RM - Chapter 15 & 16

Cost Sharing in Health Insurance

*Health Insurance has a number of cost sharing provisions Point is to help address moral hazard that exists in Health Insurance 1. Copayments 2. Deductibles 3. Coinsurance 4. Out of pocket maximum limits

Effect of the Three-Party Healthcare Transaction

- Patient / Insured / Employee Lower "user price" of healthcare You and everyone under a group policy pay the same premium Doesn't matter if you get 10 tests or 1 test Less incentive to act as a traditional consumer What does this increase? Moral hazard If you don't have to pay for a medical test, you are more likely to get it - Healthcare Providers Payment system based on fee-for-service (FFS) Incentive to generate more services For service (x-ray, flue test, etc) , a separate fee is paid What is the financial incentive? Generate more services, run more tests, etc

Global Contributions to High Costs

1. Advances in Tech *All good things, but these are expensive and make the services cost more Magnetic Resonance Imaging (MRI) A brand new MRI machine costs $3 million Need to keep the machine in a room, need another room with a technician - add $1,2 million for installation Annual maintenance cost is $100k per year As a healthcare provider - want to make sure you use your machine Organ transplants Robotics 2. Aging Population People living longer, consumer more services across lifetimes 3. Behavioral Factors High cholesterol, smoking, overeating - diabetes More trips to the doctor, more pharmaceuticals 4. Third- Party Financing Insurance companies paying the costs, nothing to disincentivize users - over utilization

HMO Advantages

1. Annual premiums are high, but annual costs may be lower because cost-sharing is lower (coinsurance, deductibles) Out of pocket is low Coinsurance or deductibles are low or nonexistent 2. Broad care - usually good communication between providers Primary physician and specialists often work in the same place - easy to transfer charts, billing, etc

Advantages of CDHP

1. Consumers with high deductibles will be more cost sensitive and avoid unnecessary test 2. If not used, money in HSA can be saved for retirement 3. Health insurance is more affordable (lower premiums)

Structure of HMO

1. Employee enrolls in HMO plan 2. Employee selects Primary Care Physician (PCP) from the HMO's network of doctors 3. PCP acts as a "gatekeeper" You must receive a referral from the PCP to see a specialist Ex. Cardiologist, orthopedist No referral = no specialist visit Exceptions... Mental health OBGYN ER care

US Contributions to High Costs

1. Employer - sponsored health insurance Almost all Americans get health insurance through employer Led to high costs because employers get tax deductions in providing these plans Allows employers to offer generous plans at low costs Individual coverage vs employer coverage - individual coverage is less expensive ACA Implementation 10.4% , 33 mill people in the US didn't have health insurance 2. Fee For Service (FFS) Providers People don't care about utilizations When you see a medical provider you get an EOB (explanation of benefits), which shows what you owe and what insurance companies owe People may make mistakes, also insured throw them away No incentive for insurer to ensure efficiency or accuracy 3. High admin costs Lots of paperwork, coders working on billing Administration costs can be 7-30% of premiums 4. Lack of transparency in cost and quality No centralized prices, no standard to evaluate effectiveness of medical procedures No system to determine rating of medical providers 5. Cost-shifting in Medicare and Medicaid Limit how much they pay medical providers for certain services - leads to increased costs for everyone else Losing money if medicare and medicaid doesn't pay enough - need to make up for this This adds $1000 to the cost of medical services per family per year 6. Defensive medicine US is extremely litigious country - people file lawsuits all the time, lots of medical malpractice Suits are often warranted, but since there are so many, doctors become scared of lawsuits Makes the doctor order tests so that they won't get sued or miss anything Increases severity Fear of being sued leads to unnecessary tests

Disadvantages of CDHP

1. High cost to consumers who use a lot of healthcare 2. Low-income individuals /families may not be able to afford high deductible Ex. PPO vs CDHP deductible has 300 difference 3. Because of high deductible, some insureds may postpone needed medical care

HMO Disadvantages

1. Little to no out of network coverage If you don't go to referral through primary care physician, you will have to pay out of pocket 2. Must get referrals through PCP Pre Approvals required for non emergency surgery 3. If you join an HMO, you'll likely have to change doctors Ex. If you've seen a doctor for a certain amount of time, they know you, some people may not want to switch

Disadvantages of PPO

1. More cost share than HMO 2. Out of network physicians may bill insured for amounts in excess of FFS 3. Less efficient communication between providers Different facilities, may not even know each other 4. Billing is more complicated than HMO since each medical provider has their own systems As opposed to HMO - insurer may own the hospital so they have a specific billing system

Advantages of PPO

1. No referral needed for specialist 2. Can go out of network physicians (but pay higher deductible, coinsurance) **If you value choice in medical providers - you would prefer PPO

Major Defects in the US Healthcare System

1. Rising healthcare expenditures 2. Large Number of Uninsured In 2014, GA had largest # of uninsured Has to do with costs, if you don't have health insurance through employers, you won't get it Ex. ACA - people going to get healthcare that were eligible were told they were ineligible 3. Considerable waste and inefficiency Wasted on healthcare costs Duplication of tests Preventable medical errors - ex. Root canal on the wrong tooth Overuse of expensive equipment - need to justify costs Unnecessary tests to eliminate risk of lawsuit 4. Harmful insurer practices Prior to ACA, insurers could exclude preexisting conditions Insurance contracts could limit benefits - saying "this is max we will pay over the year, over the lifetime ACA implemented to combat these

cost sharing - Copayments

A flat amount the insured must pay for certain benefits, such as an office visit or generic drug Paid every time Could be more expensive for a specialist Generic drug cheaper than "name brand" drugs Does not count towards annual deductible Remember annual aggregate deductible, copayment is still paid *Copayment IS NOT coinsurance - coinsurance is separate Many health insurance have copayments Not necessarily all of them Examples $25 for a visit to a primary care physician $5 for a generic prescription

Affordable Care Act (ACA) - Obamacare Pt 1

A. Guaranteed issue Insurers cannot deny coverage due to preexisting conditions Leads to adverse selection If insurance company cannot exclude high risk individuals B. Community Rating Insurers may only rate on a few variables Ex. Family vs individual policy Age, location, do they use tobacco Also leads to adverse selection - insurance company cannot ask all the questions they need to ask to accurately rate things C. Minimum standard for health insurance Cannot drop policyholders Dependents can remain on policy until age 26 No annual or lifetime limits Increases maximum possible loss of insurers May have to pay more so they have to charge more Coverage for essential health benefits Certain things health insurance has to pay for without cost sharing (no deductible, health insurance) Immunizations, preventative healthcare, medical screening Leads to moral hazard You may not have gotten flu shots but now you do because insurance company pays for it

cost sharing - Calendar Year Deductibles

An aggregate deductible that must be satisfied during the calendar year The amount the insured is responsible for in total (over all claims during the policy period) before the insurer pays anything Policies may include an individual and/or family deductible Ex. Brown has health insurance for him and family Personal Brown deductible is $2200 Family deductible is $4400 before insurance company pays 4 people in family, everyone has $1100 Haven't met individual deductible, but met family deductible *More complicated than this but we will keep it simple and people likely had 2 deductibles on policies

Traditional Consumer Transaction

Buyer provides money, seller provides the good

managed care plans - CDHP

Consumer Directed Health Plan Plan the combines a high-deductible health plan with a health savings account (HSA) A high deductible health plan (HDHP) has an annual deductible that is substantially higher than traditional plans Aimed to decrease moral hazard Generally set up as PPOs, may have same rates as PPOs Ex. Brown's policy has a $2200 individual deductible, $4400 family deductible Why would someone choose a high deductible? Lower monthly payments - premium payments substantially lower Ex. Brown has a healthy family, doesn't go to the doctor that much, doesn't want to waste that much on health insurance premiums Don't plan to use plan that much

Affordable Care Act (ACA) - Obamacare Pt 2

D. Individual Mandate *Most controversial part Buy health insurance or pay a penalty at the time of taxes (since repealed) Either $295 or 2.9% of income Helped to lower adverse selection because EVERYONE needs to buy insurance People don't like being told that they have to spend a certain amount of their money on something Was removed Goes back and increases adverse selection People who don't go to the doctor are less likely to buy insurance People who go to the doctor all the time go buy insurance E. Health Insurance Exchanges Supposed to set up a competitive marketplace for people to get health insurance plans - ex. Small businesses go to state health insurance exchange Goal is to be affordable Ex. Brown's sister found out that coverage through they exchange was not great, had high premiums F. Subsidies for low income individuals / families If income is below a certain threshold - the government would provide subsidies, wouldn't have to pay the full cost Low income individual getting insurance at a lower cost may increase adverse selection G. Employer Mandate Firms with 50+ employees must provide health insurance or pay a substantial fine *Only applies to full time employees H. Require health insurance companies to pay 85% of premiums in claims Intent is to not overcharge for coverage provided BUT it had the opposite effect If a health insurer is required to pay this percentage in losses... Premiums = $10 mill, required to pay $8,500,000 In a given year if loss re only $8,000,000, the insurance company is not paying enough for services provided, so they will increase amount for individual services In The long run this leads to increased premiums *Goal was to limit profit margins of insurance companies *Reality was paying doctors more but increasing premiums in the long run

Group Medical Expense (Health) Insurance

Employee benefit that pays the cost of hospital care, physicians' and surgeons' feed and related medical expenses Almost all plans in US are managed care plans Emphasize cost control Some employers offer all plans, specific plans, or a mix of plans

Managed Care Plans

Health Maintenance Organization Preferred Provider Organization Point of Service System *With two of these, choice or physician or hospital are limited - if this choice is important to you, need to be careful

managed care plans - HMO

Health Maintenance Organization A system that provides healthcare to its members on a prepaid basis in a particular area Provides broad medical services, but cost sharing provisions are different May or may not have deductibles, coinsurance Negotiates rates/agreements with hospitals and physicians to provide medical services Insurance company may own hospitals and employ physicians Ex. Kaiser Permanente - can only go to their hospitals Choice of providers (doctors/hospitals) is limited

OOP Max Limits Example Jon Snow was recently stabbed with resulting medical bills of $4000 - his health insurance includes the following $1000 calendar year deductible *Health insurance has a calendar year deductible, need to know this 80/20 coinsurance clause $5000 out of pocket max After insurance is applied, how much will Jon owe for the medical bill? Jon needs surgery during the same calendar year that costs $30,000, after the insurance is applied, how much will Jon owe for the surgery?

How much Job owes? Appointment 1 = $4000 - $1000 (deductible) = $3000 3000 * 0.2 = $600 Insurance company pays $2,400 1000 + 600 = $1,600 How much Jon owes the second time? Appointment 2 = $30,000 Already met deductible Jon pays 20%, so $30,000 * 0.2 = $6,000 OOP limit = $5000 and 6000 > 5000 (not even accounting for what he has paid already) 5000 -1,6000 = $3400 (meet OOP max for the year) Insurance company paid $26,600

This Won't Hurt a Bit Video

Man with a headache Doctor running a blood test, running the test because they can charge more even though the nurse is better at it Running X-Ray, MRI, Pet Scan - super expensive, hospital doesn't want to get sued by patients Hospitals set up funds Employers setting up health insurance Getting private insurance through the workplace The rest of the industrialized world moved towards government healthcare Insurance companies and doctors fought federal healthcare 1965 - Johnson admin established medicare and medicaid Enormously difficult health care system ObamaCare - Affordable care act passed Back to headache man... Multiple people working on bills, so many types of insurance policies, benefits, disputes - all works its way into the bill Ms. Insurance and Mr. Pharmaceutical Pharmaceutical and insurance fighting Insurance too complicated - need to exacerbate people Pharmaceutical expensive, requires patents Moment of Truth... Has insurance but it was expired - super expensive and hasn't even been diagnosed "Just a migraine headache" - can't even afford an ice pack

Why might HMO's be problematic?

May not have an owned hospital in the area Ex. Have to commute to work an hour away, not a close covered hospital Travelling, if you are not close to a facility this is bad

When choosing a healthcare plan consider...

May not have opportunity to choose, depends 1. Deductible (in network vs out of network) Family deductible, individual 2. Coinsurance In network and out of network Can vary depending on type of care Ex Differences for primary care physicians vs specialists Do you need a special surgery 3. Out of Pocket Max In network and out of network What is the most you would have to pay out of pocket for medical expenses in a given year 4. Copayments Flat amounts paid every time you go to the doctor or pick up a prescribed drug If you visit the doctor frequently for get a lot of medicine 5. Network Are you OK with changing doctors? Do you travel a lot? 6. Premium How much it will cost out of each paycheck Childcare and pregnancy costs should be considered by couples Which couple's plan should be used? What is covered under each plan

HMO - Capitation Fee

Medical Provider side Many HMO plans do not pay based on an FFS (fee for service) Instead, physicians and medical groups are paid a fixed annual amount for each plan member regardless of the frequency or type of service provided Based on each member they see Ex. Physician has 40 members Doctor paid capitation fee of $500 for each member over the course of the year Some of the 40 members will come in 10 times, some will only come in once or twice Shifts risk of overutilization to the medical provider No incentive to provide unneeded tests

End Result of Healthcare Transaction

Patients with insurance + providers paid by FFS = Over utilization of healthcare Ex. Brown taking his daughter to the hospital - getting her tests, tylenol, etc because he's not paying for it This has led to VERY high health insurance premiums for Americans

Flexible Spending Accounts (FSA)

Permits employees to pay for certain unreimbursed medical expenses with before-tax dollars Money accrues, then funds can be used for eligible expenses - typically medical expenses What makes FSA different from HSA is that it is "USE IT OR LOSE IT" Cannot be used with high deductible plan (because those plans allow for an HSA) Can be used with HMO, POS Forfeit contributions if not used by March 15 of the following year Put money in Jan 2020, need to use it by March 15 2021 If you don't use money it goes back to employer *Need to be careful to accurately estimate expenses Don't want to overfund it and give it all to their employer Ex. At the end of the year, may get elective surgery to use the FSA Employer may contribute

managed care plans - POS

Point of Service Plan Hybrid of HMO and PPO Has to select primary care physician in network (like HMO) Outside of that, you can go out of network - pay higher deductibles and coinsurance Sometimes have to notify insurance company first Typically structured as an HMO but members can go outside of network for care If patients can see providers who are in the network, they pay little or nothing OOP Deductibles and copayments are higher if patients see providers outside the network

managed care plans - PPO

Preferred Provider Organization Plan that contracts with healthcare providers to provide certain medical services at discounted fees Ex. Hospitals, urgent care facilities Ex. Flu test at urgent care may charge $100, but now charge $50 for covered insureds - more people will go to that facility for their tests Plans form a "network" of providers Patients are not required to use a provider within the network, but the deductible and copay are lower if they do In network, insurer has already negotiated a lower fee Can go out of network, but negotiated fee has not been met - will probably go out of pocket Ex. 20% coinsurance in network, 40% coinsurance out of network No gatekeeper or referrals required Provide services at a discount from full charges (pay based on FFS) If the provider's actual charge exceeds the negotiated fee, the provider absorbs the cost PPO Providers have incentives to provide more services More tests, scans, etc

Individual Medical Expense (Health) Insurance

Protects an individual or family for covered medical expenses because of sickness or injury Not bought through employer, you buy insurance for yourself or family through an agent or insurance exchange Important in providing health insurance to individuals and families who are not able to purchase group insurance (through employer) Most Americans have health insurance through employer or labor union

Health Savings Account (HSA)

Tax exempt account established exclusively for the purpose of paying qualified medical expenses Completely separate account - could have debit card for it Must be covered under a high deductible health plan Account is an investment account from which the account holder can withdraw money tax-free for medical costs Put money into HSA every month, it accumulates Keep rolling year after year Can be invested Drawn later for medical expenses Can also be used towards retirement *Money is not taxed on There is a maximum amount you can contribute on individual and family basis Ex. In 2018 max on individual basis was $3500, family basis was $7000 Employees and employers can contribute to the account up to a certain annual maximum amount Ex. UGA contributes money to Brown's HSA If Brown were to leave UGA, HSA follows HSA's can follow employees

cost sharing - coinsurance

The % of the bill in excess of the deductible, which the insured must pay out of pocket up to some maximum annual dollar limit Helps prevent overutilization of plan benefits Addresses moral hazard - insured is less likely to utilize unnecessary services if they share some of the costs Usual split 80/20, 75/15 - first number is what insurer pays

cost sharing - Out of Pocket Max Limits

The most the insured will have to pay out of pocket in a calendar year Once you have spent this, the insurance company pays in whole Still have copayments After the out of pocket limit is met, the insurer pays 100% of all eligible expenses Helps to reduce burden of catastrophic loss on a family Ex. Someone gets super sick or has major medical procedure Also called a stop loss limit

healthcare transactions

Three parties 1. Consumer/Buyer Brown taking his daughter to the doctor Pays a premium to a third party (insurance company) When a consumer goes to the doctor, the third party pays the bill Simplified, there might be a deductible, coinsurance, etc 2. Provider/Seller 3. Doctor / physician Third Party - Insurance Company This transaction can be problematic... Because consumer does not pay the costs, they don't care about them Health premiums based on utilization

High Cost of Healthcare in the US

US national health expenditures $3,300,000,000,000 in 2016 3.3 trillion 17.9% of Gross Domestic Product (GDP) Total value of all goods and services produced in a country in a year 1 out of 6 dollars spent on healthcare $10,348 per capita Compared to other countries Switzerland - $7,919 per capita, 12.4% GDP Germany - $5,550 per capita, 11.3% GDP Netherlands - $4,752 per capita , 10.5% Canada - $4752 per capita, 10.6%