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Health Policy l Organization and financing l l Paying for health care Government and Health Policy l Organization and financing l l Paying for health care Government and private health care Reimbursing providers Access to health care

Learning Objectives l l l Introduce health policy curriculum Review the role of government Learning Objectives l l l Introduce health policy curriculum Review the role of government and private insurance in financing health care. Describe covered services and financing of Medicare and Medicaid. Discuss the role of managed care in the US Examine various systems for paying physicians and hospitals for health care.

Readings l l Robinson J. Reinvention of Health Insurance in the Consumer Era. JAMA Readings l l Robinson J. Reinvention of Health Insurance in the Consumer Era. JAMA 2004; 291: 1880 -1886. http: //jama. ama-assn. org/cgi/content/full/291/15/1880 l An excellent review of changes in the private health insurance industry in response to the backlash in the US against more restrictive health plans. Porter E. Health care for all, just a (big) step away. NY Times, Dec 18, 2005. l Quick read on the problem with employer-based health insurance.

Health Spending 2004 l l l Rose 7. 9% to $1. 9 trillion or Health Spending 2004 l l l Rose 7. 9% to $1. 9 trillion or $6280/person 16% of GDP (a record) Increases: l l 8. 2% for prescription drugs (lowest since 1994) 8. 6% for hospital care 9% for payments to doctors Slower growth in health spending in 2004 but still higher than earnings or inflation

Size of Family Unit 48 Contiguous States and D. C. 133% of Poverty Level Size of Family Unit 48 Contiguous States and D. C. 133% of Poverty Level 200% of Poverty Level 1 9, 570 12, 728 19, 140 2 12, 830 17, 064 25, 660 3 16, 090 21, 400 32, 180 4 19, 350 25, 736 38, 700 Source: Federal Register: February 18, 2005 (Volume 70, Number 33)

The Cast Payers - Individuals, business, govt l Insurers - BC/BS, insur cos, HMOs, The Cast Payers - Individuals, business, govt l Insurers - BC/BS, insur cos, HMOs, govt l Providers - Hospitals, nurs homes, home care agencies, physicians, pharmacies, l Suppliers - drug cos, medical supply cos l

Terms l l Premiums Deductibles Co-payments Co-insurance Terms l l Premiums Deductibles Co-payments Co-insurance

Payment systems l l l Out-of-pocket Pvt/Employment insurance Government financing Payment systems l l l Out-of-pocket Pvt/Employment insurance Government financing

Fred Farmer broke his leg in 1898. His son ran 4 miles to get Fred Farmer broke his leg in 1898. His son ran 4 miles to get to the doctor who came to the farm to splint the leg. Fred gave the doctor a couple of chickens to pay for the visit. His great-grandson, Ted, who is uninsured, broke his leg in 1998. He was driven to the emergency room, where the physician ordered an x-ray and called in an orthopaedist who placed a cast on the leg. The cost was $580.

Bud Carpenter is self-employed. He recently purchased a health insurance policy from his insurance Bud Carpenter is self-employed. He recently purchased a health insurance policy from his insurance broker for his family. To pay the $250 monthly premium, he had to work some extra jobs on weekends, and the $2000 deductible meant he would still have to pay quite a bit of his family's medical costs out of pocket. Mr. Carpenter preferred to pay these costs rather than take the risk of spending the money saved for his children's college education on a major illness. When his son became ill with leukemia and the hospital bill reached $50, 000, Mr. Carpenter appreciated the value of health insurance. Nonetheless, he had to feel disgruntled when he read a newspaper story listing his insurance company among those that paid out on average less than 80 cents for health services for every dollar collected in premiums.

Betty Lerner and her schoolteacher colleagues paid $6 per year to Prepaid Hospital in Betty Lerner and her schoolteacher colleagues paid $6 per year to Prepaid Hospital in 1929. Ms. Lerner suffered a heart attack and was hospitalized at no cost. The following year, Prepaid Hospital built a new wing and raised the teachers' prepayment to $12. Rose Riveter retired in 1961. Her health insurance premium for hospital and physician care, formerly paid by her employer, had been $25 per month. When she called the insurance company to obtain individual coverage, she was told that premiums at age 65 cost $70 per month. She could not afford the insurance, and wondered what would happen if she became ill.

In 1984, Rose Riveter, age 74, developed colon cancer. She was now covered by In 1984, Rose Riveter, age 74, developed colon cancer. She was now covered by Medicare, which had been enacted in 1965. Even so, her Medicare premium, hospital deductible expenses, physician co-payments, short nursing home stay, and uncovered prescriptions cost her $2700 the year she became ill with cancer.

The Nature of Insurance l IDEAL Any hazard insured against, and the losses arising The Nature of Insurance l IDEAL Any hazard insured against, and the losses arising from it, should be unambiguous, significant, and beyond the control of the insured l l HEALTH CARE Sickness not always well defined Costs partially within the control of the insured Costs partially within control of providers Covers routine expenses

Private health insurance l l Community rating Experience rating Private health insurance l l Community rating Experience rating

Healthy Insurance Company insures three groups of people – a young healthy group of Healthy Insurance Company insures three groups of people – a young healthy group of bank managers, an older healthy group of truck drivers, and an older group of coal miners with a high rate of chronic illness. Under experience rating, Healthy sets its premiums according to the experience of each group in using health services. Because the bank managers rarely use health care, each pays a premium of $100 per month. Because the truck drivers are older, their risk of illness if higher, and their premium is $300 per month. The miners, who have high rates of black lung disease, are charged a premium of $500 per month. The average premium income is $300 per member per month.

Blue Cross insures the same three groups and needs the same $300 per member Blue Cross insures the same three groups and needs the same $300 per member per month to cover health care plus administrative costs for these groups. Blue Cross sets its premiums by the principle of community rating. For a given health insurance policy, all subscribers in a community pay the same premium. The bank managers, truck drivers, and mine workers all pay $300 per month.

Insurance Evolution Community Rating and Open Enrollment Experience Rating and Underwriting Exclusions Insurance Evolution Community Rating and Open Enrollment Experience Rating and Underwriting Exclusions

Financial burdens Progressive – incr % as income rises l Regressive – decr % Financial burdens Progressive – incr % as income rises l Regressive – decr % as income rises l Proportional l

Rita Blue earns $10, 000 per year for her family of four. She develops Rita Blue earns $10, 000 per year for her family of four. She develops pneumonia, and her out-of-pocket health costs come to $1000, 10% of her family income. Cathy White earns $100, 000 per year for her family of four. She develops pneumonia, and her out-of-pocket health costs come to $1000, 1% of her family income.

Public insurance and providers Social insurance – Medicare: pay taxes/premium; equal benefit l Public Public insurance and providers Social insurance – Medicare: pay taxes/premium; equal benefit l Public assistance – Medicaid: taxpayers may not be eligible for direct benefits l SCHIP – Children’s program l VA system l Safety Net Providers l

Medicare and Medicaid l l l Who’s covered What services are provided How are Medicare and Medicaid l l l Who’s covered What services are provided How are they paid for

Medicare Today l Enacted in 1965 to provide health and economic security to seniors Medicare Today l Enacted in 1965 to provide health and economic security to seniors l Expanded in 1972 to cover younger beneficiaries with permanent disabilities l Covers 41 million people l 35 million elderly, 6 million under-65 disabled l Individuals age 65+ are entitled to Medicare (Part A) if they are eligible to receive Social Security l Contribute portion of payroll tax throughout working lives to get Medicare l Pay monthly premium for Medicare Part B l Individuals eligible without regard to income or medical history l Program now has parts A, B, C; in 2006, a new part D l Part A – Hospital and skilled nursing care l Part B – Physician and outpatient hospital care l Part C – HMOs/Medicare Advantage l Part D – Outpatient prescription drug coverage begins January 2006

Financing Medicare l l Part A: hospital insurance payroll tax (2. 9% of wages, Financing Medicare l l Part A: hospital insurance payroll tax (2. 9% of wages, split between employer and employee) Part B: general federal revenues (75%) and beneficiary premiums (25%) Part D: general federal revenues (74. 5%) and beneficiary premiums (25. 5%) Deductibles and copayments

Services Covered by Medicare l l l l inpatient and outpatient hospital physician services Services Covered by Medicare l l l l inpatient and outpatient hospital physician services durable medical equipment home health care short stays in skilled nursing facilities some preventive services prescription drugs (2006)

Estimated Medicare Expenditures by Service, FY 2004 Total: $295 billion Kaiser Family Foundation Estimated Medicare Expenditures by Service, FY 2004 Total: $295 billion Kaiser Family Foundation

A Small Share of Beneficiaries Account for Majority of Medicare Expenditures (1999) Percent of A Small Share of Beneficiaries Account for Majority of Medicare Expenditures (1999) Percent of Beneficiaries Percent of Expenditures 15% 75% Note: Totals exclude Medicare beneficiaries with no expenditures in 1999 and beneficiaries enrolled in Medicare+Choice plans and payments made on their behalf. SOURCE: CMS, Medicare and Medicaid Statistical Supplement, 2001.

Medicare Represents 13 Percent of the Federal Budget Total Federal Budget = $2. 3 Medicare Represents 13 Percent of the Federal Budget Total Federal Budget = $2. 3 Trillion, FY 2004 *OURCE: Congressional Budget Office, September 2004 Baseline Budget Projections.

Gaps in Medicare Coverage l Benefit Gaps l l New outpatient drug benefit (2006) Gaps in Medicare Coverage l Benefit Gaps l l New outpatient drug benefit (2006) Limited long-term care No hearing aids, eyeglasses, or dental care High cost-sharing requirements l l l Part A deductible ($912/benefit period in 2005) Part B monthly premium ($78. 20/month in 2005) Income-relating the Part B premium (beginning in 2007) l Medicare pays for about half of all beneficiary health care spending l Nearly 9 in 10 rely on supplemental insurance to fill gaps

Medicare Summary l l l Popular and effective program Inadequate benefits Relatively high deductibles Medicare Summary l l l Popular and effective program Inadequate benefits Relatively high deductibles Financially unsustainable Low managed care penetration Provider cuts are the cost containment of choice

Medicaid’s Origin l Enacted in 1965 as companion legislation to Medicare (Title XIX) l Medicaid’s Origin l Enacted in 1965 as companion legislation to Medicare (Title XIX) l Established an entitlement l Provided federal matching grants to states to finance care l Focused on the welfare population: l Single parents with dependent children l Aged, blind, disabled l Included mandatory services and gave states options for broader coverage

Medicaid Today l Medicaid provides health and long-term care coverage for over 52 million Medicaid Today l Medicaid provides health and long-term care coverage for over 52 million low-income people: l l Comprehensive, low-cost health coverage for 39 million people in low-income families Acute and long-term care coverage for over 13 million elderly and persons with disabilities, including over 6 million Medicare beneficiaries l Guarantees entitlement to individuals and federal financing to states l Federal and state expenditures of $300 billion—with federal government funding 57% l Pays for nearly 1 in 5 health care dollars and 1 in 2 nursing home dollars

Medicaid’s Role for Selected Populations Percent with Medicaid Coverage: Poor Near Poor Families All Medicaid’s Role for Selected Populations Percent with Medicaid Coverage: Poor Near Poor Families All Children Low-Income Adults Births (Pregnant Women) Aged & Disabled Medicare Beneficiaries People with Severe Disabilities People Living with HIV/AIDS Nursing Home Residents Note: “Poor” is defined as living below the federal poverty level - $14, 680 for a family of three in 2003. SOURCE: KCMU, KFF, and Urban Institute estimates; Birth data: NGA, MCH Update.

Minimum Medicaid Eligibility Levels, 2004 Income eligibility levels as a percent of the Federal Minimum Medicaid Eligibility Levels, 2004 Income eligibility levels as a percent of the Federal Poverty Level: Note: The federal poverty level was $9, 310 for a single person and $15, 670 for a family of three in 2004. SOURCE: Cohen Ross and Cox, 2004 and KCMU, Medicaid Resource Book, 2002.

Medicaid Enrollees and Expenditures by Enrollment Group, 2003 Elderly 9% Disabled 16% Elderly 26% Medicaid Enrollees and Expenditures by Enrollment Group, 2003 Elderly 9% Disabled 16% Elderly 26% Adults 27% Disabled 43% Children 48% Adults 12% Children 19% Total = 52. 4 million Total = $252 billion Note: Total expenditures on benefits excludes DSH payments. SOURCE: KCMU estimates based on CBO and OMB data, 2004.

Medicaid Payments Per Enrollee by Acute and Long-Term Care, 2003 $12, 300 $12, 800 Medicaid Payments Per Enrollee by Acute and Long-Term Care, 2003 $12, 300 $12, 800 Long-Term Care Acute Care $1, 700 $1, 900 SOURCE: KCMU estimates based on CBO and Urban Institute data, 2004.

Medicaid Benefits “Mandatory” Items and Services “Optional” Items and Services l Physician services l Medicaid Benefits “Mandatory” Items and Services “Optional” Items and Services l Physician services l Prescription drugs l Laboratory and x-ray services l Clinic services l Inpatient hospital services l Dental services, dentures l Outpatient hospital services l Physical therapy and rehab services l Early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under 21 l Prosthetic devices, eyeglasses l Primary care case management l Intermediate care facilities for the mentally retarded (ICF/MR) services l Family planning l Rural and federally-qualified health center (FQHC) services l Inpatient psychiatric care for individuals under 21 l Nurse midwife services l Home health care services l Nursing facility (NF) services for individuals 21 or over l Personal care services l Hospice services

Medicaid Expenditures by Service, 2002 Total: $249 billion Kaiser Family Foundation Medicaid Expenditures by Service, 2002 Total: $249 billion Kaiser Family Foundation

National Spending on Nursing Home and Home Health Care, 2003 Nursing Home Care Private National Spending on Nursing Home and Home Health Care, 2003 Nursing Home Care Private Insurance 8% Home Health Care Other 6% Other 5% Private Insurance 21% Medicaid 25% Medicaid 46% Out-of. Pocket 28% Medicare 12% Total = $110. 8 billion SOURCE: CMS, National Health Accounts, 2005. Out-of. Pocket 17% Medicare 32% Total = $40 billion

Medicaid Summary l l l Less popular with the public, beneficiaries, providers, and tax Medicaid Summary l l l Less popular with the public, beneficiaries, providers, and tax payers Low provider payments Means tested and categorical Multi tiered system, rather than access to mainstream medicine Has expanded access for a portion of the population, kept hospitals and clinics in business, and pays for half of all nursing home care

State Children’s Health Insurance Program l l Federally funded; State administered Children in families State Children’s Health Insurance Program l l Federally funded; State administered Children in families whose income disqualifies them for Medicaid 4 million children (2003) Kids Care in Illinois

Veterans Health Administration l l Largest integrated health care provider in the nation, including Veterans Health Administration l l Largest integrated health care provider in the nation, including 163 hospitals, 850 outpatient facilities, and 137 nursing homes Over 200, 000 employees Over $24 billion annual health system budget 7 million veterans enrolled (2002)

VHA and Medical Education l l Largest trainer of health professionals Sponsors 8700 resident VHA and Medical Education l l Largest trainer of health professionals Sponsors 8700 resident positions Affiliations with 107 medical schools 10, 000 VA clinicians have academic appointments at affiliated institution

Safety Net Providers l l City, County General Hospitals Community Health Centers l FQHC: Safety Net Providers l l City, County General Hospitals Community Health Centers l FQHC: partly federally funded through grants and higher M/M reimbursement l l Rural health clinics: supported through higher M/M reimbursement l l Crusader Clinic; Beloit CHC Mt Morris State Mental Health Hospitals: Singer

Public Sector Summary l Public sector large and growing component of health care l Public Sector Summary l Public sector large and growing component of health care l l l Medicare and Medicaid 37% of personal health care spending (2002) Growth unsustainable Reimbursement innovations (DRGs, RBRVS) often start with Medicare

Employer-Based Private Insurance l l l From 2000 -2005, companies offering insurance decreased from Employer-Based Private Insurance l l l From 2000 -2005, companies offering insurance decreased from 69% to 60% Premium costs increased 9. 2% in 2005 In 2005, 20% of firms offering insurance offered a HDHP

Employer insurance l l Employer premiums tax deductible Employee health insurance considered a fringe Employer insurance l l Employer premiums tax deductible Employee health insurance considered a fringe benefit and not taxable Cost of tax subsidy: $130 B/yr - 25% goes to families making >$100, 000/yr; 50% to families making >$75, 000/yr President’s tax advisory panel suggested capping the amt paid in pretax dollars at $11, 500/yr

Health Plan Enrollment for Covered Workers by Plan Type Health Plan Enrollment for Covered Workers by Plan Type

Annual Change in Health Insurance Premiums, 1989 -2003 Kaiser Changing Health Care Marketplace Project, Annual Change in Health Insurance Premiums, 1989 -2003 Kaiser Changing Health Care Marketplace Project, Employer Health Benefits Survey, 2002

Average Annual Premium Costs for Covered Workers, 2003 Average Annual Premium Costs for Covered Workers, 2003

Managed Care Organizations l l Fee-for-service (FFS) with UR PPOs: loose-knit groups of physicians Managed Care Organizations l l Fee-for-service (FFS) with UR PPOs: loose-knit groups of physicians & hospitals using discounted FFS with UR IPAs: physician network that form an assn to contract with HMOs and mgd care plans HMOs: group and staff model (Kaiser)

Managed Care Market Trends l l 93% of privately insured Americans are enrolled in Managed Care Market Trends l l 93% of privately insured Americans are enrolled in managed care plans. Forms: PPO’s (41%); HMO’s (29%) and POS plans (22%). For-profit HMO’s overtook not-for-profit HMO’s as the dominant force in managed care. Economic success, political and cultural failure Managed care, broadly defined, includes everything from capitation and closed panels to utilization review.

Impact of Managed Care MANAGED CARE PRE MANAGED CARE l l l Doctors decided Impact of Managed Care MANAGED CARE PRE MANAGED CARE l l l Doctors decided treatment Third party insurers reimbursed Employers passively paid the bill l l Employers aggressive purchasers, dictating care, site, and payment Selective contracting, utilization review, practice protocols, per capita payments Some attempts to differentiate based on quality Doctors as double agents

Post Managed Care l l l Retreat of the care managers – employers, insurers, Post Managed Care l l l Retreat of the care managers – employers, insurers, physicians Cost shifting Defined contribution versus defined benefit Consumer directed health care versus single payer Define, measure and report on quality Robinson, The End of Managed Care, JAMA

Conclusions l l Replacement of FFS payments (encourages more services) with forms putting economic Conclusions l l Replacement of FFS payments (encourages more services) with forms putting economic pressure to limit # and cost of services More and more, providers must negotiate fees with payers

Paying Providers l l l Fee-for-service By episode of illness (DRG) Per diem to Paying Providers l l l Fee-for-service By episode of illness (DRG) Per diem to hospital Capitation Global budget (hospital) or salary

Payment per Procedure PAST l l UCR PRESENT Fee schedules RBRVS Discounted fee for Payment per Procedure PAST l l UCR PRESENT Fee schedules RBRVS Discounted fee for service, with utilization review The more you do, the more you get paid. Payer at risk.

Payment per Episode l l Delivery, pre and post natal care Surgery and postoperative Payment per Episode l l Delivery, pre and post natal care Surgery and postoperative care Same payment for simple and complex cases. Some risk transferred to provider.

Payment per time: Salary l l Plan more at risk Witholds, bonuses Patient throughput Payment per time: Salary l l Plan more at risk Witholds, bonuses Patient throughput Delays for expensive services Physician at risk for time.

Payment per Patient: Capitation l Per member per month payment More risk shifted to Payment per Patient: Capitation l Per member per month payment More risk shifted to provider. Financial incentive to do less.

Conclusions l l l Ability of providers to incr fees to insurers caused health Conclusions l l l Ability of providers to incr fees to insurers caused health services to become incr unaffordable to those w/o insurance Employer-funded insurance disadvantages the unempl, retired, part-time Competition in pvt insur gave rise to experience rating that makes insur unaffordable for some

Evaluation l l Instead of the usual 10 questions for the progressional exam, I Evaluation l l Instead of the usual 10 questions for the progressional exam, I will write 8. Students can get credit for 10 questions by 1. Presenting on international health or l 2. Passing a short quiz taken at the end of the third class. l

International health care presentations l l l Two students per group Three countries: Canada, International health care presentations l l l Two students per group Three countries: Canada, Germany, UK Each group reviews one country

Format l l l Presentation: up to 15 minutes including questions Can use slides, Format l l l Presentation: up to 15 minutes including questions Can use slides, overheads, and/or handouts Summarize the following topics l l Health insurance: organization and funding Medical care: what do physicians do Paying doctors and hospitals Cost control