Introduction To Healthcare and Public Health in The US

Introduction to Healthcare and
Public Health in the US

Financing Healthcare (Part 1)
Lecture d
This material (Comp1_Unit4d) was developed by Oregon Health and Science University, funded by the Department of Health
and Human Services, Office of the National Coordinator for Health Information Technology under Award Number
[IU24OC000015)].
Learning Objectives
Understand the importance of the healthcare industry in the US economy
and the role of financial management in healthcare. (Lecture b)
Describe models of health care financing in the US and in selected other
countries. (Lecture c)
Describe the history and role of the health insurance industry in financing
healthcare in the United States, and Federal laws that have influenced the
development of the industry. (Lecture a)
Understand the differences among various types of private health insurance
and describe the organization and structure of network-based managed
care health insurance programs. (Lecture d)
Understand the various roles played by government as policy maker, payer,
provider, and regulator of healthcare. (Lecture d)
Describe the organization and function of Medicare and Medicaid. (Lecture
e)
Health IT Workforce Curriculum
Version 3.0/Spring 2012 2
Introduction to Healthcare and Public Health in the US
Lecture d
Payers in the US Healthcare
System
US Multipayer System
Role of insurance
How payers reimburse providers for
healthcare services
The Private Healthcare Payer System
How health insurance works
Sources of health insurance
Types of health insurance
Managed care
Regulation of private health insurance
Lecture d
Health Insurance
Spreads the financial risk over a large pool of
people
Balances risk with cost
5% of the risk pool accounts for approximately 50%
of the pool spending
People over age 65 consume more health care than
other age groups do
Insurance cost is influenced by prescription
costs, technology, an aging population, many with
chronic conditions, government subsidies and
plan administrative costs.
Lecture d
How Insurers Pay Providers
The provider submits a claim
Claim must include at least one diagnosis code, and
one procedure code for each service rendered
Diagnosis code = ICD-9-CM
Procedure code = CPT code or DRG code

A medical claims examiner or adjuster
processes the claim
Determines usual and customary charge
Deducts any portion the patient is responsible for
Deducts any contractual provider discount
Reimburses the remainder
Lecture d
How Insurers
Pay Providers (continued)
The patient and provider receive an explanation
of benefits (EOB), also called remittance advice
Regardless of whether claim is accepted or denied
Regardless of whether the patient receives a check
A claim can be denied for many reasons:
Coding errors or insufficient information
Procedure considered experimental or otherwise not
covered by the policy
Rejected claims can be appealed

Lecture d
The Multipayer US Healthcare System
Contributors
Private sources
Employers and employees
Contributions to private health insurance
Out of pocket
Other
Public or government sources
Federal & State and local
Payroll and general tax revenues
Special tax, e.g. sales tax
7
Lecture d
Public vs. Private Insurance
Private insurance
Primarily state-licensed companies
Self-insured employer plan
ERISA regulates
Third-party administrator
Public insurance is government or administered
Medicare
Medicaid
Childrens Health Insurance Program (CHIP)

8
Lecture d
Types of Private Health
Insurance
Indemnity plans - traditional plans
Fee for service
Simply provide reimbursement to providers
Less prevalent today
Managed care plans prevail today
Offer financial incentives to providers and patients
Integrate the financing and delivery of care within a
single system
Lecture d
Blue Cross/Blue Shield
Independent, state-licensed organizations
Historically set up as not-for-profits under special
state laws
Blue Cross reimburses hospitals
Blue Shield reimburses physicians
Today, some Blue Cross/Blue Shield
organizations operate as commercial insurers
Lecture d
Managed Care
Managed care: term for techniques designed to
control costs and improve quality
Managed care organization (MCO) a business
model which integrates financing and delivery of
health care using managed care techniques
Features
Comprehensive care
Controlled access to care
Manage outcomes and improve quality care
Reduce costs
Rationing and quality of care concerns
Lecture d
Managed Care Organizations
HMO = Prototype using capitation
New models
Mix and match reimbursement methodologies
Greater patient choice
Increased costs
MCO Models
Health Maintenance Organization (HMO)
Preferred Provider Organization (PPO)
Exclusive Provider Organization (EPO)
Point of Service Plan (POS)

Lecture d
The Managed in Managed Care
Managed care
Delivers high-quality health care
Controls costs
Patient and provider incentives
Utilization review
Determine medical necessity of care
Role as gatekeeper
Different types of managed care plans
Plan differences based upon cost and provider choice
Lecture d
Cost vs. Provider Choice
The various managed care plans are defined by
choices in what providers the patient can use
Fewer choices translate to lower health care
premiums and lower out-of-pocket costs
Types of managed care plans have varying
degrees of choices and costs
Health maintenance organization (HMO)
Preferred provider organization (PPO)
Point-of-service plan (POS)
Lecture d
HMO Models
Staff model: Doctors are salaried employees
Group model: Doctors are employed by a group
practice; the plan contracts with the practice for their
services; most patients that a doctor sees are patients
in that plan
Open-group model: As above, but doctors are freer to
accept patients from outside the plan
Independent physician association (IPA): Doctors
are organized into a legal entity; have autonomy but
also contract with the plan
Network model: The plan contracts with multiple
independent physicians, group practices, and/or IPAs
Mixed model: Mixes and matches any of the above
Lecture d
Preferred Provider Organization (PPO)
PPO - patients free to choose any provider
In-network providers
Lower deductibles, copayments, and coinsurance
Out-of-network providers
Higher deductibles and coinsurance for the patient
EPO patients must use network providers
No reimbursement for out of network provider
services
No gatekeeper for either a PPO or EPO
Lecture d
Point of Service Plan
Point of Service Plan
Gatekeeper
All services through the gatekeeper the point of
service - controls access to all medical services
Referrals generally to in-network providers only
May refer out-of-network
No reimbursement for services to out-of-
network providers unless previously
authorized by gatekeeper
Lecture d
Indemnity vs. Managed Care Programs
INDEMNITY MANAGED CARE
Feature Fee for service HMO PPO POS EPO
Provider
network
None Strict or exclusive Broad
network
Hybrid of
HMO/PPO
Hybrid of
HMO/PPO
Physician choice Unlimited PCP required PCP not required PCP required PCP not
required

Referrals Not needed Must come from
PCP
Not needed Required if out
of network
None out-of-
network
Precertification Not needed Required Not usually
required
Not usually
required
Required
Preventive care Usually not
covered
Covered Some covered Covered Varies
Relative cost to
patient
High Low Mediumhigh Low-medium Medium
4.9 Table: (2011, CC BY-NC-SA 3.0).
Lecture d
Regulation of Private
Health Insurance
States control the legal structure of private
insurers and monitor their finances
Purpose: To ensure the company can meet its
obligations to the people it insures
Private insurance companies are also regulated
by federal laws
Federal law may take precedence over state law
Lecture d
Federal Regulation of Private
Health Insurance
Employee Retirement Income Security Act
(ERISA) 1974
Permits and regulates self-insured health
plans
Does not require employer plan
Requires plans to meet minimum standards
Requires a grievance and appeals process
Gives participants the right to sue for benefits
Requires plan administrators to meet certain
standards of conduct
Lecture d
Health Insurance (continued)
Consolidated Omnibus Budget Reconciliation
Act (COBRA) 1985
An amendment to ERISA, implemented in 1986
Allows employees to choose continuation of group
health benefits in certain cases
Voluntary or involuntary job loss
Reduction in hours worked,
Transition between jobs,
Death of a spouse, divorce, and certain other life events
Individuals may have to pay premium up to 102% of cost
Generally required for group health plans of companies
with 20+ employees
Lecture d
Health Insurance Portability and Accountability Act
(HIPAA) 1996
Amendment to ERISA
Defines protected health information and helps ensure its
privacy
Protects participants in group health plans
Prohibits discrimination based on health status
Provides additional opportunities to enroll in group health plan, after
loss of coverage or certain life events
For some people, guarantees access to individual insurance
- American Recovery and Reinvestment Act (ARRA) of 2009
strengthened law and provided penalties

Lecture d
ERISA mandated coverage
Newborns' and Mothers' Health Protection Act
1996
Plans that offer maternity coverage must pay for at
least a 48-hour hospital stay following childbirth
Mental Health Parity Act 1996
Requires equality for coverage of mental illness
Women's Health and Cancer Rights Act 1997
Provides for post-mastectomy benefits including
reconstructive surgery and treatment of complications

Lecture d
The Patient Protection and Affordable Care Act (PPACA)
2010 (Healthcare Reform Law)
No limit or denial of coverage for children under 19 with
preexisting conditions
Adults no longer denied insurance due to preexisting condition
Ends lifetime limits and most annual limits on care
Allows children under 26 to stay on parents plan
Some plans will provide free access to preventive services
Provides 50% discount on brand-name drugs for seniors in the
Medicare donut hole
More benefits will be phased in through 2014

Lecture d
Summary Lecture d
Insurance works by spreading financial risk
Insurers pay providers based upon
Diagnosis and procedure codes, contracted rates
States license and regulate private insurance
Types of plans include indemnity, Blue Cross and Blue Shield
and managed care plans
Managed care uses techniques that result in lower healthcare
costs and improved quality
Some Federal laws regulate private health insurance
ERISA, COBRA, HIPAA, and the Affordable Health Care Act

Lecture d
References Lecture d
References
American Association of Preferred Provider Organizations. PPO resources.
http://www.aappo.org/index.cfm?pageid=10. Accessed April 10, 2011.
American Association of Preferred Provider Organizations. PPO Toolkit.
http://www.aappo.org/AAPPO_Toolkit_FINAL.htm. Accessed April 2, 2011.
Bihari M. Understanding the Medicare Part D donut hole: learn about the Medicare Part D coverage gap.
http://healthinsurance.about.com/od/medicare/a/understanding_part_d.htm. Accessed April 7, 2011.
Centers for Medicare and Medicaid Services. Childrens Health Insurance Program (CHIP).
http://www.cms.gov/home/chip.asp. Accessed April 7, 2011.
Centers for Medicare and Medicaid Services. http://www.cms.gov. Accessed April 7, 2011.
Congressional Budget Office. Statement of Douglas W. Elmendorf, Director. CBOs analysis of the major health
care legislation enacted in March 2010 before the Subcommittee on Health, Committee on Energy and
Commerce, U.S. House of Representatives. March 30, 2011. www.cbo.gov/ftpdocs/121xx/doc12119/03-30-
HealthCareLegislation.pdf. Accessed April 3, 2011
Cornell University Law School. Workers Compensation: an overview.
http://topics.law.cornell.edu/wex/Workers_compensation. Accessed April 7, 2011.
Kaiser Family Foundation. Health care costs: a primer. August 2007. www.kff.org/insurance/upload/7670.pdf.
Accessed April 2, 2011.
Kaiser Family Foundation. How private health care coverage works: a primer2008 Update. April 2008.
www.kff.org/insurance/upload/7766.pdf. Accessed April 2, 2011.

Lecture d
References
Levey NM. Questions and answers about new rules on appealing rejections of health insurance claims. Los
Angeles Times. July 23, 2010. http://articles.latimes.com/2010/jul/22/nation/la-na-health-rules-qa-20100723.
Accessed April 12, 2011.
Marcinko DE. Understanding the Medicare Prospective Payment System. September 17, 2009.
http://medicalexecutivepost.com/2009/09/17/understanding-the-medicare-prospective-payment-system. Accessed
April 7, 2011.
MCOL. Managed care fact sheets. http://www.mcareol.com/factshts/factnati.htm. 2011. Accessed April 9, 2011
Medicare.gov. Medicare Advantage (Part C). http://www.medicare.gov/navigation/medicare-basics/medicare-
benefits/part-c.aspx. Accessed April 7, 2011.
National Association of Workers Compensation Judiciary. http://www.nawcj.org. Accessed April 7, 2011.
National Bureau of Economic Research. Prospective Payment System (PPS) data.
http://www.nber.org/data/pps.html. Accessed April 7, 2011.
Obringer LA, Jeffries M. How health insurance works.
http://health.howstuffworks.com/medicine/healthcare/insurance/health-insurance.htm. Accessed April 2, 2011.
Partners Human Research Committee. Overview of the HIPAA final privacy regulations.
http://healthcare.partners.org/phsirb/hipaaov.htm. Accessed April 10, 2011.
Purcell P, Staman J. Summary of the Employee Retirement Income Security Act (ERISA). Congressional
Research Service report RL34443. May 19, 2009. http://aging.senate.gov/crs/pension7.pdf. Accessed April 3,
2011.

Lecture d
References
Tufts Managed Care Institute. Managed care models and products. 1998.
www.thci.org/downloads/ModelsProducts.pdf. Accessed April 10, 2011.
U.S. Department of Health and Human Services and U.S. Department of Justice. Stop Medicare fraud: learn more
about fighting fraud. http://www.stopmedicarefraud.gov. Accessed April 7, 2011.
U.S. Department of Labor. Health plans and benefits. http://www.dol.gov/dol/topic/health-plans. Accessed April 11,
2011.
U.S. Department of Labor. Workers Compensation. http://www.dol.gov/dol/topic/workcomp/index.htm. Accessed
April 7, 2011.
WorkersCompensation.com. http://www.workerscompensation.com. Accessed April 7, 2011.

Chart, Tables, Figures
4.9 Table: Indemnity vs. Managed Care Programs (2011, CC BY-NC-SA 3.0).
28
Version 3.0/Spring 2012
Lecture d

Introduction To Healthcare and Public Health in The US

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