Introduction to Healthcare and
Public Health in the US
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)].
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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Payers in the US Healthcare
System
• US Multipayer System
– Role of insurance
– How payers reimburse providers for
healthcare services
• The Private Healthcare Payer System
– How health insurance works
– Sources of health insurance
– Types of health insurance
– Managed care
• Regulation of private health insurance
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
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Health Insurance
• Spreads the financial risk over a large pool of
people
• Balances risk with cost
– 5% of the risk pool accounts for approximately 50%
of the pool spending
– People over age 65 consume more health care than
other age groups do
• Insurance cost is influenced by prescription
costs, technology, an aging population, many with
chronic conditions, government subsidies and
plan administrative costs.
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
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How Insurers Pay Providers
• The provider submits a claim
– Claim must include at least one diagnosis code, and
one procedure code for each service rendered
• Diagnosis code = ICD-9-CM
• Procedure code = CPT code or DRG code
• A medical claims examiner or adjuster
processes the claim
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Determines “usual and customary” charge
Deducts any portion the patient is responsible for
Deducts any contractual provider discount
Reimburses the remainder
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Financing Healthcare (Part 1)
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How Insurers
Pay Providers (continued)
• The patient and provider receive an explanation
of benefits (EOB), also called remittance advice
– Regardless of whether claim is accepted or denied
– Regardless of whether the patient receives a check
• A claim can be denied for many reasons:
– Coding errors or insufficient information
– Procedure considered experimental or otherwise not
covered by the policy
• Rejected claims can be appealed
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
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The Multipayer US Healthcare System
• Contributors
– Private sources
• Employers and employees
– Contributions to private health insurance
– Out of pocket
• Other
– Public or government sources
• Federal & State and local
– Payroll and general tax revenues
– Special tax, e.g. sales tax
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
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Public vs. Private Insurance
• Private insurance
– Primarily state-licensed companies
– Self-insured employer plan
• ERISA regulates
• Third-party administrator
• Public insurance is government or administered
– Medicare
– Medicaid
– Children’s Health Insurance Program (CHIP)
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
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Types of Private Health
Insurance
• Indemnity plans - “traditional” plans
– Fee for service
– Simply provide reimbursement to providers
– Less prevalent today
• Managed care plans prevail today
– Offer financial incentives to providers and patients
– Integrate the financing and delivery of care within a
single system
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Blue Cross/Blue Shield
• Independent, state-licensed organizations
• Historically set up as not-for-profits under special
state laws
• Blue Cross reimburses hospitals
• Blue Shield reimburses physicians
• Today, some Blue Cross/Blue Shield
organizations operate as commercial insurers
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Financing Healthcare (Part 1)
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Managed Care
• Managed care: term for techniques designed to
control costs and improve quality
• Managed care organization (MCO) – a business
model which integrates financing and delivery of
health care using managed care techniques
• Features
– Comprehensive care
– Controlled access to care
– Manage outcomes and improve quality care
– Reduce costs
• Rationing and quality of care concerns
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Managed Care Organizations
• HMO = Prototype using capitation
• New models
– Mix and match reimbursement methodologies
– Greater patient choice
– Increased costs
• MCO Models
– Health Maintenance Organization (HMO)
– Preferred Provider Organization (PPO)
– Exclusive Provider Organization (EPO)
– Point of Service Plan (POS)
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The “Managed” in Managed Care
• Managed care
– Delivers high-quality health care
– Controls costs
• Patient and provider incentives
– Utilization review
• Determine medical necessity of care
• Role as gatekeeper
– Different types of managed care plans
• Plan differences based upon cost and provider choice
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Cost vs. Provider Choice
• The various managed care plans are defined by
choices in what providers the patient can use
• Fewer choices translate to lower health care
premiums and lower out-of-pocket costs
• Types of managed care plans have varying
degrees of choices and costs
– Health maintenance organization (HMO)
– Preferred provider organization (PPO)
– Point-of-service plan (POS)
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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HMO Models
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Staff model: Doctors are salaried employees
Group model: Doctors are employed by a group
practice; the plan contracts with the practice for their
services; most patients that a doctor sees are patients
in that plan
Open-group model: As above, but doctors are freer to
accept patients from outside the plan
Independent physician association (IPA): Doctors
are organized into a legal entity; have autonomy but
also contract with the plan
Network model: The plan contracts with multiple
independent physicians, group practices, and/or IPAs
Mixed model: Mixes and matches any of the above
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Preferred Provider Organization (PPO)
• PPO - patients free to choose any provider
– In-network providers
• Lower deductibles, copayments, and coinsurance
– Out-of-network providers
• Higher deductibles and coinsurance for the patient
• EPO – patients must use network providers
– No reimbursement for out of network provider
services
• No gatekeeper for either a PPO or EPO
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Point of Service Plan
• Point of Service Plan
– Gatekeeper
• All services through the gatekeeper – the point of
service - controls access to all medical services
• Referrals generally to in-network providers only
• May refer out-of-network
– No reimbursement for services to out-ofnetwork providers unless previously
authorized by gatekeeper
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Indemnity vs. Managed Care Programs
INDEMNITY
Feature
MANAGED CARE
Fee for service
HMO
PPO
POS
EPO
Provider
network
None
Strict or exclusive
Broad
network
Hybrid of
HMO/PPO
Hybrid of
HMO/PPO
Physician choice
Unlimited
PCP required
PCP not required
PCP required
PCP not
required
Referrals
Not needed
Must come from
PCP
Not needed
Required if out
of network
None out-ofnetwork
Precertification
Not needed
Required
Not usually
required
Not usually
required
Required
Preventive care
Usually not
covered
Covered
Some covered
Covered
Varies
Relative cost to
patient
High
Low
Medium–high
Low-medium
Medium
4.9 Table: (2011, CC BY-NC-SA 3.0).
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
18
Regulation of Private
Health Insurance
• States control the legal structure of private
insurers and monitor their finances
– Purpose: To ensure the company can meet its
obligations to the people it insures
• Private insurance companies are also regulated
by federal laws
• Federal law may take precedence over state law
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Federal Regulation of Private
Health Insurance
• Employee Retirement Income Security Act
(ERISA) 1974
– Permits and regulates self-insured health
plans
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Does not require employer plan
Requires plans to meet minimum standards
Requires a grievance and appeals process
Gives participants the right to sue for benefits
Requires plan administrators to meet certain
standards of conduct
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Regulation of Private
Health Insurance (continued)
• Consolidated Omnibus Budget Reconciliation
Act (COBRA) 1985
– An amendment to ERISA, implemented in 1986
– Allows employees to choose continuation of group
health benefits in certain cases
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Voluntary or involuntary job loss
Reduction in hours worked,
Transition between jobs,
Death of a spouse, divorce, and certain other life events
– Individuals may have to pay premium up to 102% of cost
– Generally required for group health plans of companies
with 20+ employees
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Regulation of Private
Health Insurance (continued)
• Health Insurance Portability and Accountability Act
(HIPAA) 1996
– Amendment to ERISA
– Defines “protected health information” and helps ensure its
privacy
– Protects participants in group health plans
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Prohibits discrimination based on health status
Provides additional opportunities to enroll in group health plan, after
loss of coverage or certain life events
For some people, guarantees access to individual insurance
- American Recovery and Reinvestment Act (ARRA) of 2009
strengthened law and provided penalties
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Regulation of Private
Health Insurance (continued)
• ERISA mandated coverage
– Newborns' and Mothers' Health Protection Act
1996
• Plans that offer maternity coverage must pay for at
least a 48-hour hospital stay following childbirth
– Mental Health Parity Act 1996
• Requires equality for coverage of mental illness
– Women's Health and Cancer Rights Act 1997
– Provides for post-mastectomy benefits including
reconstructive surgery and treatment of complications
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Regulation of Private
Health Insurance (continued)
• The Patient Protection and Affordable Care Act (PPACA)
2010 (Healthcare Reform Law)
– No limit or denial of coverage for children under 19 with
preexisting conditions
– Adults no longer denied insurance due to preexisting condition
– Ends lifetime limits and most annual limits on care
– Allows children under 26 to stay on parent’s plan
– Some plans will provide free access to preventive services
– Provides 50% discount on brand-name drugs for seniors in the
Medicare “donut hole”
– More benefits will be phased in through 2014
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
24
Financing Healthcare (Part 1)
Summary – Lecture d
• Insurance works by spreading financial risk
• Insurers pay providers based upon
– Diagnosis and procedure codes, contracted rates
• States license and regulate private insurance
• Types of plans include indemnity, Blue Cross and Blue Shield
and managed care plans
• Managed care uses techniques that result in lower healthcare
costs and improved quality
• Some Federal laws regulate private health insurance
– ERISA, COBRA, HIPAA, and the Affordable Health Care Act
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
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Financing Healthcare (Part 1)
References – Lecture d
References
•
American Association of Preferred Provider Organizations. PPO resources.
http://www.aappo.org/index.cfm?pageid=10. Accessed April 10, 2011.
•
American Association of Preferred Provider Organizations. PPO Toolkit.
http://www.aappo.org/AAPPO_Toolkit_FINAL.htm. Accessed April 2, 2011.
•
Bihari M. Understanding the Medicare Part D donut hole: learn about the Medicare Part D coverage gap.
http://healthinsurance.about.com/od/medicare/a/understanding_part_d.htm. Accessed April 7, 2011.
•
Centers for Medicare and Medicaid Services. Children’s Health Insurance Program (CHIP).
http://www.cms.gov/home/chip.asp. Accessed April 7, 2011.
•
Centers for Medicare and Medicaid Services. http://www.cms.gov. Accessed April 7, 2011.
•
Congressional Budget Office. Statement of Douglas W. Elmendorf, Director. CBO’s analysis of the major health
care legislation enacted in March 2010 before the Subcommittee on Health, Committee on Energy and
Commerce, U.S. House of Representatives. March 30, 2011. www.cbo.gov/ftpdocs/121xx/doc12119/03-30HealthCareLegislation.pdf. Accessed April 3, 2011
•
Cornell University Law School. Workers’ Compensation: an overview.
http://topics.law.cornell.edu/wex/Workers_compensation. Accessed April 7, 2011.
•
Kaiser Family Foundation. Health care costs: a primer. August 2007. www.kff.org/insurance/upload/7670.pdf.
Accessed April 2, 2011.
•
Kaiser Family Foundation. How private health care coverage works: a primer—2008 Update. April 2008.
www.kff.org/insurance/upload/7766.pdf. Accessed April 2, 2011.
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
26
Financing Healthcare (Part 1)
References – Lecture d
References
•
Levey NM. Questions and answers about new rules on appealing rejections of health insurance claims. Los
Angeles Times. July 23, 2010. http://articles.latimes.com/2010/jul/22/nation/la-na-health-rules-qa-20100723.
Accessed April 12, 2011.
•
Marcinko DE. Understanding the Medicare Prospective Payment System. September 17, 2009.
http://medicalexecutivepost.com/2009/09/17/understanding-the-medicare-prospective-payment-system. Accessed
April 7, 2011.
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MCOL. Managed care fact sheets. http://www.mcareol.com/factshts/factnati.htm. 2011. Accessed April 9, 2011
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Medicare.gov. Medicare Advantage (Part C). http://www.medicare.gov/navigation/medicare-basics/medicarebenefits/part-c.aspx. Accessed April 7, 2011.
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National Association of Workers’ Compensation Judiciary. http://www.nawcj.org. Accessed April 7, 2011.
•
National Bureau of Economic Research. Prospective Payment System (PPS) data.
http://www.nber.org/data/pps.html. Accessed April 7, 2011.
•
Obringer LA, Jeffries M. How health insurance works.
http://health.howstuffworks.com/medicine/healthcare/insurance/health-insurance.htm. Accessed April 2, 2011.
•
Partners Human Research Committee. Overview of the HIPAA final privacy regulations.
http://healthcare.partners.org/phsirb/hipaaov.htm. Accessed April 10, 2011.
•
Purcell P, Staman J. Summary of the Employee Retirement Income Security Act (ERISA). Congressional
Research Service report RL34443. May 19, 2009. http://aging.senate.gov/crs/pension7.pdf. Accessed April 3,
2011.
Health IT Workforce Curriculum
Version 3.0/Spring 2012
Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
27
Financing Healthcare (Part 1)
References – Lecture d
References
•
Tufts Managed Care Institute. Managed care models and products. 1998.
www.thci.org/downloads/ModelsProducts.pdf. Accessed April 10, 2011.
•
U.S. Department of Health and Human Services and U.S. Department of Justice. Stop Medicare fraud: learn more
about fighting fraud. http://www.stopmedicarefraud.gov. Accessed April 7, 2011.
•
U.S. Department of Labor. Health plans and benefits. http://www.dol.gov/dol/topic/health-plans. Accessed April 11,
2011.
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U.S. Department of Labor. Workers’ Compensation. http://www.dol.gov/dol/topic/workcomp/index.htm. Accessed
April 7, 2011.
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WorkersCompensation.com. http://www.workerscompensation.com. Accessed April 7, 2011.
Chart, Tables, Figures
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4.9 Table: Indemnity vs. Managed Care Programs (2011, CC BY-NC-SA 3.0).
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 1)
Lecture d
28