Introduction to Healthcare and
Public Health in the US
Financing Healthcare (Part 1)
Lecture a
This material (Comp1_Unit4a) 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)].
Financing Healthcare (Part 1)
Learning Objectives
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Understand the importance of the healthcare industry in the US economy
and the role of financial management in healthcare. (Lecture b)
Describe models of health care financing in the US and in selected other
countries. (Lecture c)
Describe the history and role of the health insurance industry in financing
healthcare in the United States, and Federal laws that have influenced the
development of the industry. (Lecture a)
Understand the differences among various types of private health insurance
and describe the organization and structure of network-based managed
care health insurance programs. (Lecture d)
Understand the various roles played by government as policy maker, payer,
provider, and regulator of healthcare. (Lecture d)
Describe the organization and function of Medicare and Medicaid. (Lecture
e)
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
2
The US Multipayer System
• US Healthcare Financing
– History of US health insurance
– Role of Government
– Private payers vs. Government (Public)
payers
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
3
History of US Healthcare Financing
• Late 19th and early 20th century
– Care provided at patient’s or doctor’s home
– Self-pay/charity payment for services
– Increasing advancement of medicine as a science
especially in surgery and infectious disease
– AMA standardizes medical education and quality of
care improves
– Medical care for illness moves out of the home to
doctor’s office, surgical care at hospitals
– Commercial health insurance not available due to
unpredictability of health and “moral hazard”
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
4
Early Hospital & Physician Health Plans
• In 1929, 1300 Dallas school teachers contract with
Baylor Hospital for 21 days hospitalization for 50¢
per month each
– Hospital service plans - steady stream of income
– Exempt from most state insurance regulations
– Later becomes Blue Cross
• Physicians fearing loss of control form own
associations
– In 1939, California physicians form pre-paid healthcare
services plan
– Blue Shield Association
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Employer Pre-paid Plans
• Ross-Loos Medical Group provided pre-paid care to Los
Angeles County employees
– Believed to be first HMO in US
– Focus on quality of care including preventive care
• Surgeon Dr. Sidney Garfield starts pre-paid medical
practice
– 1930s – Organizes employer pre-paid plan for construction
workers on the Los Angeles Aqueduct and Grand Coulee Dam
and Kaiser Shipyards during WWII
– Fixed payment per employee per month
– Subsequently, formed Permanente Health Plan
• Open to the public
• Union support boosts growth
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
6
Social Security Act
• Passed in 1935, part of the New Deal
• Established a system of old-age benefits for workers
• Also created:
– Benefits for victims of industrial accidents
– Unemployment insurance
– Aid for dependent mothers and children, the blind, and the
physically handicapped
– Vocational training
– Funds for family health programs
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Early Commercial Health
Insurance
• Commercial insurance carriers offer group
health insurance
– Compete against the Blues
– Employer (group) enrollment spreads risk and
addresses “moral hazard”
– Experience rating vs. community rating –
lower rates for young healthy individuals
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
8
Factors Influencing Development
of Commercial Health Insurance
• WWII wage controls
– Employers offer health insurance as a benefit to attract skilled
employees
• IRS favorable tax treatment
– Employer – free of payroll tax
– Employee -- no income tax
• Employer sponsored health contracts non-cancellable
• 1949 – Unions may negotiate health insurance benefits
as part of wages
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Hill-Burton Act
• Hospital Survey and Construction Act, passed in
1946
• Stimulated construction of facilities
• Foundation of today’s infrastructure for hospitals and
other health care organizations
• Continues to authorize funding for hospitals, nursing
homes, health centers, rehabilitation facilities
• Requires participation in Medicare and Medicaid
• Imposes anti-discrimination rules
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
10
Medicare and Medicaid Laws: SSA
Amendments 1965
• Medicare
– 1965 Amendment to SSA Title XVIII
– Social Insurance addresses care for elderly
– Funded through FICA
• Medicaid
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Title XIX SSA
Social welfare or social protection
Joint funded through Federal and state tax revenues
Administered through the states
Funded through general tax revenues
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
11
Health Maintenance Organization Act
of 1973
• Health Maintenance Organization Act of 1973
– Federal grants and loans to encourage HMOs
• Required employers offering traditional health plans to
offer HMO option
– HMO offers comprehensive, prepaid health coverage
for hospital and physician services through specific
health care providers
– Gave pre-paid health plans access to the employer
based insurance market
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
12
Employee Retirement Income
Security Act of 1974 (ERISA)
• Regulates employer self-insured health plans
– Does not require employers to establish a plan
• Requires employer plans to meet certain minimum
standards
– Establishes standards of conduct for plan administrators
– Requires a grievance and appeals process
– Allows employees the right to sue for benefits
• Pre-empts state insurance laws
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
13
Healthcare Plans Today
• 83% of the population have health care
insurance
• Two categories of health plans
– Private Funded
• State licensed insurance organizations
• Federal regulated self-insured employer
plans
– Publicly Funded
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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State-Licensed
Insurance Organizations
• Commercial health insurers
– Most are owned by stockholders or stock companies
– Mutual insurance companies are owned by their
policyholders
• BlueCross BlueShield
– Association of 39 different companies in 50 states
– Locally operated; some are for-profit
– Largest insurer, covering 1 in 3 Americans
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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State-Licensed
Insurance Organizations (continued)
• Managed care organizations
– Combine health insurance and health care services
– Cost control and utilization control
– Some hire their own doctors and have their own
facilities
– 3 main types:
• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• Point-of-service (POS) plans
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
16
Self-Funded Employer Plans
• Health benefit plans regulated by federal law
• Created by employers, employee organizations,
or a combination
• Employer assumes risk for workers and pays for
care directly
• Employer may choose to have a third-party
administrator administer the plan
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Publically Funded Health Care
• Government programs, some of them funded
through income taxes and payroll taxes
• Begin in federal legislation
• Voted into law by Congress
• Help specific population groups
• Run by federal government and federal-state
partnerships
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Examples of Government Health
Care Programs
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Medicare
Medicaid
Children’s Health Insurance Program
Veterans Health Administration
TRICARE
Indian Health Service
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Roles of U.S. Government
• 3 key roles:, provider, payer, and lawmaker
• Provider of health care services
– Veterans Health Administration and TRICARE
– Indian Health System
– Supports research into new models of health care
• Payer of third-party services
– Outsources health care services, claims
paperwork, grants for research
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Roles of Government
(continued)
• Lawmaker role 1: Ensure fair competition
– Sherman Anti-Trust Act, 1890
• Prohibits monopolies and restraint of trade
– Clayton Act, 1914
• Prohibits price-fixing and exclusive dealings
• Lawmaker role 2: Protect the public
– Food, Drug, and Cosmetic Act created FDA, 1938
– Hatch-Waxman Act, 1984
– American with Disabilities Act, 1990
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
21
Financing Healthcare (Part 1)
Summary – Lecture a
• US healthcare payers
– Historical and governmental influences for the
unique US system
– Federal and state laws have influenced the
development of different type plans
• Privately funded plans
• Publically or government programs
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
22
Financing Healthcare (Part 1)
Summary – Lecture a (continued)
• Government Role in Healthcare
– Enact laws
• Regulate
• Protect
– Provide services
– Payer
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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Financing Healthcare (Part 1)
References – Lecture a
References
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BlueCross Blue Shield Association. http://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association. Accessed
December 10, 2011.
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California Office of the Patient Advocate. What is an HMO? 2011.
http://www.opa.ca.gov/report_card/hmowhatis.aspx. Accessed April 4, 2011.
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Centers for Medicare and Medicaid Services. Medicaid program: general Information—overview.
http://www.cms.gov/medicaidgeninfo. Updated February 23, 2011. Accessed April 6, 2011.
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Illinois Department of Human Services. Health insurance carriers and managed care.
http://www.dhs.state.il.us/page.aspx?item=31583. Accessed April 4, 2011.
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Indian Health Service. Indian Health Service fact sheet. http://www.ihs.gov/aboutihs/thisfacts.asp. Accessed April
5, 2011.
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OurDocuments.gov. Social Security Act (1935). http://www.ourdocuments.gov/doc.php?flash=true&doc=68.
Accessed April 12, 2011.
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U.S. Department of Health and Human Services. Medical treatment in Hill-Burton funded healthcare facilities.
http://www.hhs.gov/ocr/civilrights/understanding/Medical%20Treatment%20at%20Hill%20Burton%20Funded%20M
edical%20Facilities/index.html. Accessed April 4, 2011.
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U.S. Department of Health and Human Services. Understanding health information privacy.
http://www.hhs.gov/ocr/privacy/hipaa/understanding/index.html. Accessed April 4, 2011.
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U.S. Department of Health and Human Services, Office of the General Counsel. Drug Price Competition and
Patent Term Restoration Act. http://library.findlaw.com/1999/Mar/10/130703.html. 1999. Accessed April 13, 2011.
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U.S. Department of Justice, Civil Rights Division. Americans with Disabilities Act: questions and answers.
http://www.ada.gov/q%26aeng02.htm. Updated November 14, 2008. Accessed April 13, 2011.
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U.S. Department of Labor, Bureau of Labor Statistics. Career Guide to Industries. 2010–11 ed.
http://www.bls.gov/oco/cg. Accessed April 4, 2011.
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare
Lecture a
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