America spent 17.3% of its gross domestic stock on health care in 2009 (1). If you break that down on an private level, we spend ,129 per man each year on health care...more than any other country in the world (2). With 17 cents of every dollar Americans spent retention our country healthy, it's no wonder the government is thought about to reform the system. Despite the splendid concentration health care is getting in the media, we know very wee about where that money comes from or how it makes its way into the ideas (and rightfully so...the way we pay for health care is insanely complex, to say the least). This convoluted ideas is the unfortunate supervene of a series of programs that effort to control spending layered on top of one another. What follows is a systematic effort to peel away those layers, helping you come to be an informed health care consumer and an incontrovertible debater when discussing "Health Care Reform."
Who's paying the bill?
The "bill payers" fall into three sure buckets: individuals paying out-of-pocket, private insurance companies, and the government. We can look at these payors in two different ways: 1) How much do they pay and 2) How many habitancy do they pay for?
The majority of individuals in America are insured by private insurance associates via their employers, followed second by the government. These two sources of cost combined list for close to 80% of the funding for health care. The "Out-of-Pocket" payers fall into the uninsured as they have chosen to carry the risk of curative expense independently. When we look at the amount of money each of these groups spends on health care annually, the pie shifts dramatically.
The government currently pays for 46% of national health care expenditures. How is that possible? This will make much more sense when we observe each of the payors individually.
Understanding the Payors
Out-of-Pocket
A select quantum of the habitancy chooses to carry the risk of curative expenses themselves rather than buying into an insurance plan. This group tends to be younger and healthier than insured patients and, as such, accesses curative care much less frequently. Because this group has to pay for all incurred costs, they also tend to be much more discriminating in how they entrance the system. The supervene is that patients (now more appropriately termed "consumers") comparison shop for tests and elective procedures and wait longer before seeking curative attention. The cost method for this group is simple: the doctors and hospitals fee set fees for their services and the outpatient pays that amount directly to the doctor/hospital.
Private Insurance
This is where the whole ideas gets a lot more complicated. private insurance is purchased either individually or is provided by employers (most habitancy get it straight through their boss as we mentioned). When it comes to private insurance, there are two main types: Fee-for-Service insurers and Managed Care insurers. These two groups arrival paying for care very differently.
Fee-for-Service:
This group makes it relatively uncomplicated (believe it or not). The boss or private buys a health plan from a private insurance enterprise with a defined set of benefits. This advantage holder will also have what is called a deductible (an amount the patient/individual must pay for their health care services before their insurance pays anything). Once the deductible amount is met, the health plan pays the fees for services provided throughout the health care system. Often, they will pay a maximum fee for a aid (say 0 for an x-ray). The plan will want the private to pay a copayment (a sharing of the cost in the middle of the health plan and the individual). A typical commerce thorough is an 80/20 split of the payment, so in the case of the 0 x-ray, the health plan would pay and the outpatient would pay ...remember those annoying curative bills stating your insurance did not cover all the charges? This is where they come from. Another downside of this model is that health care providers are both financially incentivized and legally bound to perform more tests and procedures as they are paid additional fees for each of these or are held legally accountable for not ordering the tests when things go wrong (called "Cya or "Cover You're A**" medicine). If ordering more tests provided you with more legal protection and more compensation, wouldn't you order anyone justifiable? Can we say misalignment of incentives?
Managed Care:
Now it gets crazy. Managed care insurers pay for care while also "managing" the care they pay for (very clever name, right). Managed care is defined as "a set of techniques used by or on profit of purchasers of health care benefits to manage health care costs by influencing outpatient care decision production straight through case-by-case assessments of the appropriateness of care prior to its provision" (2). Yep, insurers make curative decisions on your profit (sound as scary to you as it does to us?). The customary idea was driven by a desire by employers, insurance companies, and the social to control soaring health care costs. Doesn't seem to be working quite yet. Managed care groups either furnish curative care directly or compact with a select group of health care providers. These insurers are additional subdivided based on their own personal administration styles. You may be familiar with many of these sub-types as you've had to pick in the middle of then when choosing your insurance.
Preferred supplier organization (Ppo) / Exclusive supplier organization (Epo):This is the closet managed care gets to the Fee-for-Service model with many of the same characteristics as a Fee-for-Service plan like deductibles and copayments. Ppo's & Epo's compact with a set list of providers (we're all familiar with these lists) with whom they have negotiated set (read discounted) fees for care. Yes, private doctors have to fee less for their services if they want to see patients with these insurance plans. An Epo has a smaller and more strictly regulated list of physicians than a Ppo but are otherwise the same. Ppo's control costs by requiring preauthorization for many services and second opinions for major procedures. All of this aside, many consumers feel that they have the many amount of autonomy and flexibility with Ppo's.
Health administration organization (Hmo): Hmo's combine insurance with health care delivery. This model will not have deductibles but will have copayments. In an Hmo, the organization hires doctors to furnish care and either builds its own hospital or contracts for the services of a hospital within the community. In this model the physician works for the insurance supplier directly (aka a Staff Model Hmo). Kaiser Permanente is an example of a very large Hmo that we've heard mentioned often while the modern debates. Since the enterprise paying the bill is also providing the care, Hmo's heavily emphasize preventive medicine and customary care (enter the Kaiser "Thrive" campaign). The healthier you are, the more money the Hmo saves. The Hmo's emphasis on retention patients wholesome is commendable as this is the only model to do so, however, with complex, lifelong, or advanced diseases, they are incentivized to furnish the minimum amount of care indispensable to cut costs. It is with these conditions that we hear the nightmare stories of insufficient care. This being said, physicians in Hmo settings continue to institution medicine as they feel is needed to best care for their patients despite the incentives to cut costs possible in the ideas (recall that physicians are often salaried in Hmo's and have no incentive to order more or less tests).
The Government
The U.S. Government pays for health care in a variety of ways depending on whom they are paying for. The government, straight through a amount of different programs, provides insurance to individuals over 65 years of age, habitancy of any age with permanent kidney failure, sure disabled habitancy under 65, the military, forces veterans, federal employees, children of low-income families, and, most interestingly, prisoners. It also has the same characteristics as a Fee-for-Service plan, with deductibles and copayments. As you would imagine, the majority of these populations are very high-priced to cover medically. While the government only insures 28% of the American population, they are paying for 46% of all care provided. The populations covered by the government are among the sickest and most medically needy in America resulting in this distinction in the middle of amount of individuals insured and cost of care.
The largest and most familiar government programs are Medicare and Medicaid. Let's take a look at these individually:
Medicare:
The Medicare agenda currently covers 42.5 million Americans. To qualify for Medicare you must meet one of the following criteria:
Over 65 years of age
Permanent kidney failure
Meet sure disability requirements
So you meet the criteria...what do you get? Medicare comes in 4 parts (Part A-D), some of which are free and some of which you have to pay for. You've probably heard of the various parts over the years thanks to Cnn (remember the commotion about the Part D drug benefits while the Bush administration?) but we'll give you a quick refresher just in case.
Part A (Hospital Insurance): This part of Medicare is free and covers any outpatient and outpatient hospital care the outpatient may need (only for a set amount of days, however, with the added bonus of copayments and deductibles...apparently there authentically is no such thing as a free lunch).
Part B (Medical Insurance): This part, which you must purchase, covers physicians' services, and premium other health care services and supplies that are not covered by Part A. What does it cost? The Part B premium for 2009 ranged from .40 to 8.30 per month depending on your household income.
Part C (Managed Care): This part, called Medicare Advantage, is a private insurance plan that provides all of the coverage provided in Parts A and B and must cover medically indispensable services. Part C replaces Parts A & B. All private insurers that want to furnish Part C coverage must meet sure criteria set forth by the government. Your care will also be managed much like the Hmo plans previously discussed.
Part D (Prescription Drug Plans): Part D covers prescribe drugs and costs to per month for those who chose to enroll.
Ok, now how does Medicare pay for everything? Hospitals are paid predetermined amounts of money per admission or per outpatient procedure for services provided to Medicare patients. These predetermined amounts are based upon over 470 diagnosis-related groups (Drgs) or Ambulatory cost Classifications (Apc's) rather than the actual cost of the care rendered (interesting way to peg hospital reimbursement...especially when the Harvard economist who advanced the Drg ideas openly disagrees with its use for this purpose). The cherry on top of the irrational refund ideas is that the amount of money assigned to each Drg is not the same for each hospital. Totally logical (can you sense our sarcasm?). The outline is based on a method that takes into list the type of service, the type of hospital, and the location of the hospital. This may sound logical but often times this ideas fails.
Medicaid:
Medicaid is a jointly funded (funded by both federal and state governments) health insurance agenda for low-income families. Eligibility rules vary from state to state and factors in age, pregnancy, disability, revenue and resources. Poverty alone does not qualify an private for Medicaid (there is currently no government-provided insurance for the American poor...despite the fact that almost all first world countries have such a system...enter the current health care debate) but is a indispensable factor in Medicaid eligibility. Each state operates its own Medicaid agenda but must cleave to sure federal guidelines to receive matching federal funds (you may be familiar with California's MediCal, Massachusetts' MassHealth and Oregon's Oregon health Plan due to their modern media coverage). Medicaid payments currently help nearly 60 percent of all nursing home residents and about 37 percent of all childbirths in the United States.
How are the bills paid?
We now understand who is paying the bill but we have yet to cover how those bills are paid. There are two broad divisions of arrangements for paying for and delivering health care: fee-for-service care and prepaid care.
Fee-for-Service
As we mentioned briefly while discussing Ppo's, in a fee-for-service structure, consumers select a provider, receive care (a.k.a. "service") from the provider, and incur expenses (a.k.a. "a fee") for the care. Deductibles and copayments are also required as previously discussed. Pretty simple. The physician is then reimbursed for their services in part by the insurer (i.e. A private insurance enterprise or the government) and in part by the patient, who is responsible for the equilibrium unpaid by the insurer (the return of the unanticipated curative bill despite your overpriced insurance). Again, the major downfall of the fee-for-service arrival is that curative professionals are incentivized to furnish services (and by this we mean any and all services they can legally ask or must ask to be protected legally), some of which may be nonessential, to growth their revenue and/or "C.Y.A." (revenue that has steadily decreased as insurance associates continue to lower the amount they pay curative professionals for their services).
Fee Schedule
A fee agenda operates in the same way that Fee-for-Service does with one exception: instead of using the "usual, customary, and reasonable" amount to reimburse curative professionals, states set fees to be paid for definite procedures and services. The refund is very low ($.10-.15 on the dollar) and barely covers the actual direct cost of providing the care. Physicians may chose to opt into the plan or not (starting to see why a physician might not be so excited about this plan?). Would you sign up to be paid 10 cents for every dollar you expensed for your work? Try the insurance refund arrival next time you go out to eat. We'll come bail you out of the Big House if things go awry. What happens when the insurance ideas does this? You get the Wal-Mart arrival to medicine (high volume, low quality). Not the kind of heath care we recommend.
Pre-Paid
Pre-paid health care? Like a phone card? Not exactly--but close. The pre-paid ideas evolved out of the insurance company's desire to share its risk ( a.k.a "pooled risk") with health care providers. Essentially, they wanted the doctors to have some skin in the game. In the pre-paid system, insurers make arrangements with health care providers to furnish agreed-upon covered health care services to a given habitancy of consumers for a (usually discounted) set price-the per-person premium fee-over a particular time period. What does that mean? It means that Dr. Bob gets paid, say, per month to take care of Joe the Plumber including his blood work and x-rays. If Dr. Bob spends less than that caring for Joe, he makes money. If Joe is sick every month and needs lots of tests and follow-up visits, Dr. Bob could lose money caring for Joe. The set monthly fee paid to the physician for taking care of a outpatient is set up on a per-member, per-month (Pmpm) rate called a "capitated fee." The supplier receives the capitated fee per enrollee regardless of either the enrollee uses health care services and regardless of the quality of services provided (not a good thing in our book). Theoretically, providers should come to be more thrifty and subsequently furnish services in a more cost productive manner because they are bearing some of the risk. Often times, however, less care is provided than is needed in hopes of recovery money and addition profits. In addition, physicians are incentivized to cherry pick the youngest and healthiest patients because these patients typically want less care (i.e. They are economy to keep healthy). We like that doctors are encouraged to keep patients wholesome but we have to worry about the ways in which they are being encouraged to cut costs (as wee care as possible?). Again, the incentive ideas falls short and encourages providers to act unethically.
The Take Home Message:
Health Care in the United States today is involved and messy at best. The layers on top of layers of failed attempts to accurate the ideas continue to encourage the wrong behavior in both patients (out of fear of curative bills) and providers (out of fear of bankruptcy). We have yet to furnish every American habitancy with curative care (something that goes without saying in most 1st World countries...even Cuba has it!). We spend more money on caring for our citizens than any country in the world yet we continue to lag behind in terms of national health outcomes. We think it's safe to say that we're not getting the best bang for our buck. The ultimate solution? We wish we knew. Only time will tell where the ideas goes from here. Our goal: to help you better understand the ideas as it stands today in hopes of developing a more effective, efficient, and broad ideas for the future. Are you with us?
References
1. Levey N. Soaring cost of healthcare sets a record. Los Angeles Times. Feb 4 2010.
2. McKenzie J, Pinger R, Kotecki J. An Introduction to society Health, 6th Ed. Jones and Bartlett Publishers. 2008.
3. Bodenheimer Ts, Grumbach K. Comprehension health Policy. 5th Ed. Lange curative Books/McGraw-Hill. 2002.
4. Kaiser family Foundation. "Explaining health Care Reform: How Do health Care Costs Vary By Region?" Brief #8030. December 2009.
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