History of Healthcare Finance Flashcards
How much did the US spend on healthcare in 2023?
$4.9 trillion or 17.6% of GDP
What is the healthcare spending in the US projected to be by 2028?
$6.2 trillion
What is GDP?
Gross domestic product
The sum of the value of all the goods and services produced in a country in a year’s time
What is insurance?
A risk transfer mechanism that facilitate shifting the of cost of a risk away from the insured towards the external party (insurer) in exchange for payment of a premium
How is risk transferred?
Transferred from the one person to many people by pooling the risk across a large number of members
Cost of any covered losses are shared by the group
What are the concerns about access to care as a social issue?
Financial accessibility (ability to pay for care or obtain and pay for insurance)
The cost of healthcare itself
Did the development of a means to pay for medical care evolved in parallel with advances in medical care?
Yes
What was the original function of health insurance?
Primarily income stabilization
Referred to as sickness insurance (is disability insurance today)
What was sickness insurance?
Did not emphasize provision of medical services because medicine was limited in what it could offer
Was often ineffective or even made things worse
When did medical science begin to come into its own?
By the mid 1800s
Medical care became more desired as it became more effective
1844 Anesthetics
1853 Aspirin
1861 Germ Theory
1867 Antiseptics
1870’s Vaccines: cholera, rabies, and anthrax
1895 X-Ray
What is the great divide?
A point in time between 1910 and 1912 when, for the first time, a random patient with a random disease consulting a doctor chosen at a random time stood better than a 50-50 chance of benefiting from the encounter
After 1912, patients had an ever increasing expectation that they would not only survive the encounter, but enjoy improved health as a result of the care they received
What did Europe do in the late 1800’s?
They went down the path of government sponsored insurance
Germany and England both instituted compulsory sickness insurance (as a part of a general program of social insurance)
What did the US do in the late 1800’s?
It went down the path of private insurance
1870’s – Grainite Cutters Union establishes sickness insurance for its members
1890’s - Mining, railroad and lumber industries provide medical care to employees
1900 – Aetna Life Insurance Co. and Travelers Insurance Co. offer a new type of health plan providing coverage for temporary total disability caused by all diseases
What were the beginnings of private insurance in the US?
1910 – 1st prepaid plan formed in the lumber industry of Tacoma WA
1929 – 1st hospital prepayment plan at Baylor University Hospital.
1930’s – Blues form as fee for service indemnity plans
1937 - Kaiser-Permanente
What were some obstacles for insurance in the US?
Commercial insurers shunned setting healthcare insurance as it “could not be safely transacted so as to be profitable”
Adverse selection - those who were sick would seek coverage, and those who were health would not (only getting the people who needed it)
Moral hazard - an increase in the hazards presented by a risk arising from the insured’s indifference to loss because of the existence of insurance (if I’m covered I’m going to go as often as I want)
Where did the idea of group coverage (employer groups) come from?
To reduce the adverse selection and moral hazard
It reduced administrative cost and it insured that the risk pool were predominantly a healthy population (the working population)
Don’t need to chase down people to buy insurance anymore
What is a capitated plan?
Paid a set amount of money for a set period of time for all of the individuals they see
What is the fee for service model?
The more they do, the more money they make
Up until WWII, were the individuals usually responsible for the blue cross blue shield (BCBS) premium payment?
Yes
During the war, to counter a freeze on wages, employers began to offer health plan premium payments as an alternative to increased wages
By 1950 almost 150,000,000 Americans had employer provided health insurance
Then it just stayed that way after the war
What is the hill-burton act?
Passed by congress in 1946
Made direct government grants for communities to build hospitals (prior to this, philanthropy played a major role)
Over time this led to a significant increase in access to care and hospital beds
What happened as a result of private insurance?
It left the poor and older adults without coverage
What is an indemnity plan?
An agreement where the insurance company pays a percentage for the care that the insured receive
Many times it was 100%
They can go wherever they want to receive care
The insurer will contractually pay for it
Insurer has no control over cost and quality
What was the social security act of 1965?
Created the medicare program
Arguably the most significant piece of healthcare legislation ever
Reimbursement was based on reasonable cost
BCBS and other large insurers became the administrative agents or fiscal intermediaries (contracted with them to oversee how this is running)
In the mid 1970s, were employers and the government (taxpayers) bearing the cost of healthcare?
Yes
With new technology and new treatments available the healthcare industry expands and consumer utilization expands – Cost rise
What happened as cost and utilization of healthcare rose?
The increase was passed onto employers and the government
The payer had no control over utilization or the cost of treatment and the consumer and providers had no incentive to stem the growth of health care cost – something had to give
What did Nixon do for healthcare?
He sent the Health Maintenance Act to congress in 1973
Response to a surge if health care cost as a percentage of GNP
Bill promoted prepaid health plans as a more cost effective way to provide services
Introduced the term “HMO”
Focus on maintaining health (health maintenance organization) rather than just treating people when they’re sick
When did managed care become a reality?
1980s
Spurred by Federal legislation and dramatic increases in cost, employers and the government took action to contain the utilization of healthcare
People were spending too much on healthcare (they wanted to control that somehow)
What are the sources for payment for healthcare?
Out of pocket
Private
Public
What are the managed care cost control strategies?
Limit consumer choices of providers and services
Payment methods designed to shift financial risk to patients and providers
Utilization management programs
The use of performance outcome measures to evaluate providers
Provider participation limited by restrictions on service coverage and payment
What does it mean to limit consumer choice of providers and services?
Consumer choice limited to contracted network of providers
Increased cost associated with selecting out of network providers
What does it mean to have payment methods designed to shift financial risk to patients and providers?
Co-payments (set amount that the insured has to pay), Coinsurance (percentage that the insured has to pay) and deductibles (pay for 100% of the care until you reach a certain amount - past that, you no longer need to pay, you only need to pay the copay)
Prospective Payment Systems (PPS) that reimburse a set amount per case based on the Diagnostic Related Group (DRG) the patient falls into (group diagnoses based on what resources and the amount they need; and reimburse based on that group; in opposition with the retrospective outpatient model)
Capitated Contracts ($ Per patient per period)
What is the allowed?
Contracted rate for service (amount the procedure costs)
Many times the patient will be responsible for some of that and the insurer will pay the balance
What is utilization management?
Practices and processes employed to influence the use of health care services
What are some examples of utilization management?
Primary Care Gate Keepers
Case Management
Preauthorization (must proceed with correct authorization)
Concurrent utilization reviews (making sure they have all the necessary information on the claim and have used codes that are appropriate in the discipline - need to do the review to pay you)
Retrospective reviews (done after the concurrent reviews after you were paid, can be denied after the fact)
Coverage restrictions (not going to cover the test/procedure)
Application of Best Practices (providing care with evidence behind it)
Standardized plans of care
What does it mean to have provider participation limited by restrictions on service coverage and payment?
Contractual and Legislative restrictions on for-profit referral arrangements (restrictions on certain types of referrals)
Prohibitions on over-utilization
Anti-kickback provisions and laws
What is a PPO?
Type of insurance plan
Preferred provider organization
Pay less if you use providers that are in-network
What is an HMO?
Organization that is insuring them is providing the care
Insurer has 100% control of the cost and quality
Lower premiums
Does indemnity plans have higher premiums?
Yes
What is an open panel HMO?
Includes closely managed provider systems
What are closed panel HMOs?
Require utilization of a full-service internal provider system
Can only get care in the system that insures them
What are cost drivers for healthcare?
We pay our doctors, hospitals and other medical providers in ways that reward doing more, rather than being efficient
We’re growing older, sicker and fatter (more comorbidities and conditions)
We want new drugs, technologies, services and procedures
We get tax breaks on buying health insurance — and the cost to patients of seeking care is often low (don’t pay taxes on those benefits in the 1950s - some limitations on that today)
We don’t have enough information to make decisions on which medical care is best for us (cannot shop for it)
Our hospitals and other providers are increasingly gaining market share and are better able to demand higher prices
We have supply and demand problems, and legal issues that complicate efforts to slow spending
What was everything that happened with insurance in the 20th century?
Insurance policies came to be comprehensive
Public and private funding became available
Group insurance offered through employers became dominant
Reimbursement mechanisms have expanded to share risk with providers
The cost of healthcare began to rise
Is risk management a cost driver?
Yes
Malpractice awards (contributes less than 1% to overall cost)
Defensive medicine (contributes to 12% to overall cost) - don’t really need a test, but do it anyway out of concern
