Download Issues Related to Health Care Financing Overview of the size and

Issues Related to Health Care Financing
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Overview of the size and growth of
the health care sector
The distribution of personal health
care services
Flow of Funds for Health Care
Nature of Financing Decisions
Judith R. Lave, Ph. D.
January 2004
Share of National Health Expenditures,
By Type 2002
Total (Billions)
$1,553
Total
100%
Personal Health Services
86.3
Prog. Admins + Net Cost of Health Insurance
6.8
Research & Construction
3.6
Public Health
3.3
Per Capita Expenditures
$5,440
Notes on Data
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Summary Information: Jan/Feb Issues
of Health Affairs (K. Levit et al. Health
Spending Rebound Continues. Health
Affairs. 23(1), 2004.
Complete data:www.cms.gov: Search:
National Health Expenditures, Click:
Health Accounts. Click: Tables
Annual Percent Change in National Health Spending
Selected Years
Current Dollars
1970-1980
12.9%
1980-1988
10.8
1988-1993
9.3
1993-1997
5.3
1997-2000
6.2
200-2001
8.5
2001-2002
9.3
Many Definitions of Healthcare Costs
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Healthcare Expenditures (p x q)
Prices of Individual Services
Premiums for Health Insurance
Out-of-Pocket Payments
% of GDP to Health Care (14.9%)
National Health Expenditures as a Percent
of GDP
1970-2010
Managed care and
BBA impacts: “onetime” effects on price
and volume levels
2010
2008
2006
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
Accelerated growth
2004
Moderate
Growth
2002
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Distribution Expenditures on
Personal Health Care 2002
Nursing-home
Prescription
care
drugs
10.4% 12.1%
Physician &
Clinical Services
25.3%
Other
health
services
15.9%
Hospitals
36.3%
Percentage Change in Expenditures
2000-20002
Category
Overall
Percent Change
2000-2001 2001-2002
8.5%
9.3%
Hospital Care
7.5
9.5
Physician and Clinical Services
8.5
7.7
Nursing Home&Home Health
5.8
4.9
15.9
15.3
Prescription Drugs
The Financing of Health Care
Third Parties
Government Agencies
Insurance Companies
(Health Plans)
Employers
Patients
Households
Tax payers
Employees
medical services
out-of-pocket
payments
Financing Side
Providers
(doctors, hospitals,
dentists, etc.)
Reimbursement Side
Nonelderly Americans With Selected
Sources on Health
Insurance Coverage: 2002
Type of Coverage
Employment-Based Coverage
Individually Purchased
Public
Medicare
Medicaid
Tricare/CHAMPVA
No Health Insurance
% of nonelderly
population *
64.2
6.7
15.9
2.3
11.9
2.8
17.3
Population: 250.8 million
* Does not add up to 100% because people can have
more than one source of health insurance
Sources of Supplemental Coverage:
Among Non-Institutional Medicare
Beneficiaries: 1999
Other* 2%
Medicare
HMOs
17%
Medigap
24%
Medicare
Only
13%
EmployerSponsored
33%
Medicaid
11%
Total = 34.7 million non-institutional Medicare beneficiaries
No Standard Health Plan
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Health Insurance Policies Vary
With Respect to:
covered services
covered providers
administrative terms under which
services are accessed
methods for paying providers
Importance of Insurance Coverage

Use of services is a function of price
(which depends on insurance structure
and coverage) (i.e., Claritin)

Decisions to cover or not cover certain
providers/technologies/services can
make or break an industry (i.e.,
physical therapy, mammograms,
obesity surgery)

Medicare is often pace-maker on ways
to pay providers
Brief Discussion of Health
Care Financing Terms
Insurance policies vary considerably. They vary
with respect to which services will be covered,
how much cost sharing will be borne by the policy
holder, administration conditions under which
consumers/patients access care, what providers
will be covered, how much providers will be paid.
Private Health Insurance: Health insurance is
purchased in the market by groups (either
through the place of business or through
professional associations) or by individuals. The
premium is the price paid for the insurance policy.
Under employer sponsored group health
insurance plans, the cost of the premiums is paid
in whole or in part by the employer.
Definitions of Terms in the
Following Charts
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Direct Patient Payments: This is the total
amount paid out of pocket by the patient or
by the patient’s family for a given service.
Private Third Parties: This is the total
amount paid for a given service on the
behalf of the consumer or services. This
would include payments made by blue cross,
blue shield, a health maintenance
organization, Aetna, etc.
Public Federal: This is the total amount paid
by the federal government for health care.
It includes expenditures made under
Medicare, Medicaid, The Veteran’s
Administration, etc.
National Health Expenditures
By Source of Funds Selected Calendar Years
1970-2002
Source of Payment
Total
Private Funds
Out of Pocket Payments
Private Health Insurance
Other
Public Funds
Federal
State & Local
1970
1980
1993
2002
100%
100%
100%
100%
62.1
34.3
57.3
23.7
56.0
16.5
54.1
13.7
21.2
6.6
37.8
24.0
13.7
27.7
5.9
42.6
29.0
13.6
33.6
5.9
44.0
30.9
13.1
35.4
5.0
45.9
32.5
13.4
Percent of Personal Health Care
Expenditures
Paid Out of Pocket
Total
Hospital
Physician & clinical
services
Nursing Home care
Dental
Prescription Drugs
*This is for 1992
1990
2002
22.6%
4.4
20.5
15.8%
3.0
10.1
40.4
48.3
55.8*
25.1
44.0
30.0
Source of Payment for Personal Healthcare:
Percent Distribution for Selected Services (2002)
Note: only selected sources enumerated
Source of Expenditure (%)
Private
Type of
Service
Expenditures
(billions)
Total
Total
Private
Total Personal
Healthcare
$1,340.2
100.0%
Hospital
Care
486.2
Physician
Services
Private
Government
Medicaid
Insurance
Out of
Pocket
Medicare
55.8
35.8
15.8
19.3
17.4
100.0%
41.1
33.9
3.0
30.7
17.2
339.5
100.0%
66.2
49.2
10.1
20.3
12.4
70.3
100.0%
93.6
49.5
44.0
….
5.4
Prescription
Drugs (99)
162.4
100.0%
77.7
47.8
30.0
0.2
17.6
Nursing
Home Care
103.2
100.0%
35.9
7.5
25.1
12.5
49.3
Dental
Services (99)
(Fed &
State)
What are some of the
problems that people
have with current
insurance?
Employer Sponsored Health
Insurance
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90% of Private Health Insurance
Obtained Through Employer
Employer Share of Premium Excluded
from Taxes
Employer Selects Plan
Who Bears the Cost?
 Economists:
 Others:
The Employee in lower wages
The Employer in lower profits
Question
What are the
advantages/disadvantage
s of getting health
insurance through the
employer?
New Wrinkle
Defined Contribution
1.
2.
3.
Pay same amount towards all
plans offered by employer.
Pay employee fixed amount
divided between cash and a
catastrophic cap. Employee selects
a plan from a network of
providers.
Pay employee fixed amount to
purchase insurance privately.
A Very Conservative Position
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Decide how much you want to subsidize
health care—who do you want to help?
Get rid of the incentives that encourage
people to obtain their health insurance
through their employers.
Eliminate the tax subsidy of employer based
health insurance: treat all health insurance
equally—probably with a tax credit.
Let people use their own dollars to purchase
medical care/insurance—let them make their
own trade-offs. (could be defined
contribution)
Note: Similar to the A.M.A. position.
Selected Policies By Third Parties
Control Over Prices
 Government – Administered Prices
– Prospective Payment System
Hospitals – “DRG’s”
Nursing Home – “RUG’s”
Home Health Agencies –
“HHRG”
Outpatient Department –DRG = Diagnoses Related Group
RUG = Resource Related Group
- “APC”
HHRG = Home Health Related
Rehabilitation Facilities Group
APC = Ambulatory Patient
– “FIM-FRG”
Classification
FIM-FRG = Functional
Independence MeasureFunction Related Group
Development of Managed Care
Strongly Encouraged By Capitation
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Selection of Physician/Providers who
Practice Cost-Effectiveness Care
Capitation of Primary Care (GateKeeper and Other Providers)
Utilization Management
 Care management
 Preadmission screening
 Concurrent review
 Guidelines
 Disease management
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Introduction of Best Practices
Percent Distribution of Medicare Enrollees and
Program Payments Under Medicare: CY 1998
Amount of Program Payments
29.3 Million Enrollees
$25,000 or More
$10,000-24,999
$5,000-9,999
$2,000-4,999
$500-1,999
$1-499
6.10%
$168.2 Billion in Program
Payments
9.20%
8.4%
49.9%
13.8%
$25,000 or More
27.6%
35.0%
25.8%
$10,000-24,999
10.3%
$5,000-9,999
$2,000-4,999
$500-1,999
7.7%
5.1%
Percent of Persons Served
Percent of Program Payments