Kaiser Permanente - Who's Paying For condition Care?
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America spent 17.3% of its gross domestic product on health care in 2009 (1). If you break that down on an personel level, we spend ,129 per man each year on health care...more than any other country in the world (2). With 17 cents of every dollar Americans spent holding our country healthy, it's no wonder the government is determined to reform the system. Despite the breathtaking concentration health care is getting in the media, we know very itsybitsy about where that money comes from or how it makes its way into the system (and rightfully so...the way we pay for health care is insanely complex, to say the least). This convoluted system is the unfortunate result of a series of programs that exertion to operate spending layered on top of one another. What follows is a systematic exertion to peel away those layers, helping you come to be an informed health care buyer and an incontrovertible debater when discussing "Health Care Reform."
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Who's paying the bill?
The "bill payers" fall into three certain buckets: individuals paying out-of-pocket, private assurance companies, and the government. We can look at these payors in two dissimilar ways: 1) How much do they pay and 2) How many people do they pay for?
The majority of individuals in America are insured by private assurance companies via their employers, followed second by the government. These two sources of cost combined account for close to 80% of the funding for health care. The "Out-of-Pocket" payers fall into the uninsured as they have chosen to carry the risk of medical charge independently. When we look at the estimate of money each of these groups spends on health care annually, the pie shifts dramatically.
The government currently pays for 46% of national health care expenditures. How is that possible? This will make much more sense when we eye each of the payors individually.
Understanding the Payors
Out-of-Pocket
A adopt part of the people chooses to carry the risk of medical expenses themselves rather than buying into an assurance plan. This group tends to be younger and healthier than insured patients and, as such, accesses medical care much less frequently. Because this group has to pay for all incurred costs, they also tend to be much more discriminating in how they passage the system. The result is that patients (now more appropriately termed "consumers") comparison shop for tests and elective procedures and wait longer before seeking medical attention. The cost formula for this group is simple: the doctors and hospitals fee set fees for their services and the patient pays that estimate directly to the doctor/hospital.
Private Insurance
This is where the whole system gets a lot more complicated. private assurance is purchased either individually or is in case,granted by employers (most people get it through their boss as we mentioned). When it comes to private insurance, there are two main types: Fee-for-Service insurers and Managed Care insurers. These two groups arrival paying for care very differently.
Fee-for-Service:
This group makes it relatively uncomplicated (believe it or not). The boss or personel buys a health plan from a private assurance company with a defined set of benefits. This advantage box will also have what is called a deductible (an estimate the patient/individual must pay for their health care services before their assurance pays anything). Once the deductible estimate is met, the health plan pays the fees for services in case,granted throughout the health care system. Often, they will pay a maximum fee for a service (say 0 for an x-ray). The plan will require the personel to pay a copayment (a sharing of the cost in the middle of the health plan and the individual). A typical industry accepted is an 80/20 split of the payment, so in the case of the 0 x-ray, the health plan would pay and the patient would pay ...remember those annoying medical bills stating your assurance did not cover all the charges? This is where they come from. Other downside of this model is that health care providers are both financially incentivized and legally bound to perform more tests and procedures as they are paid added fees for each of these or are held legally accountable for not ordering the tests when things go wrong (called "Cya or "Cover You're A**" medicine). If ordering more tests in case,granted you with more legal safety and more compensation, wouldn't you order anything justifiable? Can we say misalignment of incentives?
Managed Care:
Now it gets crazy. Managed care insurers pay for care while also "managing" the care they pay for (very clever name, right). Managed care is defined as "a set of techniques used by or on behalf of purchasers of health care benefits to conduct health care costs by influencing patient care decision making through case-by-case assessments of the appropriateness of care prior to its provision" (2). Yep, insurers make medical decisions on your behalf (sound as scary to you as it does to us?). The former idea was driven by a desire by employers, assurance companies, and the public to operate soaring health care costs. Doesn't seem to be working quite yet. Managed care groups either contribute medical care directly or contract with a adopt group of health care providers. These insurers are added subdivided based on their own personal management styles. You may be well-known with many of these sub-types as you've had to choose in the middle of then when choosing your insurance.
Preferred provider assosication (Ppo) / Exclusive provider assosication (Epo):This is the closet managed care gets to the Fee-for-Service model with many of the same characteristics as a Fee-for-Service plan like deductibles and copayments. Ppo's & Epo's contract with a set list of providers (we're all well-known with these lists) with whom they have negotiated set (read discounted) fees for care. Yes, personel doctors have to fee less for their services if they want to see patients with these assurance plans. An Epo has a smaller and more strictly regulated list of physicians than a Ppo but are otherwise the same. Ppo's operate costs by requiring preauthorization for many services and second opinions for major procedures. All of this aside, many consumers feel that they have the most estimate of autonomy and flexibility with Ppo's.
Health management assosication (Hmo): Hmo's integrate assurance with health care delivery. This model will not have deductibles but will have copayments. In an Hmo, the assosication hires doctors to contribute care and either builds its own hospital or contracts for the services of a hospital within the community. In this model the physician works for the assurance provider directly (aka a Staff Model Hmo). Kaiser Permanente is an example of a very large Hmo that we've heard mentioned oftentimes during the new debates. Since the company paying the bill is also providing the care, Hmo's heavily emphasize preventive rehabilitation and former care (enter the Kaiser "Thrive" campaign). The healthier you are, the more money the Hmo saves. The Hmo's emphasis on holding patients salutary is commendable as this is the only model to do so, however, with complex, lifelong, or developed diseases, they are incentivized to contribute the minimum estimate of care vital to reduce costs. It is with these conditions that we hear the horror stories of insufficient care. This being said, physicians in Hmo settings continue to convention rehabilitation as they feel is needed to best care for their patients despite the incentives to reduce costs inherent in the system (recall that physicians are often salaried in Hmo's and have no incentive to order more or less tests).
The Government
The U.S. Government pays for health care in a collection of ways depending on whom they are paying for. The government, through a estimate of dissimilar programs, provides assurance to individuals over 65 years of age, people of any age with permanent kidney failure, certain disabled people under 65, the military, troops veterans, federal employees, children of low-income families, and, most interestingly, prisoners. It also has the same characteristics as a Fee-for-Service plan, with deductibles and copayments. As you would imagine, the majority of these populations are very high-priced to cover medically. While the government only insures 28% of the American population, they are paying for 46% of all care provided. The populations covered by the government are amongst the sickest and most medically needy in America resulting in this disagreement in the middle of estimate of individuals insured and cost of care.
The largest and most well-known government programs are Medicare and Medicaid. Let's take a look at these individually:
Medicare:
The Medicare schedule currently covers 42.5 million Americans. To qualify for Medicare you must meet one of the following criteria:
Over 65 years of age
Permanent kidney failure
Meet certain disability requirements
So you meet the criteria...what do you get? Medicare comes in 4 parts (Part A-D), some of which are free and some of which you have to pay for. You've probably heard of the various parts over the years thanks to Cnn (remember the commotion about the Part D drug benefits during the Bush administration?) but we'll give you a quick refresher just in case.
Part A (Hospital Insurance): This part of Medicare is free and covers any patient and patient hospital care the patient may need (only for a set estimate of days, however, with the added bonus of copayments and deductibles...apparently there precisely is no such thing as a free lunch).
Part B (Medical Insurance): This part, which you must purchase, covers physicians' services, and excellent other health care services and supplies that are not covered by Part A. What does it cost? The Part B excellent for 2009 ranged from .40 to 8.30 per month depending on your household income.
Part C (Managed Care): This part, called Medicare Advantage, is a private assurance plan that provides all of the coverage in case,granted in Parts A and B and must cover medically vital services. Part C replaces Parts A & B. All private insurers that want to contribute Part C coverage must meet certain criteria set forth by the government. Your care will also be managed much like the Hmo plans previously discussed.
Part D (Prescription Drug Plans): Part D covers designate drugs and costs to per month for those who chose to enroll.
Ok, now how does Medicare pay for everything? Hospitals are paid predetermined amounts of money per admission or per patient procedure for services in case,granted to Medicare patients. These predetermined amounts are based upon over 470 diagnosis-related groups (Drgs) or Ambulatory cost Classifications (Apc's) rather than the actual cost of the care rendered (interesting way to peg hospital reimbursement...especially when the Harvard economist who developed the Drg system openly disagrees with its use for this purpose). The cherry on top of the irrational repayment system is that the estimate of money assigned to each Drg is not the same for each hospital. Totally logical (can you sense our sarcasm?). The figure is based on a formula that takes into account the type of service, the type of hospital, and the location of the hospital. This may sound logical but often times this system fails.
Medicaid:
Medicaid is a jointly funded (funded by both federal and state governments) health assurance schedule for low-income families. Eligibility rules vary from state to state and factors in age, pregnancy, disability, wage and resources. Poverty alone does not qualify an personel for Medicaid (there is currently no government-provided assurance for the American poor...despite the fact that almost all first world countries have such a system...enter the current health care debate) but is a vital factor in Medicaid eligibility. Each state operates its own Medicaid schedule but must bind to certain federal guidelines to receive matching federal funds (you may be well-known with California's MediCal, Massachusetts' MassHealth and Oregon's Oregon health Plan due to their new media coverage). Medicaid payments currently help nearly 60 percent of all nursing home residents and about 37 percent of all childbirths in the United States.
How are the bills paid?
We now understand who is paying the bill but we have yet to cover how those bills are paid. There are two broad divisions of arrangements for paying for and delivering health care: fee-for-service care and prepaid care.
Fee-for-Service
As we mentioned briefly while discussing Ppo's, in a fee-for-service structure, consumers adopt a provider, receive care (a.k.a. "service") from the provider, and incur expenses (a.k.a. "a fee") for the care. Deductibles and copayments are also required as previously discussed. Pretty simple. The physician is then reimbursed for their services in part by the insurer (i.e. A private assurance company or the government) and in part by the patient, who is responsible for the equilibrium unpaid by the insurer (the return of the unanticipated medical bill despite your overpriced insurance). Again, the major downfall of the fee-for-service arrival is that medical professionals are incentivized to contribute services (and by this we mean any and all services they can legally invite or must invite to be protected legally), some of which may be nonessential, to increase their wage and/or "C.Y.A." (revenue that has steadily decreased as assurance companies continue to lower the estimate they pay medical professionals for their services).
Fee Schedule
A fee schedule operates in the same way that Fee-for-Service does with one exception: instead of using the "usual, customary, and reasonable" estimate to reimburse medical professionals, states set fees to be paid for definite procedures and services. The repayment is very low ($.10-.15 on the dollar) and barely covers the actual direct cost of providing the care. Physicians may chose to opt into the plan or not (starting to see why a physician might not be so excited about this plan?). Would you sign up to be paid 10 cents for every dollar you expensed for your work? Try the assurance repayment arrival next time you go out to eat. We'll come bail you out of the Big House if things go awry. What happens when the assurance system does this? You get the Wal-Mart arrival to rehabilitation (high volume, low quality). Not the kind of heath care we recommend.
Pre-Paid
Pre-paid health care? Like a phone card? Not exactly--but close. The pre-paid system evolved out of the assurance company's desire to share its risk ( a.k.a "pooled risk") with health care providers. Essentially, they wanted the doctors to have some skin in the game. In the pre-paid system, insurers make arrangements with health care providers to contribute agreed-upon covered health care services to a given people of consumers for a (usually discounted) set price-the per-person excellent fee-over a singular time period. What does that mean? It means that Dr. Bob gets paid, say, per month to take care of Joe the Plumber including his blood work and x-rays. If Dr. Bob spends less than that caring for Joe, he makes money. If Joe is sick every month and needs lots of tests and follow-up visits, Dr. Bob could lose money caring for Joe. The set monthly fee paid to the physician for taking care of a patient is set up on a per-member, per-month (Pmpm) rate called a "capitated fee." The provider receives the capitated fee per enrollee regardless of either the enrollee uses health care services and regardless of the ability of services in case,granted (not a good thing in our book). Theoretically, providers should come to be more thrifty and subsequently contribute services in a more cost productive manner because they are bearing some of the risk. Often times, however, less care is in case,granted than is needed in hopes of rescue money and addition profits. In addition, physicians are incentivized to cherry pick the youngest and healthiest patients because these patients typically require less care (i.e. They are cheaper to keep healthy). We like that doctors are encouraged to keep patients salutary but we have to worry about the ways in which they are being encouraged to reduce costs (as itsybitsy care as possible?). Again, the incentive system falls short and encourages providers to act unethically.
The Take Home Message:
Health Care in the United States today is complicated and messy at best. The layers on top of layers of failed attempts to definite the system continue to encourage the wrong behavior in both patients (out of fear of medical bills) and providers (out of fear of bankruptcy). We have yet to contribute every American people with medical care (something that goes without saying in most 1st World countries...even Cuba has it!). We spend more money on caring for our citizens than any country in the world yet we continue to lag behind in terms of national health outcomes. We think it's safe to say that we're not getting the best bang for our buck. The extreme solution? We wish we knew. Only time will tell where the system goes from here. Our goal: to help you great understand the system as it stands today in hopes of developing a more effective, efficient, and comprehensive system for the future. Are you with us?
References
1. Levey N. Soaring cost of healthcare sets a record. Los Angeles Times. Feb 4 2010.
2. McKenzie J, Pinger R, Kotecki J. An Introduction to community Health, 6th Ed. Jones and Bartlett Publishers. 2008.
3. Bodenheimer Ts, Grumbach K. Comprehension health Policy. 5th Ed. Lange medical Books/McGraw-Hill. 2002.
4. Kaiser house Foundation. "Explaining health Care Reform: How Do health Care Costs Vary By Region?" Brief #8030. December 2009.
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