Resource Guide and Health

Care Reform Fact Book

Prepared by

Dylan H. Roby, Ph.D.

Adjunct Assistant Professor
UCLA School of Public Health
droby@ucla.edu

Service Employees International Union (SEIU) Nurse Alliance

Change That Works: A Prescription for Quality Affordable Healthcare
Jackson Memorial Hospital, Miami, FL
March 12th to 13th, 2009
 Background on the
Employer-Based System
 How did Employer-Based Insurance
Coverage become the main source of
health care in the U.S.?
• Prior to 1929, the only source of payment for
health care was Workers’ Compensation
– Workers’ Comp was a cash benefit, used to pay for
workplace injuries
– Medical care was generally paid for out-of-pocket and
there was no insurance to subsidize health care costs
• In 1929, a group of teachers negotiated a pre-
paid health services plan with physicians at
Baylor University hospital
– This was the first attempt at private health insurance
coverage in the U.S.  Blue Cross (1932)
– $6 per year for each of 1,500 schoolteachers to cover
21 days of hospital stay
 When Did Employer-Based
Coverage Take Over in the U.S.?
• During World War II, there was a large amount
of growth in employee benefits
– Due to wage freezes, competition for employees
resulted in health care benefits becoming far more
popular
– Labor unions played a large part before, during and
after the war in maintaining this momentum
– After the war ended, employer-based health
insurance coverage dominated the U.S. health care
system
– Tax benefits = less payroll tax for employers, pre-tax
benefit for employees
Descriptions of Governmental
Insurance Programs
 Medicare (Title XVIII)
• Federal program, no state funding
• Multiple “Parts” – A, B, C, and D
• Part A is Financed through federal payroll tax (1.45% from
employee and employer)
• Part B is voluntary and financed through monthly
premiums ($131 per month), taxes, and interest from the
trust fund
• Part C is a voluntary program allowing Part A&B enrollees
to opt into commercial Managed Care plans (i.e. Secure
Horizons, Humana GoldPlus)
– These now include HMO, PPO, or prepaid FFS plans
– Government provides high rates to the private insurers to make
sure they stay in the market (Benchmark rate + 75% of bid
difference)
• Part D was created in the 2003 Medicare Modernization
Act (MMA)
– Covers prescription drugs through separate pharmacy benefit
commercial plans ($28+ per month)
 Who qualifies for Medicare?
• Designed to provide health care to elderly and disabled
U.S. residents
– Age 65 and over, must pay payroll tax (1.45%) on at least 10
years of income (40 work credits)
• Having a spouse who paid into the Medicare payroll tax for
10 years is also acceptable
• You can earn up to 4 work credits per year, one work credit
is equal to $1,090 of income.
– The Permanently Disabled
• Certified as permanently disabled by SSI (2 years)
• Amyotrophic lateral sclerosis (ALS)
• End Stage Renal Disease
– Everyone gets Part A
• Free with 40 work credits
• People with partial work credit can buy-in for an added
premium
– Part B, C, and D are voluntary and require additional premiums
 What Does Medicare Cover?
• The Medicare benefit package is outdated
– Similar to the “Major Medical” plans that were
purchased by employers and consumers in the 1960s
– You would not find the Medicare benefit package in
any mainstream insurance plan
– No Pharmacy Benefit until 2003 (Part D)
• Part A – inpatient hospital care
• Part B – outpatient/physician office care
• Part C – Managed Care (combination of A&B)
• Part D – Prescription Drug Benefit
 How Is Medicare Paid For?
Part A:
• Payroll tax 1.45% each from employer and employee
– Look at the Medicare line item on your next paycheck
– OASDI (Social Security) represents another 6.2% of your paycheck

Part B:
• Monthly premium from beneficiaries => about 25% of total
• General tax revenues => about 71% of total
• Interest on trust fund => about 4% of total

• Administrative expense => about 1.5-2.0% of expenditures

• Medicare (CMS) does not actually process claims, they contract with
commercial insurance plans as fiscal intermediaries

• Patients in Medicare pay for a significant share of their own care through
deductibles, co-payments (% of fee), and premiums
– Only 55% of Medicare-related costs are paid for by the Medicare program
– Medigap supplemental coverage
 Hospital Payment Under Medicare
• Since October 1983, Medicare has paid for inpatient care
according to the Hospital Inpatient Prospective Payment
System (PPS)
• Patients are assigned to 1 of almost 550 categories, known as
Diagnosis-Related Groups (DRGs), based on their diagnosis
• Hospital receives a fixed payment based on the patient’s
DRG, regardless of the cost of treatment
• The adoption of PPS in 1983 had a ripple effect on the rest of
the health care system
– More use of prospective payment by other payers
– Need for cost shifting
– PPS spread into other parts of Medicare (outpatient - APC, long-term
care - RUG, etc)
 Physician Payment Under Medicare
• Since January 1992, Medicare pays for physician services
according to the Medicare Fee Schedule (MFS)

• MFS assigns 3 relative value units to more than 6000

services provided by physicians defined according to Current
Procedural Terminology (CPT) codes

– RVU for physician work, based on the Resource-Based

Relative Value Scale (RBRVS)
– RVU for office expense
– RVU for malpractice expense
– Payment calculation accounts for geographic location,
overhead costs, and resources used for each service
•
Medicare Advantage (Part C)
Medicare Modernization Act of 2003 renamed Medicare+Choice to Medicare
Advantage

• Effective January 1, 2006, all companies offering a Medicare Advantage plan must
offer at least one plan with prescription drug coverage, and added:
– Regional PPOs
– Private FFS plans
– Special Needs Plans (SNPs)

• MSAs were renamed Health Savings Accounts (HSAs)

– Medicare beneficiaries are still not eligible

• Increased growth rate of premiums

– “Benchmark” fee-for-service rate + 75% of bid difference + yearly 2% inflator
– Provides an incentive for companies to continue offering Medicare products and
not abandon the market

• Starting in 2006, beneficiaries in Part A and B can choose to enroll in a health plan
during an annual enrollment period at the end of the calendar year, but are “locked in”
to their choice of health plan for an entire year
– With the exception that they can still make one change during an “open-
enrollment” period in the first 3 months of the following calendar year
 Prescription Drugs (Part D)
• Effective January 1, 2006, created a voluntary
prescription drug benefit plan
• Monthly premiums of about $28
• $275 deductible
• 25% copayment from $276 to $2,510
• 100% copayment from $2,511 to $5,726.25
– the so-called “doughnut hole”
• Maximum Out of Pocket Threshold is $4050
= 275 + [(2510-275)*.25] + [(5726.25-2510)*1]
• Premium and deductible support for low-income
beneficiaries
 Medicaid (Title XIX)
• State-Federal partnership
• Regulated by CMS (Centers for Medicare and Medicaid
Services)
– Each state submits a plan for their Medicaid program design
– States can seek Medicaid waivers (1115, 1915b, 1915c)
– Federal Medical Assistance Percentage (FMAP) – Federal “Match”
• Delivered by individual state Medicaid offices
– California Department of Health Care Services
– Florida Agency for Health Care Administration
– Ohio Department of Job and Family Services
– Pennsylvania Department of Public Welfare
• Medicaid is an entitlement program, its inclusion in the
federal budget is guaranteed
• Can be delivered via fee-for-service and managed care
– 50% of California’s Medicaid beneficiaries are in Fee-for-Service
(aged, blind, disabled, rural residents, medically needy), while other
50% are in managed care plans (run by commercial or public
insurance companies)
 Who qualifies for Medicaid?
• Designed to provide health care to poor
families and pregnant mothers, chronically
ill and medically needy, disabled, and blind
residents of the U.S.
– Eligibility levels depend on the state
– Required to have proof or citizenship or legal
residence, must live in U.S. for at least five
years (“DRA Requirements”)
– Presumptive eligibility and “Emergency”
Medicaid (Partial Scope)
– Some beneficiaries have a share of cost
 Medicaid Payments Often Low
• Medicaid Fee Schedules in many states are much lower
than Medicare and Commercial Rates
• Many physicians opt-out of Medicaid participation,
resulting in larger burden on safety net clinics and
hospitals
• Medicaid is also dominated by disabled, blind, medically
need, and aged  expensive groups to treat!
• Results in cost-shifting for hospitals, overcrowded
emergency departments, difficulty securing specialty
referrals, despite the patient being insured!
 SCHIP (Title XXI)
• State-Federal partnership
• Regulated by CMS (Centers for Medicare and Medicaid
Services)
– Each state submits a plan for their SCHIP program design
– States receive a higher Federal Medical Assistance Percentage
(FMAP) – Federal “Match”, however, it is a “block grant”
• Delivered by individual state offices
– California’s “Healthy Families” program is administered by the
Managed Risk Medical Insurance Board of the Department of
Health Care Services
• SCHIP was originally authorized for 10 years (1997-2007),
and was recently re-authorized for another 10 years
• Can be delivered via fee-for-service and managed care
– States had flexibility in program design to piggyback on current
Medicaid program or start new SCHIP program from scratch
– Many states created new programs – focus on marketing, removing
Medicaid stigma, and setting up better provider networks through
private insurance mechanisms
 Who qualifies for SCHIP?
• Designed to provide health care to working
poor, low-income families who are
residents of the U.S.
– Eligibility levels depend on the state
– Must be above Medicaid eligibility levels
– Required to have proof or citizenship or legal
residence, must live in U.S. for at least five
years (“DRA Requirements”)
– Most beneficiaries have to pay cost sharing in
the form of premiums and co-pays
– Cost sharing cannot exceed 5% of family
income
Managed Care
 All Major Health Insurers and
Payers Use Managed Care
• Preferred Provider Organizations (PPOs) are
effectively discounted fee-for-service
arrangement
• Health Maintenance Organizations (HMOs) are
staff, network, or group model health service
plans, often paid based on capitation
– HMOs focus on prevention and primary care
– HMOs engage in active utilization review
– Hybrid model: Point of Service (POS) combines HMO (in-
network) and PPO (out-of-network) ideas
 Different Payers = Different
Managed Care Plans
• Medicare – Medicare Advantage Plans
• Medicaid – States are allowed to enroll beneficiaries into
Commercially-run Medicaid HMOs
• SCHIP – Many States used completely HMO-based
system to deliver care
• Employer-Based and Individually-Purchased Plans are
predominantly HMO/PPO/POS
• Even county and state indigent care programs have
adopted managed care principles
– Medical Home
– Primary Care Gatekeeping and Specialty Referral systems
– Designed to reduce ER overcrowding, improve health status,
and empower patients using managed care ideas
Recent Examples of State
and Local Reform
The Massachusetts Model of Reform
• Individual Mandate
– First Layer is an employer mandate pay-or-play provision
• Requires Employers or 11 people or more to offer “fair and
reasonable” coverage or pay into a purchasing pool ($295 annually
per employee)
– Massachusetts provides subsidized health care for residents
earning up to 100% of the FPL (through Medicaid), and partially
subsidized health care those earning up to 300% of the FPL,
depending on an income-based sliding scale.
– Commonwealth Health Insurance Connector Authority offers
subsidized coverage and facilitates the selection and purchase
of private insurance plans by individuals and small businesses.
– Incentives for residents to obtain health insurance coverage
include tax penalties for failing to obtain an insurance plan.
– Helped by $700 million Uncompensated Care Pool that has
existed for several years, funded by provider tax levies
– Maximum of 650,000 uninsured individuals in MA during 2006, in
two years more than two-thirds are now insured.
 San Francisco’s Universal Health
Care Reform: Healthy SF
• Employer Mandate
– Currently being phased-in by income level (now at ≤500% FPL)
– Still uses existing county indigent care system, Medi-Cal,
Healthy Families (SCHIP), and commercial insurance
– Pay-or-Play: Employers are required to offer commercial
insurance coverage or pay a fee to City of San Francisco
– If individuals are uninsured, they receive “coverage”, not
insurance
– Employer fees go to county to provide care
– Enrollees receive a medical home, have access to specialty
referrals, and pay enrollment fees and some share-of-cost
• Through County system (SF General Hospital, County
Health Department Clinics)
• Employees who do not need insurance or live out of area will
receive Medical Reimbursement Account due to employer
contributions
 Key Terms, 1
Adverse Selection – a situation in which a riskier individual (i.e. chronically ill or medically
needy) is more likely to opt into an insurance plan than a lower-risk individual. This can result
in higher risk to the insurance company or governmental health plan.

Capitation – A per member per month (PMPM) rate paid to physicians to provide health care
for a specific managed care enrollee for a set time period.

Commercial Insurance – Insurance coverage provided through a private insurance

company. Premiums are either paid by an employer on behalf of an employee or by an
individual who purchased the plan directly from the insurer or broker.

Contracted Rate – The amount of money a physician, hospital, clinic or other billing provider
has agreed to accept for a specific service or bundle of services from an insurance payer

Cost-Based Reimbursement – A method of payment for health services in which the

provider is able to bill for and be paid the actual cost of the service provided. This method is
still prominent in the Federally Qualified Health Center program, where the FQHC-rate is a
cost-based prospective payment.

EMTALA – The Emergency Medical Treatment and Active Labor Act (1986) is a law requiring
hospitals with an emergency department to triage and stabilize emergent patients regardless
of ability to pay. This policy was designed to prevent “wallet biopsies” and “patient dumping”
(i.e. transfers of unstable patients to safety net hospitals).
 Key Terms, 2
Employer Mandate (also known as a “Pay-or-Play” Provision): Governmental imposed
requirement for employers to provide health insurance to employees or pay into a
government-run fund to subsidize the uninsured

Fee-for-Service – The method of payment for health services where a provider bills an
insurance company their usual, customary, and reasonable charge for a service, and is
reimbursed the entire amount of the charge. This type of billing is no longer prevalent,
even in Medicare FFS or Medicaid FFS, where the rates are based on a set, prospective
fee schedule that does not represent the full charge.

FQHC – Federally Qualified Health Centers are community-based, non-profit clinics and
are part of the federal Community, Migrant, and Homeless Health Center program
(Section 330 of the Public Health Service Act). These clinics are an integral part of the
health care “safety net” and provide comprehensive primary care services to people
regardless of ability to pay. They receive an “FQHC rate” for primary care services under
Medicaid, and also receive 20-25% of their operating revenue from a federal grant
administered by the Bureau of Primary Health Care within the Health Resources and
Services Administration
 Key Terms, 3
HMO – Health Maintenance Organizations are managed care firms, also called
“health service plans” and regulated by the Knox-Keene Health Service Act of 1975.

Organized in three ways:

Network Model (network of private physicians)
Group Model (one or more contracted Medical Groups)
Staff Model (i.e. Kaiser Permanente) – all three represent different ways of
contracting with physicians for care delivery.

Often reimburse for primary care and some inpatient services via capitated rates
which are negotiated with individual physicians, medical groups, or hospitals. HMOs
use evidence-based utilization review, primary care gatekeeping, closed physician
networks, and capitated rate negotiations to reduce costs and improve member
health care/status.
 Key Terms, 4
Indigent Care – A term for care provided to the uninsured. Counties and states often have
indigent care programs or indigent care pools to finance health care for the uninsured
residents of their county that cannot qualify for Medicaid or afford their own insurance.

Individual Mandate – Government imposed requirement that all resident obtain insurance
coverage through any available source. This requirement can be met through Medicaid,
Medicare, SCHIP, commercial insurance supplied by an employer, or privately purchased
coverage. Senator Baucus suggests that using this method will limit Adverse Selection.

Managed Care – The general term to describe HMO, PPO, and POS-based physician
networks that use contracting, evidence-based utilization review, and cost controls to
provide health care.

Medicaid – State operated health care insurance program for poor families and pregnant
mothers. It is a state-federal partnership, administered by states in collaboration with CMS.
The federal match is based on the FMAP for each state. Medicaid beneficiaries are
categorically eligible, meaning they must meet certain eligibility requirements related to
income, family characteristics, and assets.

Medicare – It is a federally administered health care insurance program for people age 65
and over who worked at least 10 years (40 work credits) in the U.S., or have spouses who
met the work requirement. Medicare can be delivered through Fee-for-Service (Part A and
B) or Managed Care (Part C) arrangements. You can also become eligible due to disability
(two years of SSI), End-State Renal Disease, or ALS.
 Key Terms, 5
Per Diem Rate – A daily rate paid to hospitals, usually for inpatient days. Negotiated
between the hospital and insurer.

POS – While this stands for Point of Service, it is a hybrid managed care plan in which a
member can choose to use the HMO network and pay a simple co-pay and lower cost
sharing to use their primary care physicians and specialty referral system, or go out-of-
network to use any willing provider at a higher cost to themselves. However, like a PPO, a
portion of the out-of-network visit will be paid by the insurance company (usually between
60 to 80% of the UCR rate).

PPO – A Preferred Provider Organization is a health insurance arrangement that allows a

member to seek care from a group of in-network physicians for either primary or specialty
care at a lower cost (10% co-pay, insurance pays 90% of contracted rate). Or, the member
can go out-of-network to any willing provider and the insurer will pay a lower rate (60 to
80% of the UCR). PPOs contract with their in-network physicians at a discounted fee-for-
service rate, or a bundled rate (rather than a capitated rate like an HMO). PPOs will also
contract with hospitals using per diem or discounted fee-for-service rates.

Prospective Payment – This is a very popular method of payment for health services in
which the insurer or payer pays an agreed upon amount for a specific service, rather than
paying the charge that is submitted on a claim by a provider. Contracted rates, RBRVS,
and the FQHC-rate methodology are all prospective payment systems.
 Key Terms, 6
RBRVS – Resource Based Relative Value Scale payments are prospective payments
calculated for use in Medicare to compensate physicians or hospitals who have provided
health care to Medicare beneficiaries. The RBRVS is based upon Diagnosis Related
Groups for inpatient care, where a specific RVU value and RVU-unit cost is calculated
based on the usual course of treatment for a condition or service.

RVU – A Relative Value Unit is used in RBRVS to establish how much “input” went into a
specific encounter, so that payment can be calculated for a specific service.

SCHIP – The State Children’s Health Insurance Program was created in 1997 as part of
the Balanced Budget Act. It provides health insurance coverage to children aged 0 through
18 who cannot qualify for Medicaid or afford their own private insurance coverage. This is
a state-federal partnership program, similar to Medicaid. The federal match is higher for
each state because they use an “enhanced FMAP” rate.

Uncompensated Care – Health care provided by physicians and hospitals that is not paid
for, usually provided to uninsured patients who cannot afford to pay for the services used.
These uncompensated care costs are often written off by hospitals or physicians as charity
care or bad debt.
 Key Players
Senator Max Baucus – a proponent of health care reform through an individual mandate
proposal

Representative John Conyers – A proponent of single-payer health care reform

(Medicare for All – HR 676).

Department of Health and Human Services (DHHS) – Administration responsible for

health care in the U.S., has oversight of CMS, CDC, etc. Secretary Kathleen Sebelius
directs the agency for the Obama Administration.

Office of White House Health Care Reform – A new office created by President Obama
to function as a liaison between DHHS, the President, and the Legislature. Directed
by Nancy-Ann Min DeParle, a former health care consultant and Director of HCFA
(the former CMS).

Centers for Medicare and Medicaid Services (CMS) – the office responsible for
administering Medicare and Medicaid.
 Web Resources
– http://www.nchc.org/facts/cost.shtml

– http://www.statehealthfacts.org

– http://www.kff.org/healthreform/index.cfm

– www.healthpolicy.ucla.edu