commercial insurance_Paying for Health Care

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					Paying for Health Care

   There Is No Such Thing As a Free Meal

   Yaseen Hayajneh, PhD




                                           1
Buying a Flat Screen 42” TV

     Need vs. Luxury
         Luxury goods or services are not necessary – can
          do without them.
   Predictability of need
   Predictability of Cost
   Informed Decision by buyer




                                                             2
Health Care: Need vs. Luxury

     Health Care is not a luxury service (like a
      cruise trip).
         Health Care is a basic human need.
     Health Care is a “right”
         Someone has to pay for those who can’t afford to
          purchase health care.




                                                             3
Health Care: Unpredictability

   People don’t know when they need health
    care.
   People don’t usually know the cost of health
    care.




                                                   4
Information Asymmetry

    Information Symmetry:
        Condition in which all relevant information is known
         to all parties involved.
        Opposite of information asymmetry.
    Information Asymmetry
        Condition in which at least some relevant
         information is known to some but not all parties
         involved.
        Information asymmetry causes markets to become
         inefficient.

                                                                5
Health Care: Patient Ignorance

   Ignorance = Lack of information or Knowledge
    = Asymmetry of information.
   Health care consumers are ignorant in what
    they need and must rely on provider’s
    recommendations to make decisions.
   Demand for Health Care is partially involuntary
    and often provider-driven rather than
    consumer driven.



                                                      6
Modes of Paying for Health Care

   Out-of-pocket payments
   Individual private insurance
   Employment-based private insurance
   Government financing




                                         7
1) Out-of-Pocket Payments

    Simplest form of financing.
    One Transaction (consumer – client)
    Direct purchase of services by client
     (consumer).
    Out-of-Pocket payments did not satisfy the
     needs of consumers and providers – giving
     impetus for the evolution of health insurance.
    In the US, 2002, out-of-pocket payments
     provided funds for 16% of the total health care
     payments.

                                                       8
Health insurance

   A type of insurance whereby the insurer pays
    the expenses of health care services of the
    insured if the insured becomes sick due to
    covered causes, or due to accidents.
   The insurer may be a private organization or a
    government agency.
   Health Insurance can be privately managed or
    can be part of a government run scheme.



                                                     9
Health Insurance Terms

    Premium
        the regular periodic payment (monthly payment) to the insurer
         to maintain health insurance.
    Deductible
        the amount of covered expenses that must be incurred and
         paid by the insured before benefits become payable by the
         insurer.
    Coinsurance
        The percentage of covered medical expenses a subscriber
         must pay (in excess of the individual or family deductible) in
         conjunction with the percentage paid by the subscriber’s
         insurance plan for covered expenses.
        These amounts are called coinsurance because the
         subscriber and the insurance plan share the cost of health
         care expenses.


                                                                          10
2) Individual Private Insurance

   Individual – Insurer – Provider
   Individual pays premium to the insurer
   Insurer reimburses the provider for services.


     In 2002, individual private insurance policies
      provided for 3% of total payments toward
      health services.



                                                       11
Voluntary Benefit Funds

   Early form of health insurance
   In Europe
   19th century
   In return for paying a monthly sum, people
    received assistance in case of illness.




                                                 12
Early Twentieth Century USA

    Benevolent Societies
        Provided sickness benefits for members.
    Metropolitan Life and Prudential
        Two commercial companies
        10-25 cents weekly premium
        Provided life insurance and expenses of final
         illness.
        Collected premiums on weekly basis
        High administrative costs


                                                         13
Great Depression

    Worldwide economic downturn.
    Started in 1929 and lasted through most of the 1930s.
    Had damaging economic effects around the world,
     mostly the US & Europe.
    The most industrialized countries were the nations that
     were affected the worst
    Cities around the world were hit hard, especially those
     based on heavy industry.
    People became unable to afford health services.



                                                               14
3) Employment-Based Private Insurance

    During the 20th Century
        Hospital became more effective in treatments and became
         places to get well.
        Many patients were unable to pay for hospital care.
    Blue Cross Insurance plans
        Controlled by hospital industry
    Blue Shield Insurance plans
        Controlled by state medical societies.
    Employee and Employer pays insurer who
     reimburses providers.
    In USA, 2002, Employment-Based Private Insurance
     provided for 33% of total health care payments.

                                                                   15
The Blues

  Blue cross was controlled by hospitals.
  Blue shield was controlled by physicians.
  The blues ensured a steady generous income
   for providers




                                                16
Growth of EBPI

  During WWII – Labor Shortage
  Employers competed for labor by on the basis
   of fringe benefits providing health insurance.
  This trend continued after the war.
  In USA, 2002, Employment-Based Private
   Insurance provided for 33% of total health care
   payments.




                                                     17
Commercial Insurer

  Competed with the Blues.
  Commercial insurers changed entirely the
   dynamic of health insurance.
        Experience rating
        Premium are set according to the experience of
         each group in using health services (risk of illness).
    Community Rating
        Used by the blues
        Same premium for community members, despite
         risk of illness.


                                                                  18
Distributive Function of Health Insurance

   Health insurance distributes health services
    according to human need rather than ability to
    pay.
   Experience rating mechanism is less
    distributive than community rating.
   Commercial insurers target low risk groups by
    lower premium available at the blues.
   The blues was forced to switch to experience
    rating to be able to compete.

                                                     19
Health Insurance and Cost

   Health insurance was originally an attempt by
    society to solve the problem of unaffordable
    health care under out-of-pocket system.
   Insurance environment --> increase in cost of
    health care.
   As private insurance became experience rated
    and employment based, people who had low
    income, chronically ill and elderly found it
    difficult to afford private insurance.

                                                    20
4) Government Financing

    In the late 1950s, less than 15% of the elderly
     had any health insurance
        Experience rating
    Poor also didn’t have HI
        Unemployed
        Employed in jobs without HI
        Can’t afford private insurance.
    As a result the government took the
     responsibility to provide these groups with
     health insurance coverage

                                                       21
Medicare

    A federal health insurance program for people age 65
     and older, individuals with disabilities and people with
     end-stage renal disease, regardless of income.
    Medicare was enacted July 30, 1965
    Medicare covers acute care services.
    Medicare has three parts:
        Medicare Part A (Hospitalization Insurance): hospital
         insurance (HI) program is compulsory and covers inpatient
         hospitalization costs.
        Medicare Part B (Supplemental Medical Insurance):
         supplementary medical insurance program is voluntary and
         covers medically necessary physicians’ services, outpatient
         hospital services, and a number of other medical services and
         supplies not covered by part A.


                                                                         22
Medicaid

    A federal public assistance program enacted into law
     in 1966,
    Provide medical benefits to eligible low income
     persons needing health care regardless of age.
    Federally aided, state- administered
    All states but Arizona have Medicaid programs.
    The program is administered and operated by the
     states which receive federal matching funds to cover
     the costs of the program.
    States are required to include certain minimal services
     as mandated by the federal government but may
     include any additional services at their own expense.

                                                               23
Government Involvement

    Redistribution function of HI
        Redistribution of funds from healthy to the sick.
        Redistribution of funds from wealthy to the poor.
  Improved financial access to health services
  Aggravated the problem of rising costs.




                                                             24
The Burden of Health care

   The goal of health care system is…
   Who should carry the burden
   Payments are classified as
         Progressive: taking rising percentage of income as
          income increases.
         Regressive: taking falling percentage of income as
          increases.
         Proportional: taking fixed percentage of income
          regardless of income level.


                                                               25
Who should carry the burden?

   Regressive type is “unhealthy”
   Out-of-pocket payments are regressive.
         In 2002, individual policies provide health insurance
          for only 16% of the total health care payments.
     Experience rated health insurance is another
      regressive method of financing.
         Increased risk of illness correlates with low income.
   Community rating health insurance is
    regressive but less than experience rated.
   EBHI is also regressive way of financing.


                                                                  26
Government Financing

    Government financing is progressive,
     regressive and proportional ?
        Progressive – when funds are from income tax.
        Regressive – when funds from SST & Sales Tax.
        Proportional – combined funds from all taxes.




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