model, the HMO contracts with multiple independent physicians, group pra ctices, and/or IPAs. Reimbursement is only made to providers within the HMO. No reimbursement is availa ble for healthcare services by providers outside the HMO.

In a PPO, reimbursement is provided using a fee-for-service methodology where patient s receive discounts and savings for using network providers. This includes lower deduc tibles, copayments, and coinsurance. In a PPO, a patient is free to seek care from any provider they choose outside the network and receive some reimbursement. A variation of the PPO is the exclusive provider organization, or EPO. It is similar to a P PO, but care must be obtained through network providers only. Healthcare services su pplied by providers outside the network are not reimbursable through the EPO. In both the PPO and EPO plans, a gatekeeper does not control access to medical servi ces and individuals may seek care from any provider.

The point of service plan, or POS, includes a primary care physician, or gatekeeper, wh o controls access to plan only providers, similar to an HMO. The primary care physician becomes the point of service for delivery of all healthcare services. In a POS plan, refer rals can be made out of network at the discretion of the primary care physician.

This table summarizes and compares indemnity and managed care programs. Indemnit y programs have the most freedom of choice, but they cost the most. HMOs have the le ast freedom of choice and cost the least. As previously mentioned, all managed care plans limit member choice by designating a network of providers. The providers accept reduced reimbursement from the managed c

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. are program in exchange for patients referred through the plan. PPOs offer a broader n etwork than HMOs do. So-called in-network providers are reimbursed more by the insurance plan than out-of-n etwork providers. A patient might pay as much as forty percent more for out-of-network services. Choice of physicians is most limited with an HMO, which also requires the patient to des ignate a primary care provider, or PCP. Patients must see this provider first in order to get a referral to a specialist. PPOs and POS plans do not have this requirement. HMOs require precertification, a process for checking the patient’s eligibility and authori zing a medical procedure or hospitalization before it occurs. If precertification is skipped, the HMO may not pay for the patient’s care. The exception is in case of an emergency, but even then, the incident must be certified as necessary after the fact. PPOs do not u sually require certification. Another difference between HMOs and PPOs is that HMOs generally pay more for prev entive care, which lowers costs for everyone. Note that a POS plan is a hybrid. It has the flexibility of a PPO, with a cost comparable t o an HMO. A POS relies heavily on preventive care. Members have a primary care phy sician who may refer members to providers outside the network if deemed necessary.

Private insurance is regulated by both state and federal laws. States regulate commerci al health insurers. They control the legal structure of private insurers and monitor their fi nances to make sure they can meet their obligations to the people they insure. Compan ies must prove they have enough money to pay all anticipated claims for the year, along with their administrative and operating costs, and they must maintain a certain amount o f excess funds or reserves, in case claims exceed projected experience.

There are multiple Federal laws regulating both public and private health insurance. Ma ny of the laws have been mentioned previously in the history of the US health insurance system. One of the most important federal laws about regulation of private insurance is the Empl oyee Retirement Income Security Act of 1974 or ERISA [uh-riss-uh]. It sets certain mini mum standards for employer-provided health plans. It allows employers to self-insure, e ffectively permitting an employer to create an insurance company bypassing state requir ements. For any ERISA organized health plan, states laws may not pre-empt Federal r ules and regulations. It requires that employers provide an appeals process so employe es can get benefits, and it allows employees to sue for benefits.

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. Slide 21 COBRA is an amendment to ERISA that allows employees to continue their healthcare i nsurance in certain cases, such as voluntarily leaving a job, involuntary job loss, death o f a spouse, and divorce. Individuals usually have to pay at least some of the premium th emselves, and they may even pay slightly more than what the insurance formerly cost. Companies with fewer than twenty employees are not generally required to offer COBR A benefits.

Most people are familiar with HIPAA, the Health Insurance Portability and Accountability Act, because of the notices required with visits to a healthcare provider. The most publi cized part of HIPAA, protects the privacy of patient information. Lesser-known HIPAA p rovisions are just as important. HIPAA gives employees and their families access to gro up insurance regardless of their health status, such as previous claims experience or kn owledge of genetic disease. For many employees who lose insurance coverage, it provi des opportunities to join other group plans or buy individual insurance.

Other amendments to ERISA regulate private insurance by requiring that certain types o f coverage be provided. For example, the Newborns and Mothers Health Protection Act of 1996 provides for at least a forty-eight hour hospital stay following childbirth. The Me ntal Health Parity Act of 1996 requires that lifetime and annual dollar limits on coverage for mental illness be the same for mental illness and medical or surgical benefits. The l atest rider on this bill was in 2008 when the Troubled Asset Relief Program (TARP) was signed into law by President George W. Bush. Finally, the Women's Health and Cancer Rights Act of 1997 provides coverage of certain post-mastectomy benefits for women w ho undergo mastectomy that includes reconstructive surgery and treatment of complicat ions.

The Patient Protection and Affordable Care Act, passed in 2010, is the official name for what many refer to as the healthcare reform law. This law is scheduled to take effect ov er time, through 2014. For now, the law improves access to health insurance for childre n, young adults, and people who have been denied insurance due to a preexisting condi tion. In addition, insurance companies are no longer allowed to impose lifetime limits on most benefits, and the law is phasing out the annual limits that companies can impose. Patients in some plans get free access to certain preventive services, and seniors who are experiencing the Medicare D coverage gap receive a fifty-percent discount on bran d-name drugs.

This concludes Lecture (d) of Financing Healthcare Part 1. In summary, insurance wo rks by spreading financial risk. Insurers pay providers based upon the diagnosis code, p Health IT Workforce Curriculum Introduction to Healthcare and Public Health in the US 8 Version 3.0 / Spring 2012 Financing Healthcare (Part 1) Lecture d

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015. rocedure code or the service provided, and contractual agreements for fees. Individual organizations run private insurance and operate under state and Federal laws. Different types of insurance plans include indemnity plans, Blue Cross Blue Shield plans, and ma naged care plans. The term managed care is used to describe techniques designed to provide comprehen sive healthcare, manage outcomes and quality, and control costs. Managed care balan ces choice with cost where fewer choices translate to lower insurance premiums and lo wer out-of-pocket costs. Both state and federal laws regulate private health insurance. The most important feder al laws regulating insurance are ERISA, COBRA, HIPAA, and the Affordable Care Act.

References slide. No audio.

This material (Comp1_Unit4d) was developed by Oregon Health and Science University funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC000015.