Ch 2

Question 1

Pooling of Losses

Answer 1

Losses are spread over a large group of individuals so each individual pays the average loss of the pool rather than the actual loss

Question 2

Payment Only For Random Losses

Answer 2

Insurance is based on the premise that payments are made only for losses that are random

Question 3

Risk Transfer

Answer 3

The transfer of risk from insured to insurer, who typically is in a better financial position to bear the risk

Question 4

Indemnification

Answer 4

Reimbursement to the insured if a loss occurs

Question 5

What is adverse selection and how do insurers deal with this problem?

Answer 5

Individuals who are more likely to have claims are more inclined to purchase insurance, which can trigger a premium increase

This is mitigated by creating a large, well diversified pool of subscribers

Question 6

What is the Moral Hazard problem and how is it mitigated?

Answer 6

When someone else is paying the cost, patients consume more healthcare services

Mitigated by co insurance or copays, which require subscribers to pay a certain percentage or amount of eligible medical expenses

Question 7

Briefly describe the major Third Party Payers

Answer 7

Blue Cross Blue Shield: National Association sets standards that must be met to use the blue cross/blue shield name. A number of separate insurance programs offered by hospitals or physicians, consolidated into larger programs. Majority group policies

Commercial Insurers: organized either as stock or mutual companies. Stock companies are shareholder owned and can raise capital through selling shares of stock, but assume risks of ownership and management. Mutual companies have no shareholders, but instead a board of directors. Both are taxable entities. Mostly group policies covered by employer or union.

Self Insurers: make a conscious decision to bear the risks associated. Most large groups are self insured

Question 8

Medicare

Answer 8

65+ federal government health insurance program. also covers healthcare costs associated with selected disabilities and illnesses (such as kidney failure) regardless of age. 4 major coverages

A: hospital and skilled nursing home
B: Physician, med surg, outpatient
D: prescriptions
C: combines parts a,b, and d. Called Medicare advantage

Overseen by DHHS (department of health and human services)
HHS has Medicare agency called CMS (center for Medicaid and Medicare services) that administers Medicaid

Question 9

Medicaid

Answer 9

Fed & state government insurance program that supports low income individuals

Question 10

Describe Managed Care Plans and the types

Answer 10

Combined effort by the insurer and a group of providers to increase quality of care and decrease costs

HMO: Insured trades decreased access for decreased cost. By combining the financing and delivery of comprehensive healthcare services into a single system, HMOs theoretically have as strong an incentive to prevent as to treat illnesses.

PPO: Do not mandate that users choose specific providers but do incentivize them to use provider panel, typically through a service discount

Question 11

Capitation

Answer 11

Capitation: provider is paid a fixed amount regardless of amount of services. the key to provider success is to work harder, increase utilization, and hence increase profits; under capitation, the key to profitability is to work smarter and decrease utilization. As with prospective payment, capitated providers have the incentive to reduce costs, but now they also have the incentive to reduce utilization. Thus, only those procedures that are truly medically necessary should be performed, and treatment should take place in the lowest-cost setting that can provide the appropriate quality of care.

Question 12

Provider incentives under cost based reimbursement

Answer 12

Based on costs incurred in providing services. providers are given a “blank check” in regards to acquiring assets and incurring operating costs. services that may not truly be required will be provided because more services lead to higher costs, which mean higher revenues

Question 13

Provider incentives under charge based reimbursements

Answer 13

Payers pay billed charges according to a chargemaster (list of services provided and their costs). providers have the incentive to set high charge rates, which leads to high revenues. However, in highly competitive markets, there will be a constraint on how high providers can go. Because billed charges is a fee-for-service type of reimbursement, in which more services result in higher revenue, a strong incentive exists to provide the highest possible amount of services.

Question 14

Provider incentives under per procedure reimbursement

Answer 14

physicians, have the incentive to perform procedures that have the highest profit potential. Furthermore, the more procedures, the better, because each procedure generates additional revenue

Question 15

Provider incentives under per diagnosis reimbursement

Answer 15

Providers, usually hospitals, will seek patients with those diagnoses that have the greatest profit potential, and they will discourage (even discontinue) those services that have the least potential.

Question 16

Provider incentives under per diem reimbursement

Answer 16

the provider is paid a fixed amount for each day that service is provided, regardless of the nature of the services. Per diem rates may be stratified by the type of care; for example, a hospital may be paid one rate for a medical/surgical day, a higher rate for a critical care unit day, and yet a different rate for an obstetrics day. Per diem rates may also vary over the course of a patient’s stay. For example, the early days of a stay may be paid at higher rates than the later days in order to recognize that service intensity is highest when the patient is first admitted. Per diem reimbursement applies only to inpatient settings

Question 17

Provider incentives under bundled payment for reimbursement

Answer 17

a form of fee-for-service reimbursement in which a single sum covers all healthcare services related to a specific procedure. The objective of bundled payments is to promote more efficient use of resources and reward providers for improving the coordination, quality, and efficiency of care. If the cost of services is less than the bundled payment, the physicians and other providers retain the difference. But if the costs exceed the bundled payment, physicians and other providers are not compensated for the difference

Question 18

What medical coding systems are used to support fee for service payment methodologies?

Answer 18

ICD: International Classification of Diseases, numerical codes for designating

CPT: Current Procedural Terminology, codes applied to medical, surgical, and diagnostic procedures

Question 19

Fee For Service

Answer 19

use preadmission certification, utilization review, second surgical opinions, and other managed care strategies to control inappropriate utilization.

Question 20

Insurance Standards Under ACA

Answer 20

• Children and dependents are permitted to remain on their parents’ insurance plans until their twenty-sixth birthday.
• Insurance companies are prohibited from dropping policyholders if they become sick and from denying coverage to individuals due to preexisting conditions.
• Individuals have a right to appeal and request the insurer to review denial of payment.

Question 21

Cost Regulations under the ACA

Answer 21

• Insurers are required to charge the same premium rate to all applicants of the same age and geographic location, regardless of preexisting conditions or sex.
• Insurers are required to spend at least 80 percent to 85 percent of premium dollars on health costs and claims instead of on administrative costs and profits. If this is violated, then the insurer must issue rebates to policyholders.
• Lifetime limits on most benefits are prohibited for all new health insurance plans.

Question 22

Care Regulations under ACA

Answer 22

• All plans must now include essential benefits, such as ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services; prescription drugs; laboratory services; preventive and wellness services; and chronic disease management and pediatric services, including oral and vision care.
• Preventive services, such as childhood immunizations, adult vaccinations, and basic medical screenings, must be available to patients free of charge.
• Individuals are permitted to choose a primary care doctor outside the plan’s network.
• Individuals can seek emergency care at a hospital outside the health plan’s network.

Question 23

Individual Mandate

Answer 23

All eligible individuals (US citizens and legal residents) who are not covered by an employer-sponsored health plan, Medicaid, or Medicare are required to have a health insurance policy or face tax penalties. Individuals are required to maintain minimum essential coverage for themselves and their dependents. Individuals who do not have minimum levels of coverage and do not qualify for an exemption are required to pay a penalty to the Internal Revenue Service at the end of each tax year.

Question 24

Health Insurance Exchange

Answer 24

People who have no employer-sponsored insurance, the unemployed, or the self-employed can purchase coverage through health insurance exchanges (HIEs). HIEs are online marketplaces, where people can research and review their options and purchase health insurance.

Question 25

Medicaid Expansion

Answer 25

Nearly all US citizens and legal residents between the ages of 19 and 64 who have household incomes below 133 percent of the federal poverty level now qualify for Medicaid. This expansion benefits childless adults who previously did not qualify for Medicaid regardless of their income level, as well as low-income parents who previously did not qualify even if their children did qualify. As a result, it is estimated that an additional 16 million people will receive coverage through Medicaid.

Question 26

Value Based Purchasing

Answer 26

hospitals are encouraged to improve the quality and safety of the care they provide to Medicare beneficiaries as well as other patients during inpatient stays by receiving bonus payments. The amounts of these payments are based on how closely the institution followed best clinical practices, how well it enhanced patients’ care experiences, how well it achieved a quality measure, and how much it has improved on each measure compared to its performance during the baseline period.

Question 27

Quality Based Compensation

Answer 27

part of Medicare’s effort to shift medicine away from the volume-based focus, where clinicians are paid for each service regardless of quality. Clinicians can earn additional compensation based on the quality of care they provide to their patients. Bonuses and penalties are calculated on the basis of performance on quality measures, which vary by specialty.

Question 28

Shared Savings Programs

Answer 28

an approach to reducing healthcare costs and, potentially, a mechanism for encouraging the creation of ACOs. Under shared savings, if a provider reduces total healthcare spending for its patients below the level that the payer expected, the provider is then rewarded with a portion of the savings.

Question 29

Readmission Reduction Program

Answer 29

Medicare has the authority to penalize hospitals if they experience excess readmission rates compared to expected levels of readmission. The readmissions are based on a 30-day readmission measure for heart attack, heart failure, and pneumonia.

Question 30

Hospital Acquired Conditions

Answer 30

hospitals will be penalized by Medicare for hospital-acquired conditions. Hospital-acquired conditions include bedsores, infections, complications from extended use of catheters, and injuries caused by falls. Hospitals will face a 1 percent reduction in Medicare inpatient payments for all discharges if the hospital ranks in the top 25 percent of hospital-acquired conditions for all hospitals in the previous year.