Lecture 10 Medical Benefits: The Changing Environment

1
Lecture 10Medical Benefits The Changing
Environment

• Health Care in United States
• Taxation
• Development of Medical Expense Coverage
• Cost Containment and Managed Care
• State Reforms
• Federal Role in Health Care

2
Health Care Costs in United States

• Total costs in excess of 1 trillion
• 14 of GNP (in 1960, 5.4 of GNP)
• Health care costs in 1998
• Per employee 3,817
• Per retiree 4,984 (under 65)
• 2,092 (65 and older)
• No other country devotes more than 10 of GNP to
  health care
• US rank on health status (of 24 OECD countries)
• Male life expectancy 17th
• Female life expectancy 16th
• Infant mortality 21st

3
Health Care Costs in United States - (cont.)

• Salaries of Doctors to Average Worker
• US 5.4
• Germany 4.2
• Canada 3.7
• England, France, Japan 2.4
• Incentives to specialize
• Fraud
• Unnecessary treatment
• 1/7th of health care dollars spent for treatment
  during last 6 months of life
• 28 of Medicare expenditures for those over 65
  spent for last year of life
• Administrative costs over 200 billion

4
Taxation

• Employer paid premiums are tax deductible for
  employer and not taxable income for employee
• Employee paid premiums can be paid in pre-tax
  dollars
• Medical expense benefits received are tax free
  except
• if they exceed medical expenses
• if they are paid for cosmetic surgery
• if they are paid to a Highly Compensated
  Individual (HCI) under a self-funded
  discriminatory plan

5
Development of Medical Expense Coverage

• Prior to 1930 medical expenses paid by individual
• Blue Cross and Blue Shield (1930s)
• Health Maintenance Organizations (HMOs)
• Initially (1929 and 1930s)
• Growth (1970s)
• Insurance Companies
• Early efforts (1930s)
• Major medical (1949)
• Government Involvement
• Medicare (1960s)
• Medicaid (1960s)

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Development of Medical Expense Coverage - (cont.)

• Reaction to Spiraling Costs
• ERISA (1974)
• HMO Act (1973)
• Continued Change
• National Health Insurance Proposal
• Self-funding of benefits
• Cost-shifting to employees
• Managed care
• in 1980 90 of insured employees under
  traditional plans
• by 1995 75 of insured employees under managed
  care

7
Cost Containment and Managed Care

• 1970-1993
• Medical component of CPI increased over twice as
  fast as the general inflation rate
• 1994-1997
• Medical costs in line with inflation
• 1998-
• Medical costs increasing over the rate of
  inflation again

• Reasons for cost increases
• Technology
• Malpractice suits
• Third-party payments
• Undercapacity
• Design of medical plans
• AIDS
• Aging population
• Reason for slowing rate
• Managed care
• Cost-shifting

8
Cost Containment Measures

• Benefit plan design
• Alternative providers
• Alternative funding methods
• Claims review
• Health education and preventive care
• External cost-control systems
• Managed care
• Controlled access to providers
• Comprehensive case management
• Preventive care
• Risk sharing
• High-quality care

9
State Reforms

• NAIC Small Employer Health Insurance Availability
  Model Act
• Tort reform
• Claim administration reform
• Health Insurance Purchasing Cooperatives

10
Federal Role in Health Care

• National Health Insurance Proposal
• Medical Savings Accounts
• Managed Care Reform Legislation
• Health Care Quality Choice Act