Private Health Care Private Health Care CoverageCoverage

LHCO 215LHCO 215

Oct. 13, 2011Oct. 13, 2011

Robert KaplanRobert Kaplan

Goals for this class are to Goals for this class are to understand:understand: Private Health Care Coverage and

their effects on the delivery of health care

Different Models of Private Health Coverage

Regulations of PHCC State and Federal

Pre-1940sPre-1940s

Financing of Health Care Fee For Service Private Pay and Charity Care

Organization of Health Care Delivery Solo practice Public, religious and private non-profit

Hospitals A few alternative systems:

Multi-specialty Group Practices Community Health Centers

Transformation of out-of-Transformation of out-of-pocket into third-party pocket into third-party paymentpayment Growth of private insurance

Blue Cross/Blue Shield during Great Depression

Non-profit organizations, closely tied to state hospital associations (BX) and state medical societies (BS)

Employer-sponsored insurance in WW II and beyond

Medicare and Medicaid enacted in 1965

Why do so many people highly Why do so many people highly value health insurance?value health insurance? Protect against financial risk

Need for health care is unpredictable (20/80 rule) As a result of risk aversion, most people would

rather spend $4,000 every year rather than face a 1 in 10 chance of a $40,000 loss

Protect against health risk Some care may be so expensive that it would be

unobtainable in the absence of insurance

Status Quo Ante, 1980Status Quo Ante, 1980

Insurers paid any licensed doctor or hospital for all the care the patient received

No selective contracting BX/BS were creatures of hospital/physician

associations Paid for any services that were

‘medically necessary’ Exclusions for ‘experimental’ therapy, but virtually

no utilization review Insurers had little influence on the practice of

medicine

Status Quo Ante, 1980 (cont.)Status Quo Ante, 1980 (cont.)

Physicians were paid at ‘Usual, Customary, and Reasonable’ rates (UCR) by Blue Shield

Hospitals were paid at cost by Blue Cross

Medicare payment methods, Medicare payment methods, 1965-19821965-1982 When enacted in 1965, Medicare was

designed to mimic prevailing BX/BS plans, both in benefit design and payment methods

Contracted with intermediaries and carriers (mostly BX/BS associations) to make payments to MDs and hospitals

UCR method for physicians; cost-based payments for hospitals

Results of Well-Insured FFSResults of Well-Insured FFS

Hospitals competed for doctors in a medical arms race

New technology is attractive to physicians, and resulted in higher revenues

Little financial reward to physicians for fee restraint

Physicians were not rewarded for using fewer rather than more resources to get patients better

Specialists performing newly developed procedures were able to make much more money than primary care physicians because they had substantial flexibility in establishing UCR amounts

Results of Well-Insured FFS Results of Well-Insured FFS (cont.)(cont.) Emphasis on episodic care for acute

problems; limited ability to provide coordinated care for chronic conditions

Large variations across geographic areas in how care was delivered, with no organization having authority, responsibility, or accountability to figure out which rate is right

Few financial rewards for improvements in quality or patient safety

Concerns about Open-ended Concerns about Open-ended FFS PaymentFFS Payment

Expenditures increasing at an unsustainable rate

Payment for quantity, not for value

Quality Little accountability for quality Underinvestment in management of

chronic disease Underinvestment in primary and

preventive care

Types of insurance productsTypes of insurance products

Conventional FFS Preferred Provider Organizations

(PPO) Point-of-Service (POS) Health Maintenance Organization

(HMO)

Types of Insurance ProductsTypes of Insurance Products

Conventional FFS Any MD or hospital in town; no UR Deductibles and co-payments

Preferred Provider Organization (PPO) Contracted list of MDs and hospitals Lower deductibles and co-payments when using ‘in-

network’ providers e.g., $500 deductible and 80/20 in-network; $1,000 deductible

and 60/40 out-of-network (plus balance billing) Minimal utilization review, although pre-admission

approval for inpatient care and high cost procedures/imaging typically required

Types of Insurance Products Types of Insurance Products (cont.)(cont.) Health Maintenance Organization (HMO)

Care paid for only if provided by doctors or hospitals under contract

Differences for patients from FFS/PPO coverage: Minimal co-payments and out-of-pocket liability Restricted to a panel of MDs and hospitals Referrals must be authorized by PCP

Point-of-Service (POS) Combination of HMO and PPO -- HMO-style benefits

and restrictions, plus the option of using other physicians with relatively high co-payments and deductibles

Quick History LessonQuick History Lesson Multi-Speciality Group Practice (1900)

Mayo Clinic, Meninger, Palo Alto Foundation

Prepaid Group Practice & HMOs (1929-30) Ross-Loos – D of Water & Power Kaiser – Dr. Sidney Garfield – Grand Coulee Dam

Richmond, CA – Kaiser Industries/ PMPM

UMW, Group Health Cooperative of PS

Quick History Lesson Quick History Lesson ConitnuedConitnued First generation – HMOs Vertical Integrated

KFHP, KF Hospital, Permanente Medical Group

Second Generation HMOs/ IPA – Virtually Integrated San Joaquin Foundation for Medical Care (1954)

Alternative to Kaiser Rapid growth conversion to for- profit

Paul Ellwood HMO Act Pres. Nixon(1973) Federal Qualification an HMO must be offered + FFS

Types of HMOsTypes of HMOs Kaiser – vertically integrated health plan

Hospitals and medical group providing service only to Kaiser members

Clinical autonomy within a system of constrained resources

‘Managed’ fee-for-service Insurance company contracts with providers on a

FFS basis 1-800-RN-MAY-I utilization review Managing prices more than care

Types of HMOs (cont.)Types of HMOs (cont.)

CA HMOs – Virtually Integrated-the Delegated Model

Capitated payments to medical groups and hospitals; financial risk and utilization management delegated to medical groups

In theory, provided physician groups with flexibility to use resources more efficiently

Distribution of Health Plan Enrollment for Covered Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2009Workers, by Plan Type, 1988-2009

Basis of competition among Basis of competition among private insurers in the private insurers in the employer marketemployer market Almost entirely self-insured and experience rated –

employer determines product design Administrative costs and customer service

(including, to a limited extent, provider satisfaction) Success at negotiating lower unit prices (primarily a

result of leverage, although in this decade, providers have more leverage than insurers in most markets)

To a limited extent, ability to lower claims costs through selective contracting with high quality/low cost providers, innovative disease management programs, and utilization review/hassle factor

Regulation of Private Health Regulation of Private Health Care Coverage -FederalCare Coverage -Federal

ERISA (1974) Preempts state laws especially on

benefit plan No mandate on benefit or coverage level Fiduciary Manager Summary plan description, claim and

appeal info Annual reporting requirements IRS/DOL Remedies and enforcement but no “pain” Continuation Coverage-COBRA (1985)

Federal - ContinuedFederal - Continued

HIPAA (1996) Privacy rule for personal health

information

Pre-exisitng conditions 12 mos/63 days

Access to coverage employers 2-50

State High Risk Pool’s Renewability guarantee but no control of

price

Federal - ContinuedFederal - Continued

Women’s health and coverage Act Newborns and Mothers HPA Mental Health Parity Pregnancy Discrimination Act ADA

Regulation of Private Health Regulation of Private Health Coverage – State Coverage – State

McCarran – Ferguson Act (1945) CA- Dept Managed Health Care –

HMOs DOI – Insurance Prodcuts Financial standards Market conduct, Access Stds &

benefits, Forms Premium Increase- Input -

Approval

State - ContinuedState - Continued

Network Adequacy UR Practices Credentialing Quality Assessment and

Improvement Appeal and Grievance Sue Only under Malpractice

SummarySummary

Physicians and hospitals receive most of their revenue from public and private insurers

Most revenue is from fee-for-service payment

FFS payment systems pay more for more service, regardless of the value produced by that service

Summary - ContinuedSummary - Continued

Flailing about for some method of controlling expenditure growth:

Medicare limits price increases, but has few tools for limiting volume increases

Private insurers attempt to limit price increases, with some success from 1993-99, but little success from 2000 and beyond

Private insures hassle physicians and hospitals, and these hassles somewhat restrain volume growth

DiscussionDiscussion

Divide by Healthcare Coverage types Present Pro’s and Con’s of each type Does a “gatekeeper” Model work? Hold

costs down? Lessons Learned by being a consumer of

healthcare