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HSM 310 - CH 6 Current Trends in Health Care Delivery
HSM 310 - CH 6 Current Trends in Health Care Delivery
Financing and
Reimbursement
Methods
HRP 310-90
Current Trends in Health Care Delivery
Norfolk State University
Mrs. Melody Armstrong, MPA, BSN, RN,
CNOR(E)
Introduction (1 of 4)
• Financing is any mechanism that
gives people the ability to pay for
health care services.
• In most cases, financing is
necessary to have access to health
care.
Introduction (2 of 4)
• Sources of financing health care:
– Private health insurance
– Public insurance programs such as
Medicare and Medicaid
– Uncompensated or charity care
Introduction (3 of 4)
• Complexity of financing:
– Many payers
– Many plans
– Many programs
– Many payment mechanisms
Introduction (4 of 4)
• Economic perspective of financing:
– Working Americans finance their own
health care and subsidize it for those
who cannot afford it.
– Employer-paid insurance is an
exchange for salary.
– Medicare tax is a type of prepayment
for certain services received at age 65.
Effects of Financing and Insurance
• See Exhibit 6.1 and Figure 6.1.
• End results:
– Moral hazard and provider-induced demand
waste health care resources and add to the
rising cost of health care.
– National health insurance enables supply-
side rationing; this has not been possible in
the United States.
– The ACA still leaves many uninsured—
indirect or demand-side rationing.
Insurance: Its Nature
and Purpose (1 of 8)
• Insurance: A mechanism to protect
against risk
• Risk: The possibility of substantial
financial loss from some event
Insurance: Its Nature
and Purpose (2 of 8)
• Insured (enrollee or beneficiary): An
individual protected by insurance
• Insurer: An insurance agency that
assumes the risk
• Underwriting: Evaluates,
selects/rejects, classifies, and rates
risk
Insurance: Its Nature
and Purpose (3 of 8)
• Premium
– Amount charged by the insurer to
provide coverage
– Cost sharing by employers and
employees
Insurance: Its Nature
and Purpose (4 of 8)
• Four principles of insurance:
1. Risk is unpredictable for individuals.
2. Risk can be predicted with some
accuracy for a large group.
3. Insurance can shift risk from the
individual to the group by pooling
resources.
4. Losses are shared by all members.
Insurance: Its Nature
and Purpose (5 of 8)
• Cost sharing
– Insurance requires some type of cost
sharing.
– The insured assumes at least part of
the risk.
– The purpose of cost sharing is to
reduce misuse of insurance benefits.
Insurance: Its Nature
and Purpose (6 of 8)
• Three main types of cost sharing in
private health insurance:
1. Premium cost sharing
2. Deductibles
3. Copayments
Insurance: Its Nature
and Purpose (7 of 8)
• Deductible
– Amount the insured pays first before benefits
are paid by the plan
– Paid annually
• Copayment
– Money paid out of pocket each time health
services are received
• Coinsurance
– Percentage paid by enrollee for health care
provided
Insurance: Its Nature
and Purpose (8 of 8)
• Stop loss: Limits total out-of-pocket
costs
• Findings of the Rand Health
Insurance Experiment in the 1970s
Insurance: ACA Mandates
• Recommended preventive services
and immunizations must be without
cost sharing.
• No lifetime limit on benefits
Private Insurance (1 of 2)
• Distribution of health plan
enrollments:
– See Figure 6.2.
• Employment-based health insurance
rates vary by employer
characteristics:
– See Exhibit 6.2.
Private Insurance (2 of 2)
• Five main types:
– Group insurance
– Self-insurance
– Individual private insurance
– Managed care plans
– High-deductible health plans
Types of Private Insurance (1 of 6)
• Group insurance
– Offered through an employer, a union,
or a professional organization.
– Anticipates large numbers of people in
a group will buy insurance through a
sponsor.
– Cost and risk are shared among the
insured.
Types of Private Insurance (2 of 6)
• Self-insurance
– Large employers’ workforces are large
and diversified enough.
– They can predict their own medical
experience.
– They can assume risk and pay all
claims.
– High losses are covered through
reinsurance.
Types of Private Insurance (3 of 6)
• Individual private health insurance
– For those who do not have group
coverage, such as farmers, early
retirees, the self-employed.
– Risk is individually determined.
– This market grew by 5.3 million in 2014,
but the effects of the ACA are unclear.
Types of Private Insurance (4 of 6)
• Managed care plans
– Managed care organizations (MCO) consist
of:
• Health maintenance organizations (HMO)
• Preferred provider organizations (PPO)
– They assume the risk in exchange for an
insurance premium.
– They assume the responsibility for
obtaining health care services by
contracting with providers.
Types of Private Insurance (5 of 6)
• High-deductible health plans
(HDHPs)
– HDHP/HRA
• HDHP is combined with a health
reimbursement arrangement.
• Includes an employer-financed account.
• Tax exempt payments made for qualified
medical expenses.
Types of Private Insurance (6 of 6)
• HDHP/HSA
– HDHP is combined with a health savings account.
– Mainly employee financed on a tax-deductible
basis.
The ACA and Private Insurance (1 of 2)
• The ACA has several mandates:
– All U.S. residents must have health insurance that
offers “minimum essential coverage.” Not having
insurance incurs tax penalties.
o Effectively repealed by the Tax Cuts and Jobs Act of
2017.
– Health insurance can be purchased through
government-run exchanges, with subsidies for
low-income people.
The ACA and Private Insurance (2 of 2)
• ACA mandates:
– Exchanges offer four categories of plans.
– Employers must offer insurance to those working
30 hours or more per week.
– Coverage cannot be denied for preexisting
medical conditions.
– Children and adults can be covered under their
parents’ plans until age 26.