55 terms

CH2 - Midterm

Terms and concepts in the first section - Health Care in America
STUDY
PLAY
Course perspectives
-Economic: market and market failures, resource allocation, scarcity, constraints

-Social/Psych: influences with how HC is a special type of service; emotional issues with morbidity and mortality

-Political: role of government and regulatory agencies (pharmaceutical); history of health reform
Health care vs. Health
NOT EQUAL
-HC: medical services, preventative (immunization); diagnosis and treatment; palliative care (ameliorate pain and discomfort)

HC can improve health, but doesn't always
-decreasing marginal returns ($1 for immunization is good, but $100 + $1 won't get you much more)
-skewed distribution of spending (inc $ spent doesn't inc your health)
-more care is not always better (poor care can harm; unnecessary care is wasteful, like x-rays and MRIs when you don't need them)
Determinants of health
-Biological: genetic predisposition
-Socioeconomic: education level, income, race/ethnicity
-Behavioral: lifestyle choices
-Environmental: natural env (climate, infectious disease); built environment (supermarkets, sanitation, neighborhood)
America has achieved major health improvements
-Rapidly decreasing infant mortality rate from 1950-2004
-CVD
American HC costs the most in the world
BUT it is not the best
-per capita in 2008, cost 2x more than some countries
ex) US spent $7,164 but Norway spent $4,713 per capita
American HC system also disappoints
-Outcomes are far from the best
-50 million Ams have no health insurance coverage
-Millions don't get care when they need it
-People treated for major health condition, only 55% get appropriate care, on average
HC Spending vs. life expectancy
-when comparing US with other countries, it is the outlier
-US spends more on health care but does not have comparable life expectancy to countries that spend more
-Japan has the highest life exp but is spending half as much
-Why is US sprending so much and not getting good outcome?
Disparities in Mortality
-Black Americans in US, South has lower life expec
-Disparities in infant mortality rate, least with Asian Americans and most with Af Am, white in middle
Diffs in uninsurance rates by race and ethnicity
-Average white American has 13% probability of being uninsured
-Hispanic has 32% probability of being uninsured
Health insurance coverage in US, 2009
-49% employer sponsored insurance
-17% Medicaid
-12% Medicare
-17% uninsured
-5% private

US mostly ties HI to employers
Private HI
more than 50% of US has

-purpose: there is uncertainty, so we want to protect against a possible significant loss
-the possibility of a large loss is converted into certain, small loss with monthly payments
-risk is spread among many (unhealthy and healthy)
-difficult for self-employed individuals and small businesses to purchase HI
-adverse selection: insurers worry only the sick will enroll (therefore, favor mandate)
Medicare
federal health insurance programs for people 65+, regardless of income or medical history
-covers about 47 million Americans
Medicaid
means-tested welfare program providing medical and long-term care for categorically and medically needy
-joint state and federal program
-covers about 60 million Americans
Government is major purchaser of HC in US
-As of 2005, federal and state expenditures represented 45% of total HC expenditure
US has rising HC expenditure
and it is projected to continue growing
HC expenditure and a rising share of GDP
compared to other countries, US is the outlier, no other country is spending as much in terms or absolute $ or relative amounts
Individual spending is also rising
-Workers' salaries have increased 42% but contributions to premiums have increased 159%
-employers have cut back on contribution to HI premiums
Rising spending has consequences
-Many delay care due to cost e.g. stop dental care/checkups, rely on home remedies or OTC drugs
-Problems with quality of care: doctors provide appropriate HC approx 1/2 the time (some lower, others higher, it averages out)
Indemnity insurance
Patients arrange care
-Choice of providers

Plan reimburses patients for a fixed amount of % of the bill
-Patient must pay the balance
-Reimbursement is financed by premiums

Doctors are typically paid on FFS basis
-Little oversight or constraints on services
HMO (health maintenance organization)
Plan contracts with or directly employs participating HC providers
-Forms network of providers

Enrollees have comprehensive coverage for hospital and physician services in network
-Must pay full cost of services provided by non-network providers

Providers are expected to help minimize costs
-Serve as gatekeepers

Different models of HMOs
-Group model, staff-model
PPO (preferred provider organization)
Org of providers that have contracted with insurer to provide enrollees with services on a discounted FFS basis

Providers agree to PPO discounted rates in hopes of gaining more patients (more volume, less $)

Enrollees can go anywhere for care
-Incentive to receive care from preferred provider (PPO may pay 100% of cost of care from pp but only 80% of cost of care from non-pp)
POS (point of service)
Hybrid that includes elements of HMOs and PPOs

Enrollees have three choices for receiving care:
-If enrollee receives care from providers in HMO, he pays little for care (eg copay of $20 per visit)
-If enrollee receives care from preferred provider assoc with POS, enrollee pays for larger share of costs
-If enrollee receives care from provider not assoc with POS, enrollee pays for substantial share of costs
CDHP (consumer-directed health plan)
Generally couples high-deductible health plan with a personal health savings account

Provides members with financial incentives (or disincentives) to make HC decisions more wisely
-Shift costs to consumer at POS
-encourages consumer to consider cost and quality

Typically includes decision support tools and resources to help members sound health care choices

Can be "customized" to achieve combination of employee premium and POS cost-sharing desired by employer
High-Deductible Health Plan
Typically includes coinsurance above the deductible and max out-of-pocket limit

Deductible is set at higher amount than HSA
If HSA is reached, member must pay 100% of costs until
deductible is reached and coinsurance kicks in
"First-dollar" coverage is often provided for preventive services
Health Savings Account
Account used to pay for health care expenses
Money at end of contract year is rolled over for next year (if
the member continues in the plan
Decision support tools for consumers
Tracking of HSA spending [online]
-Consumers should become more cost conscious

Comparisons of cost and quality

Links to resources on health promotion and disease
management
Growth of managed care
Managed care a dominant theme in ESHI during 1970-80's

1990's: "managed care revolution"
-Rapid shift from traditional indemnity to HMO plans

Slower growth of health care costs during late 1980's to mid 1990's believed due to HMO enrollment

Shift to managed care largely governed by employers than
voluntary choice of employees
-Changes largely driven by employers' cost concerns
Managed care backlash
Backlash because of restrictions in choice of doctors and
concerns about quality
-Americans want choice and autonomy in health care decisions

Media emphasized rare stories of denial of care
-Meet Harry and Louise: http://youtu.be/Dt31nhleeCg

Resulted in new models of health insurance plans
-PPO & POS plans
-HMO enrollment has decreased since its peak in late-1990s
-PPO enrollment has increased
Distribution of health plan
enrollment, 1998-2011
-Dec conventional
-Inc, then dec HMO (peak in 1990s)
-Inc HDHP/SO
# plan types offered, 2011
-as number of employees increases, number of plan types increases as well
HMOs and CDHPs: Cost
-HMOs use fewer resources (Miller and Luft, 2002)
Evidence that HMO enrollees have shorter hospital length of stay
Less use of costly resources such as rehab, emergency
departments, ambulances, ICUs, etc.
No clear difference in physician visits between HMO and nonHMO patients, but less use of expensive resources in non-HMOs

-Some evidence that CDHPs have lower costs
Studies suggest higher deductibles reduce total spending and
use, and may lower rates of cost increases (Buntin et al., 2006)
Evidence that CDHP enrollees have lower spending than PPO but
higher than HMO (Parente et al., 2004)
Physician visits and pharmaceutical use lower for CDHP enrollees
Hospital costs & total physician expenditures higher for CDHP
enrollees
HMOs and CDHPs: Quality
Quality of care for HMOs roughly comparable to non-HMO
plans (Miller and Luft, 2002)
-Studies considering quality of care for specific conditions,
mortality and morbidity, or process measures, all find about an
equal mix of favorable and unfavorable results for HMOs relative
to other plans

Evidence of CDHP's effect on quality is mixed (Buntin et al.,
2006)
-Some studies report increased use of preventive care & increased
compliance with prescribed treatments
-Other studies find that CDHP enrollees forgo beneficial health
care because of costs
Consumer experiences with CDHP
Satisfaction ratings for CDHP similar to those for other plans

Employees who switched into CDHP tended to have higher
incomes and levels of education
-Early-adopters more likely to be risk-takers?
Demand for HI
Why do consumers value health insurance?
Illness, injury and disability are to a large extent random events
Hospitalizations, serious injury and rehabilitation and other
treatments can be very expensive
Most households are averse to risk

-Risk aversion makes consumers willing to pay to spread risk
with others
Premiums matter!!!
Estimated than more than half of the decline in HI coverage
during the 1990s is attributable to increases in health
insurance premium
Medicare
Federal program that helps to pay for health care for elderly
people in the U.S.
Anyone ages 65 and above who qualifies for Social Security
benefits is automatically eligible
Must have made payroll tax contributions for 10 or more years
Otherwise, can pay monthly premium to join

Expansions included other groups:
People under 65 with permanent disabilities receiving Social
Security Disability Insurance and people suffering from end-stage
renal disease (ESRD) (1972)
People with amyotrophic lateral sclerosis (ALS or Lou Gehrig's
disease) (2001)
Mr history
Same as Medicaid (previous class)
Enacted as an amendment to existing Social Security Act in
1965
Often referred to as "Title XVIII"
Mr today
Enrollment in 2010: 47.1 million beneficiaries
39.1 million elderly
8.0 million disabled

Total expenditures in 2010: $524 billion
15% of all federal outlays
Rationale for Mr
When Medicare was passed, only 56% of elderly had hospital insurance
Elderly used ~2x hospital days as younger people but had ~1/2 income
Private insurers set high premiums, which elderly could not afford
Costs of treating a serious illness were seen as a threat to the financial security of seniors
Strong national consensus that none of the elderly in our country should face financial ruin due to illness

Architects had originally hoped for universal national health insurance, but it was politically infeasible
Medicare was intended to be a first step towards universal national health insurance
Mr group
has a diverse group of beneficiaries
Mr skewed Expenditures
10% of FFS Mr beneficiaries account for nearly 60% of Mr spending
Mr spending by beneficiary
-End stage renal disease has the least people but almost $40,000 per person (elderly and disabled cost around $5,000)
Parts of Mr (A-D)
Part A - Hospital Insurance (HI)
Part B - Supplemental Medical Insurance (SMI)
Part C - Medicare Advantage Plans
Part D - Prescription Drug Benefit
Part A - Hospital Insurance
All elderly are automatically enrolled in Part A when they retire at age 65

Covers acute hospital care, skilled nursing home care after hospitalization, and hospice care for terminally ill

Financed by an earmarked Medicare HI payroll tax (2.9%) which is set aside in Medicare Hospital Trust Fund
Pay-as-you-go fund: current Medicare expenditures are funded by
current employee and employer contributions
Projections that Trust Fund will become insolvent

Deductible indexed to increase with health
costs each year

45.6 million enrolled in 2009
Part B - Supplemental Medical Insurance
Medicare beneficiaries are not automatically enrolled in SMI

Voluntary, income-related program
95% of elderly pay premium* ($110.50/month in 2010)
Beneficiary premiums cover 25% of program costs
Remaining 75% subsidized from federal tax revenues

Covers physician services, outpatient diagnostic tests, certain medical supplies and equipment, and home health care

Annual deductible ($162 in 2010) and copayments

42.4 million enrolled in 2009
Part C - Medicare Advantage Plus
Voluntary managed care, such as an HMO or PPO (referred to as Medicare Advantage Plans), available since the 1980s

Managed care plan receives a capitation payment from Medicare based on the total Part A and Part B expenditures for a Medicare beneficiary for that particular geographic area

Plans provide more comprehensive benefits
E.g., lower out-of-pocket payments, additional services not
covered under Part B

Limited choice of physicians and hospitals

11.5 million enrolled in 2010
Part D - Prescription Drug Benefit
Stand-alone outpatient prescription drug benefit
Began in 2006, as part of Medicare Modernization Act (2003)

Drug benefits are provided by private, risk-bearing plans

Average monthly premiums of $38.94 (2010)
Cost of program is heavily subsidized (75%) from federal tax
revenues

Unique "doughnut hole" design of benefit due to:
Budgetary limit
Legislators' desire that all elderly receive some benefit, not just
those with very large drug expenses

27.6 million enrolled in 2010
Doughnut hole
-There is a coverage gap (donut hole) that the employee must pay 100%
-Before that, pay 25% and plan pays 75%
-After that, enrollee pays 5%, Plan pays 15% and Mr pays 80%
Medigap
Patients covered by Medicare are still responsible for some
costs:
Part A hospital deductible, for each hospital stay ($1,100 in 2010)
Part B deductible, $155/year
20% of all charges covered by Part B
Other extra charges


~90% of Medicare beneficiaries obtain some form of
supplemental medical insurance policy ("Medigap" policy):
Private insurance company (~19% beneficiaries)
Retirement benefit from former employer (~29%)
Medicaid or other publicly financed program, if < FPL (~19%)
Medicare managed care plan (~23%
Dual eligibles
Medicaid provides supplemental coverage for Medicare
beneficiaries with low incomes
8 million Medicare beneficiaries in 2010
Most get full Medicaid benefits (incl. long-term care and dental
services)
Help with Medicare's premiums and cost-sharing
Payment to providers
In most cases, providers are paid according to a fee
schedule:
Inpatient: Diagnostic Related Groups (DRGs)
Fixed payment per admission based on diagnosis and
sometime procedures
Physician services
Resource Based Relative Value Scale (RBRVS)
Fixed payment for service, minimal bundling
Other services
Typically they have their own fee schedule

Adjustments for region, teaching
Objective is to set payment equal to cost
Spending on Mr
Will grow faster than the economy
Impending insolvency of Mr
Refers to Part A and Trust Fund

Elderly are increasing in both absolute and relative terms
First of the 77 million baby boomers retire in 2011
(declining beneficiary to worker ratio)

Elderly are living longer
Medical costs continue to increase
Technology drives medical costs even higher
(population pyramids shifting)

Trust Fund currently has negative cash flows
Reserves will be exhausted by end of decade
Proposals for Medicare reform
Increase eligibility age to 67
Increased life expectancy means people could work longer and
maintain employment-based health insurance

Reduce rate of increase in Medicare provider payments
Used previously
But may reduce provider participation and access to care

Increase Part A (HI) tax
Used previously
Would increase financial burden on low-wage workers

Increase Part B premium
Current premium only covers 25% of Part B expenditures
Would increase financial burden in low-income elderly

Make Part B and Part D premiums income related
Equity would be improved and deficit reduced if subsidies to
higher-income elderly were completely phased out

Change Medicare from a defined-benefit to a defined contribution plan
Currently pays for defined (and expanding) set of benefits
regardless of costs
Defined contribution would be a predetermined amount of
money, similar to a voucher, that government would pay to a
health plan

Change Medicare to income-related program
Each beneficiary would receive a voucher, with voucher amount
determined by income
Would improve equity and help low-income elderly

Medical individual retirement account (medical IRA)
Change from a pay-as-you-go plan to a true pension-type system
Would need to be phased in over a long transition period, as
many have already contributed to Medicare
Individuals would have greater control over how their health care
funds are spent
The ACA (Affordable Care Act) 2010 will fill existing gaps in coverage by...
1) Expanding Medicard to those at or below 138% FPL
2) building on employer-based coverage
3) providing premium subsidies to make private insurance more affordable for many between 139% and 400% poverty