US Healthcare System: Financing & Evolution

• Health Care Financing is how money is obtained to pay for the health care system

• Reimbursement is how money is paid out to people who supply health care services

• US health care financing evolved to its current state through a series of social interventions

Timeline of Health Care System Evolution

• The text has a placeholder to describe the health care system in 1900
• The text has a placeholder to describe the health care system in 1950
• The text has a placeholder to describe the health care system in 2000
• The text has a placeholder to describe the health care system in 2030

Stakeholders in the Health Care System

• Patients
• Providers
• Insurers
• Hospitals
• Government
• Vendors - Equipment, devices
• Pharmaceutical Companies
• Researchers/Academicians

Modes of Paying for Healthcare

• Out of pocket payments
• Individual private insurance
• Employment-based private insurance
• Government financing and subsidies

Health Care Financing in 2023

• Type of payment % of national health expenditures:
  • Out of pocket: 10%
  • Individual private insurance: 30%
  • Employment-based private insurance: 31%
  • Government financing: 39%
• Principle Source of Coverage % Population:
  • Uninsured: 8%
  • Individual private insurance: 10.2%
  • Employment-based private insurance: 53.7%
  • Government financing: 37.8%

Out of Packet Payments

• Out of pocket payments involve unpredictability; frequency of need and cost
• Patients rely on physician recommendations
• Out of pocket payments were the most common form of payment in the first half of the 20th century

Individual Private Insurance

• Individual private insurance is very expensive
• Individual private insurance is more expensive than group rates

Employment-Based Private Insurance

• The development of private health insurance in the US was impelled by the increasing effectiveness and rising costs of hospital care
• Hospitals went from being a place to die to requiring insurance
• Coverage in the United States was initiated by health care providers to seek a steady source of income, as opposed to a consumer-driven development as seen in European nations
• Hospital and physician control guaranteed generous reimbursement and cost remained on the back burner
• WWII Wage and Price Controls prevented wage increases but allowed for the growth of fringe benefits
• Unions began negotiating for benefits
• Employer premiums were a tax deductible business expense
• Employee benefit plans were not taxable income
• The government subsidy of private health insurance was $280 Billion/yr in 2018

Private Hospital Insurance

• Baylor Hospital offered insurance in 1929
• They offered $6/yr for 1500 school teachers for up to 21 days of hospital care
• The Great Depression in 1931 had only 62% hospital occupancy
• The Great Depression drove initiatives for more hospital specific insurance plans to be developed
• The American Hospital Association consolidated plans in the late 30's
• Blue Cross expanded prepayment across other states allowing choice of hospitals

Commercial Insurance Entry

• Commercial Insurance competed with the Blues (Blue Cross/Blue Shield)
• Commercial Insurance introduced “Experience Rating"
  • Setting of insurance rates on the basis of a group's actual health care expenses in a prior period
  • This allows healthier groups to pay less
• The Commercial Insurance overtook the Blues in the private health insurance market

Private Physician Insurance

• California Medical Association in 1939 developed Blue Shield, to cover physician services
• People were not able to pay physicians as much for care during the Great Depression
• The American Medical Association supported expansion of Blue Shield to other states

Community vs. Experience Ratings

• Community rating is the same insurance rate for everyone in the area

• Experience Rating - Setting insurance rates based on actual group health care expenses in a prior period, allowing healthier groups to pay less

• The most positive aspect of health insurance - that it assists people with serious illness to pay for their care has also become one of its main drawbacks - the difficulty of controlling costs in an insurance environment

• Patients with insurance use more services than someone who must pay for care out of pocket

Cost Control Problems in Insurance Environment

• Moral hazard in insurance occurs when there is increased usage with things like windshields
• There is an increase in providers (hospital, doctor, pharmacy, etc) fees charged to insurance companies
• Cost control problems can arise due to third-party payments
• Cost control problems initially have no direct impact on the patient

Government Financing

• Before the 1960s government was involved in municipal hospitals and dispensaries giving care to the poor
• Medicare A (1965)
• Medicare B
• Medicaid (1965)
• Medicare Advantage Program Part C & Medicare D (2003)
• Med A, Med B and Medicaid are public insurance programs for privately operated sectors

Medicare Part A

• Is Title XVIII to the Social Security Act
• Hospital Insurance for over 65 who are eligible for Social Security plus have been a US citizen for more than 5 years and have paid Medicare taxes for at least 10 years
  • Also extends to those who are disabled, have chronic renal disease and/or ALS
  • Coverage extends to those who developed a health condition following an environmental health exposure in an emergency declaration area after June 17, 2009
• Funding is from social security taxes collected from employers and employees
• There is cost sharing for Medicare Part A

Medicare Part B

• Covers physician and other outpatient services for people over 65
• Funding comes from federal revenues and monthly premiums paid by the beneficiaries
  • $164.90/month (2023), higher if income >$97,000 individual/$194,000/
• There's a $226 Part B deductible each year, then the beneficiary pays 20% and Medicare pays 80%

Medicare Part C (Medicare Advantage)

• It's a private insurance alternative to Medicare A and B
• The private insurance agency must cover all regular Medicare benefits
• One half of Medicare beneficiaries were enrolled in Medicare Part C in 2022
• Most enrollees only pay their Medicare part B premium
• Medicare pays the private insurance companies a fixed monthly premium per beneficiary
• A strength is that it allows members to have fixed co-payments for their care instead of co-insurance

Medicare Modernization Act (2003)

• Medicare Advantage, Part C (Managed Care Plan or private plans)
  • Medicare subsidizes the premium for the health plan
  • Care only by providers connected with plan, which is run by private insurance plans
• Medicare Part D covers partial prescription drug costs
• The 2010 health care reform law passed by the Obama administration reduced payment to Medicare advantage plans to save Medicare programs $136 billion over ten years

Medicare Part D

• Prescription drug coverage (partial)

  • In 2021, 77% of Medicare beneficiaries are enrolled in Part D
  • Medicare beneficiaries receive financial assistance to pay for prescription drugs

• Challenges/Confusion:

  • Major gaps in coverage exist in Medicare Part D
  • Medicare Part D is administered by many different private insurance companies
  • The government is not allowed to negotiate for lower drug prices until 2026, when they will be able to negotiate pricing for 10 drugs

• Under the Inflation Reduction Act of 2022: -Beginning in 2025, there will be a $2,000 per year cap on out-of-pocket costs for Medicare beneficiaries

• The number of Medicare Part D stand-alone prescription drug plans at the State level in 2023 ranges from 19 in New York to 28 in Arizona

Medicare Part D 2023

• Deductible is $505
• Co-insurance or co-payment up to $4660
• Those between $4660 and $7400 pay 25% for generic drugs and 37% for brand name drugs
• If out of pocket expenses reach $7400, those covered pay the higher of the costs of 5% co-insurance or $4.15 for generic drugs or $10.35 for all other drugs

Medicaid

• Medicaid is Jointly funded by State and Federal taxes and run by the states
• There is variability of benefits by state
• Qualifications include a low-income requirement
• There is increased use of waivers to states to restrict spending which focuses on increasing enrollment in Managed Care Plans
• In Issues:
  • Medicaid in 2022 covered 82 million people
  • It is the largest health insurance program in the nation
  • There is a low provider reimbursement rate
  • Physicians limit the number of Medicaid patients they will see
• Those eligible must belong to one of the following categories
  • Children
  • Parents with dependent children
  • Pregnant women
  • People with severe disabilities
  • Seniors
  • Seniors can be dually enrolled in Medicare and Medicaid
• The Affordable Care Act improved accessibility beginning in 2014
• The Trump administration approved restricted Medicaid waivers including an imposition of premiums and co-payments which families cannot afford
• All citizens and legal residents with family income below 138% of the federal poverty line are eligible (in states that expanded Medicaid)
• More individuals are covered in States that expanded Medicaid due to the Affordable Care Act
• Expansion led to more Medicaid costs

State Children's Health Insurance Program (SCHIP)

• SCHIP is a Medicaid companion program that began in 1997 with a low-income requirement
• The goal is increased coverage for children
• 7 million children were covered in 2022
• CHIP is funded through 2026

Impact of Government Programs

• Increased taxpayer involvement in the health insurance picture
  • Medicare: social insurance for eligible beneficiaries
  • Medicaid: public assistance for other beneficiaries

Rising Costs

• US households in the lowest income bracket spend 10x more in out-of-pocket payments than households in the highest bracket, this is known as regressive financing

Summary

• The multiple methods of health care financing has resulted in a lack of access for some and high costs for Americans

Explore the evolution of the U.S. healthcare system's financing. Understand key payment models, stakeholders, coverage sources, and power dynamics. Learn about uninsured rates and healthcare payment methods.