(2006a), in its 2006 Employer Health Benefits Survey, reported an 87% increase in premiums since 2000, and noted an increase to $11,480 for the average family group policy, with the cost to workers at just under $3,000 annually. How- ever, the Foundation also noted that the increase in premiums for 2006 (7.7%) was down from the past 2 years (9.2% and 13.9%, respectively). See Figure 6.5 for trends in health insurance premium costs as compared to wages and overall inflation.
The most chilling fact is that a minimum-wage worker in 2005 earned an average of $10,712, but the cost of an annual premium for a family of four averaged $10,880—
helping to explain the large number of uninsured Americans (Colliver, 2005). Employers are either not offering health insurance or are passing along the higher costs to employees in the form of higher employee premiums, deductibles, co- payments, and stricter enrollment requirements. According to a study by the Agency for Healthcare Research and Qual- ity (Stanton & Rutherford, 2004), even though offers of workplace health insurance increased from 1996 to 2002, eligibility and enrollment rates dropped—mostly because of rising employee costs (e.g., over 65% increases in employee premium contributions). In 2003, about 5 million fewer jobs provided health insurance, even though employers shopped around for the best value and about one-third either changed insurance carriers or changed the type of insurance plan offered to employees (Gabel et al., 2004). The number of small companies offering health plans continues to decline, and state efforts to reform small-group health insurance have been relatively unsuccessful in increasing the numbers of employers offering coverage (Gabel et al., 2004; RAND Health, 2005).
About 25% of Americans who are insured are under- insured, and 33% report problems accessing medical care, as well as paying for it. They often exhaust their savings, run up credit card debt, or else delay necessary medical care to avoid going into debt (RAND Health, 2006; Forbes, 2007).
Travelers, and Connecticut General (CIGNA). A second type of insurer operates in the national marketplace and is owned by policyholders—a mutual company. Examples are Mutual of Omaha, Prudential, and Metropolitan Life. The third type, nonprofit insurance plans, includes companies such as Blue Cross, Blue Shield, and Delta Dental. These operate under special state-enabling laws that give them an exclusive franchise to the whole state (or a part of it) and to a specific type of insurance. For example, traditionally, Blue Cross sold only hospital coverage; Blue Shield, only medical insurance; and Delta Dental, only dental insurance. Because they are nonprofit, they are tax exempt and, at the same time, subject to tighter state regulation than are the commercial health insurance companies. Combined, the nonprofit and commercial carriers have sold most of the private health insurance in the United States over the last decade (Lee, Estes, & Rodriguez, 2003).
A recent trend in private insurance is the move to consumer-directed or consumer-driven health plans (CDHP)and health savings accounts (HSAs). Beginning in 2004, legislation provided for tax-exempt HSAs tied to high- deductible health insurance plans that can be rolled over yearly and move with the employee (Gabel, Pickreign &
Whitmore, 2006). The high deductibles (e.g., over $1,100 for an individual and over $2,200 for a family) allow for lower premiums, but the attendant HSAs can only be used on med- ical expenses—nothing else—or tax-exempt status is lost and a penalty is also incurred (Mayo Clinic, 2007). Most plans require employees to pay a percentage of their total health costs (coinsurance, e.g., 20%)—not just a small co-payment per office visit or prescription as in many other plans. Some think that this improves cost sharing—whereby the insured assumes a greater share of health care costs, without a third- party payer intervening. Others think that this trend will not result in expanded coverage for the uninsured, and may lead to more employees forgoing health insurance offered by their employers (Glied & Remier, 2005).
Employers may or may not contribute to HSAs, and when they do, the cost savings in premiums are nullified and the accounts usually cannot be moved to a new employer.
Only about 4% of workers are enrolled in these types of plans, and 39% of those who did enroll in 2006 had no other choice of health plan. When given a choice, few workers have chosen CDHPs, even though premiums are lower than for any other type of plan (Gabel, Pickreign, & Whitmore, 2006). See Table 6.4 for a comparison of premium costs for CDHP and other forms of health insurance.
A large-scale study of the effect of cost on compliance with antihyperlipidemic (cholesterol-lowering) therapy found that for every $10 increase in prescription co-payment, patient compliance levels fell by 5%. Researchers concluded that lowered patient compliance with medication regimens was inversely related to utilization of expensive medical services (e.g., emergency room [ER] visits, hospitalizations); in other words, when people didn’t properly take their medications (or stopped taking them), they were more likely to need hospital- ization, thereby increasing health care costs. These researchers also provided projections showing that requiring no prescription drug co-payments for high-risk patients would result in fewer hospitalizations and ER visits, for savings of more than $1 billion (Goldman, Joyce, & Karaca-Mandic, 2006).
Independent or Self-insured Health Plans Independent or self-insured health plans underwrite the remaining private health insurance in the United States.
These plans have been offered through a limited number of organizations, such as large businesses, unions, school districts, consumer cooperatives, and medical groups.
Employers with self-insured plans take on all or a major part of the risk for health care costs of their employees. These plans may be self-administered or utilize third-party claims administrators. Minimum premium plans are another form of self-insurance for which employers pay medical costs up to an agreed-upon limit, and insurers assume responsibility for the excess claims (Bureau of Labor Statistics, 2002).
Self-insurance plans are not subject to regulation by the states, and it is estimated that 54% of employees receiving work-related insurance benefits are part of self-insurance plans (Dow, Harris, & Liu, 2006; Lawlor & Hall, 2005).
Government Health Programs
Government health programs make up the next largest source of third-party reimbursement in the United States.
The government’s four major health insurance programs are Medicare, Medicaid, the Federal Employees Health Benefits Plan, and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). As a whole, the proportion of government funding of health care in the United States is less than that of many other countries. Of the government’s health insurance programs, Medicare and Medicaid are the largest. Medicare pays the majority of health care costs (56%) for citizens age 65 and older, while private insurance pays for 54% of health care costs for those under age 65 (Goldman & McGlynn, 2005). In 2005, Medicare covered 42.5 million people at a cost of $330 billion for health care 146
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UNIT 2 Public Health Essentials for Community Health NursingTABLE 6.4
Comparison of Consumer- Directed Health Plans with Other Health Plans When Enrollees Have a Choice of Plans, 2006
CDHP HMO PPO POS
Monthly premium, single $299 $339 $364 $363
Monthly employer $243 $288 $303 $307
contribution*
Monthly employee $56 $51 $61 $56
contribution
Average single deductible, $1,459 $30 $261 $94 in-network
% Employees with office 15% 95% 79% 98%
visit co-payments
*Average monthly employer contribution to CDHP savings account
$54 in addition to premium.
Adapted from Gabel, J.R., Pickreign, J.D., & Whitmore, H. (2006).
Behind the slow growth of employer-based consumer-driven health plans. Center for Studying Health System Change, Issue Brief No. 107, ¶14.
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costs (Centers for Medicare & Medicaid Services [CMMS], 2006). Spending for Medicaid in 2006 was $180.6 billion (Center on Budget & Policy Priorities, 2006). Less than half of the total health care expenditure per person is paid by public sources in the United States, compared with the United Kingdom (England) at close to 90% and Canada at 71% (Cylus & Anderson, 2006; Lemieux, 2006; Organiza- tion for Economic Cooperation & Development, 2007).
Medicare and Social Security Disability Insurance
Medicare, known as Title XVIII of the Social Security Act Amendments of 1965, has provided mandatory federal health insurance since July 1, 1966, for adults age 65 years and older who have paid into the Social Security system. It also covers certain disabled persons. Medicare is the largest health insurer in the United States, covering about 16% of the population. Of the approximately 42 million beneficiaries, over 7 million qualify for Social Security Disability Insurance (SSDI); these recipients are younger than age 65 and permanently disabled or chronically ill (CMMS, 2007; Kaiser Family Foundation, 2006b). The Medicare population is projected to grow to 44.5 million by 2008, and to more than 63 million by 2027, and their share of GDP is expected to grow from just under 3% in 2005 to over 9% in 2050 (Van de Water & Lavery, 2006) (see Figs 6.6 and 6.7).
Medicare is administered by the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration—HCFA) of the U.S. Department of Health and Human Services.
Part A of Medicare, the hospital insurance program, covers inpatient hospitals, limited-skilled nursing facilities, home health, and hospice services to participants eligible for Social Security. It is financed through trust funds derived from employment payroll taxes. A total tax of 2.8% of employee wages is split between the employer and employee.
These payroll taxes, along with interest earned on trust fund investments, provide the income for this program (Van de Water & Lavery, 2006).
Part B, the supplementary and voluntary medical insur- ance program, primarily covers physician services, but also covers home health care for beneficiaries not covered under
part A. It is funded through enrollee monthly premiums ($88.50 in 2006) (Van de Water & Lavery, 2006).
Part D, the prescription benefit plan added through the Medicare Prescription Drug, Improvement and Moderniza- tion Act of 2003 cost just over $27 monthly in 2007—
although premiums can vary across regions, with plans from $9.50 for a basic prescription drug plan (PDP) to $135 for a PDP with enhanced benefits (Van de Water & Lavery, 2006; Kaiser Family Foundation, 2007a).
Medicare was managed in the same manner for more than 30 years until August 1997, when President Clinton signed the Balanced Budget Act (PL No. 105–33). This act, which took effect in 1998, provided Medicare beneficiaries with markedly different options. Among the most signifi- cant alterations brought about by the Balanced Budget Act are those to the fast-growing managed-care side of Medicare (Kaiser Family Foundation, 2001). To control CHAPTER 6 Structure and Economics of Community Health Services
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147Spending as % of Gross Domestic
Product
2.7%
17.2%
36.8%
15 years 3.3%
20.4%
42.8%
14 years
3.5%
20.2%
44.5%
10 years 3.7%
20.3%
45.6%
8 years
4.0%
20.8%
47.9%
6 years Spending as % of
National Health Expenditures Years to HI Trust
Fund Depletion (2005 projections) General Revenue
as a Share of Total Medicare
Spending
2005 2006 2010 2012 2014
F I G U R E 6.6 Measures of Medicare spending, 2005–
2014. (From Fact sheet: Medicare spending & financing.
[2005, April]. Kaiser Family Foundation, Publication No.
7305. This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, private operating foundation focusing on the major health care issues facing the nation and is not associated with Kaiser Permanente or Kaiser Industries.)
1966 19 20
34 40
46 61
78
4.0 3.9 3.7
2.9 2.4
1970 1990 2000 2010 2020 2030 2000 2003 2010 2020 2030 Number of workers
per beneficiary Number of beneficiaries
(in millions)
F I G U R E 6.7 Historical and projected number of Medicare beneficiaries and number of workers per beneficiary. (From Fact sheet: Medicare spending & financing.[2005, April]. Kaiser Family Foundation, Publication No. 7305. This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a non- profit, private operating foundation focusing on the major health care issues facing the nation and is not associated with Kaiser Perma- nente or Kaiser Industries.)
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Medicare costs while expanding the range of available health care options, beneficiaries were offered a program called Medicare Plus Choice Plans. This program was an effort to accelerate the migration of patients away from Medicare’s traditional and more expensive fee-for-service (FFS) program into various managed care options.
Enrollees opting to remain in traditional Medicare contin- ued to be covered by the traditional FFS program, which gives patients unlimited choice of doctors, hospitals, and other providers. Those moving to the Medicare Plus Choice plans have a limited choice of providers but, in return, are offered options such as joining coordinated care plans, including health maintenance organizations (HMOs), pre- ferred provider organizations (PPOs), provider-sponsored organizations, private FFS plans, and on a limited basis, medical savings account plans. As benefit coverage for these managed care plans was cut and premiums increased, along with cost sharing for physician and hospital visits, a good number of seniors chose to return to the traditional Medicare coverage (Gold & Achman, 2002). For more information on Medicare trends and concerns about its sol- vency, see Chapter 24.
Medicaid
Medicaid, known as Title XIX of the Social Security Act Amendments of 1965, provides medical assistance for children; for those who are aged, blind, or disabled; and for people who are eligible to receive federally assisted income maintenance payments (CMMS, 2005). In 2001, almost 44 million Americans received Medicaid-sponsored health and long-term care (Kaiser Family Foundation, 2001). It is jointly funded between federal and state gov- ernments to assist the states in providing adequate medical care to eligible needy persons. The states have some dis- cretion in determining which groups their Medicaid pro- grams will cover and the financial criteria for Medicaid eligibility, as well as the scope of services, rate of payment, and how the program will be administered (CMMS, 2005).
To be eligible for federal funds, however, states are required to provide Medicaid coverage for most individu- als who receive federally assisted income maintenance pay- ments (welfare), as well as for related groups not receiving cash payments (especially the elderly). The states deter- mine the type, amount, duration, and scope of services.
According to the Centers for Medicare and Medicaid Ser- vices (2005), the following are examples of mandatory Medicaid eligibility groups:
◆ Citizens on federally assisted income maintenance, including Supplemental Security Income recipients
◆ Offspring of Medicaid-eligible pregnant women
◆ Children younger than 6 years and pregnant women who meet the state’s assisted income main- tenance requirements or whose family income is at or below 133% of the federal poverty level (FPL)
◆ Children on adoption assistance and foster care under Title IV of the Social Security Act
◆ Medicare beneficiaries (qualified disabled workers and certain poor Medicare recipients)
◆ Protected groups who lose cash assistance because of the cash programs’ rules (e.g., earnings from
work or increases in Social Security benefits—may keep Medicaid for a period of time)
◆ Minors born after September 30, 1983, who are under age 19, from families at or below the FPL Optional “categorically related” groups also exist, which states may or may not choose to cover (¶ 7). These include infants and pregnant women with a family income at or below 185% of the FPL, people under age 21 who meet more liberal criteria than those listed above, individuals who are institu- tionalized or are receiving care under waivers for home and community-based services, some working disabled persons, some TB-infected persons, women with low incomes who need breast and cervical cancer screenings, and “medically needy” persons (often elderly who must spend down their resources in order to be covered for long-term care) (¶ 9).
Coverage includes preventive, acute, and long-term care services. Potential Medicaid recipients must apply for coverage and prove their eligibility in terms of category and limited income. About 65% of Medicaid funds are spent on the elderly and disabled, with 25% going to chil- dren and adults with low incomes (Kaiser Family Founda- tion, 2001).
Medicaid has historically reimbursed providers at a lower rate than Medicare and other insurances, and this has caused problems with access to care. Even with lower reim- bursement rates, costs continue to rise. As with Medicare, Medicaid programs moved to a managed care concept, fol- lowing mandates within the Balanced Budget Act of 1997.
In 2006, over 29 million Medicaid enrollees participated in a managed care plan (Kaiser Family Foundation, 2006c).
The move has not been without its problems for those receiving Medicaid. Medicaid beneficiaries are economi- cally disadvantaged, frequently reside in medically under- served areas, and often have more complex health and social needs than do Americans with higher incomes. Early evi- dence on the implementation of Medicaid managed care showed “some improvement in access to a regular provider but more difficulties in obtaining care and dissatisfaction with care” compared with those in Medicaid FFS (Kaiser Family Foundation, 2001, ¶12). In recent years, many peo- ple who were never before eligible for Medicaid benefits have become eligible as a result of downward national eco- nomic trends, company downsizing, and corporate scandals.
Subsequent to these economic issues, families have lost employer-subsidized health care benefits, and some now find themselves among those eligible for Medicaid managed care programs.
Medicaid’s use of managed care has grown dramati- cally. The percentage of Medicaid recipients enrolled in a broad array of managed care arrangements increased from just below 10% in 1991 to almost 56% in 2000. However, during that same time, the number of commercial plans withdrawing from the Medicaid market increased, and new plans entering the market decreased (Kaiser Family Foun- dation, 2001). The future success of Medicaid managed care depends on the adequacy of the capitation rates (fixed amounts of money paid per person by the health plan to the provider for covered services) and the ability of state and federal governments to monitor access and quality.
Quality performance standards are evolving. Ensuring access and quality of care in a managed care environment 148
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will require fiscally solvent plans, established provider net- works, education of providers and beneficiaries about man- aged care, and awareness of the unique needs of the Med- icaid population.
State Children’s Health Insurance Plan In 1997, as another part of the Balanced Budget Amendment, the State Children’s Health Insurance Plan (SCHIP) pro- vided health coverage to uninsured children under age 19 for families caught in the gap between Medicaid and affordable health insurance (Congresspedia, 2007; FirstGov, 2007). All 50 states participate, and for little or no cost, provide insur- ance for hospitalization, physician visits, prescription drugs, and in some cases dental and vision services (FirstGov, 2007). There are variations among the states, but SCHIP is geared to working families who may earn up to $34,100 yearly for a family of four (FirstGov, 2007). In 2007, SCHIP coverage was expanded by imposing an excise tax on tobacco products (Congresspedia, 2007).
Other Government Programs
In addition to third-party reimbursement, the government offers some direct health services to selected populations, including Native Americans, military personnel, veterans, merchant marines, and federal employees. Government support, largely through grants administered through the CDC, provides immunizations and well-child care, as well as prenatal care and other programs at the state and local level.
Payment Concepts in Health Care
Reimbursement for health care services generally has been accomplished through one of two approaches: retrospective or prospective payment. Conceptually, these approaches are polar opposites. It is helpful to understand their differences and their meaning for the financing and delivery of health services, past and present.
Retrospective Payment
A traditional form of reimbursement for any kind of service, including health care, is retrospective payment, which is reimbursement for a service after it has been rendered. A fee may be established in advance. However, payment of that fee occurs after the fact, or retrospectively. This is known as the fee-for-service (FFS) approach (Cutler, 2004; Newhouse, 2002).
In health care, limited accountability in the use of retrospective payment has created several problems. With third-party payers (e.g., insurance companies, the govern- ment) serving as intermediaries, neither consumers nor providers of health services were accountable for containing costs. Patients and providers alike often insisted on expen- sive or unnecessary tests and treatments. Because reim- bursement was made retrospectively by the insuring agency, there was no incentive to keep a lid on this spending. Third- party reimbursement increased, along with other factors, to create an inflationary spiral of escalating costs. Abuse of the FFS system made it more difficult to develop retrospective payment for other health care providers, including nurses (Chang, Price, & Pfoutz, 2001).
A further problem associated with the FFS concept was its tendency to encourage sickness care rather than wellness services. Physicians and other providers were rewarded financially for treating illness and for providing additional tests and services. There were few incentives for prevention or health promotion in an industry that reaped its revenues from keeping hospital beds full and caring for the sick and injured. Although retrospective payment worked well in other industries, from a cost-containment as well as a public health perspective, it was problematic in health care.
Prospective Payment
Prospective reimbursement, although not a new concept, was implemented for inpatient Medicare services in 1983, in response to the health care system’s desperate need for cost containment (Newhouse, 2002). It has since influenced the Medicaid program, as well as private health insurers. The prospective payment form of reimbursement has virtually eliminated the retrospective payment system (Chang, Price, &
Pfoutz, 2001; Newhouse, 2002). Prospective payment is a payment method based on rates derived from predictions of annual service costs that are set in advance of service delivery.
Providers receive payment for services according to these fixed rates, set in advance. Payments may be in the form of pre- miums paid before receipt of service or in response to fixed- rate (not cost) charges. To correct unlimited reimbursement patterns and counteract disincentives to contain costs, prospec- tive payment involves four classic steps (Dowling, 1979):
1. An external authority is empowered (by statute, market power, or voluntary compliance by providers) to set provider charges, third-party payment rates, or both.
2. Rates are set in advance of the prospective year during which they will apply and are considered fixed for the year (except for major, uncontrollable occurrences).
3. Patients, third-party payers, or both pay the prospective rates rather than the costs incurred by providers during the year (or charges adjusted to cover these costs).
4. Providers are at risk for losses or surpluses.
The concept of prepayment, or consumers paying in advance of health care, has existed for many years. As far back as 1933, prepaid medical groups were advocated to reduce costs and make services more accessible (Premera, 2007). Examples of early plans were the Health Insurance Program of Greater New York City and the Kaiser Plan (Chang, Price, & Pfoutz, 2001). The success of these two plans helped to influence the growth of the HMO, a type of managed care discussed later in this chapter.
Prospective payment imposes constraints on spending and provides incentives for cutting costs. The federal govern- ment, as mentioned earlier, enacted a prospective payment plan (Social Security Amendments Act 1983; see Landmark Health Care Legislation). The plan is a billing classification system known as diagnosis-related groups (DRGs). The system is based on about 500 diagnosis and procedure groups.
It provides fixed Medicare reimbursement to hospitals based on weighted formulas (Newhouse, 2002). Flat rates of pay- ment are based on average national costs for a specific group, CHAPTER 6 Structure and Economics of Community Health Services
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