Government Provision of Health Insurance in the U'S'

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Chapter 12

• Government Provision of Health Insurance in the
  U.S.

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Medicare

• 1965 universal and mandatory health insurance
  program for elderly
• Physicians/AMA opposed did not want government
  to be involved in health care insurance and
  payment for services
• Underestimated the price elasticity of demand
• Right about regulations and oversight
• Newer Medicare Advantage or Managed Care plan

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• Medicare program is administered by the CMS
  Centers for Medicare and Medicaid Services
  (previously the Health Care Finance
  Administration, HCFA)

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Medicare

• Part A Hospital Insurance (paid for by Medicare
  Trust Fund payroll tax)
• Part B Supplemental Medical Insurance voluntary
  but heavily subsidized covers physician services
  and other care

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Medicare Part A Hospital Insurance (HI)

• Used private health insurance as a template
• Blues approach
• Provided first dollar coverage but lacked
  protection for catastrophic risks (Day 151 and
  after Medicare paid nothing)

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Medicare Part B Supplemental Medical Insurance
(SMI)

• Includes
• Physician services
• Home health care
• Medical equipment and devices
• Outpatient physical therapy
• X-ray and diagnostic tests
• All the gory details of what is covered by Part
  B
• http//www.medicareadvocacy.org/FAQ_Part B.htm

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Medicare Part B

• Part B pays 80 of reasonable charge after
  deductible (prevailing fees)
• The remaining 20 is paid by patient (as
  co-insurance)
• Annual deductible - 131 in 2007
• 2007 Standard Premium
• Income lt 80,000 95.50/month
• Income gt 200,000 105.80/month

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Balance Billing under Part B

• Medicare determines reasonable charges
• If a provider charges more, the patient is
  responsible for the difference
• A physician may balance bill only 115 of the
  Medicare fee schedule amount for example
• Medicare reasonable charge is 70.00
• Physician may only bill up to 80.50
• Patient pays 10.50 plus 80.50 .2 16.10,
  for a total payment of 26.60

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Assignment under Part B

• A physician who accepts assignment takes
  Medicares payment as payment in full the
  patient pays the 20 co-insurance payment
• PRO In this case, Medicare pays the doctor
  directly (reduces risk of patient non-payment)
• CON Means physician cant charge more than
  Medicare payment
• 1983 Medicare introduced participating
  physician physician accepts assignment of
  benefits for all patients he serves
• Assignment rate was 90 when our textbook was
  written

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Medigap

• Private insurance
• Basic benefits (required by law)
• Inpatient hospital care (covers Part A
  coinsurance plus coverage for 356 days after
  Medicare coverage ends)
• Medical costs (covers Part B coinsurance or
  copayments for hospital outpatient services
• Blood (first three pints/year)

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Medigap

• Some plans include
• Part A deductible
• Part B deductible
• Skilled Nursing Facility (SNF) coinsurance
• Hmmmm. What does this do?

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1988 Medicare Catastrophic Coverage Act

• Fully paid hospital care (except for first day
  deductible)
• Supply side pressures (PPS and DRGs) limit
  hospital use
• Cap on out-of-pocket costs under Part B
• Would have increased spending significantly
• Catastrophic drug expense coverage

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1988 Medicare Catastrophic Coverage Act

• Cost for this to be paid by over-65 population
• Premium payments (equal for all enrolled)
• Special income tax supplement for wealthier
  enrollees
• Financing did not transfer wealth from working
  population to Medicare population
• Congress repealed Act in 1989
• What can we learn from this?

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Price Controls via Medicare

• 1971 economy wide price controls
• Lifted on all but oil and health care
• Limited annual increases in physicians
  prevailing fees
• 1984 Omnibus Deficit Reduction Act froze
  physician fees 1984-87

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Source Cooper, Richard A. (2003) Medical Schools
and Their Applicants An Analysis. Health
Affairs, 22(4)71-84
Did price controls affect applications to medical
school? Or what?
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Medicare Trust Funds

• Hospital Insurance Trust Fund (Part A) will
  become insolvent (2004 estimate 2019)
• The Supplementary Medical Insurance Trust Fund
  (Parts B and D) was designed to remain solvent.
• The trust fund Trustees believe that
  solutions should be found in the near future to
  ensure the financial integrity of the HI program
  and to provide effective means to reduce the
  rate of growth in Medicare costs.
• Source http//www.aarp.org/research/medicare/fin
  ancing/the_status_of_the_medicare_part_a_and_part_
  b_trust.html, AARP 2004

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Prospective Payment System (PPS)

• 1984 Medicare payments shifted from per item or
  activity to a fixed amount for each case
• Diagnosis Related Groups (DRGs) determine payment
  per case
• outlier patients trigger higher payment

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Payment on the Basis of Diagnosis Related Groups
(DRGs)

• Determines quality of care (S) you get what you
  pay for
• Evidence reduced intensity of treatment for
  Medicare patients

AC S
Price
AC S
Demand curve
AC S
DRG payment
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Prospective Payment System (PPS) based on
Diagnosis Related Groups (DRGs)

• Shift away from hospital care to
• ambulatory surgical center (ASC)
• skilled nursing facilities (SNFs)
• hospice care
• Reduced hospital Length of Stay (LOS)
• Continuing financial pressure on hospitals as
  government reduced payments
• Big drops in LOS in early 1980s and then again
  early 1990s (Table 12.3 in textbook)

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Balanced Budget Act of 1997

• Reduced hospital reimbursement rates for several
  years (hospital margins had been positive)
• Increased financial problems of U.S. hospitals
  10 of providers dropped out of Medicare (15 of
  service areas)
• Medicare Choice -- required HCFA to expand
  choices to Medicare beneficiaries

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Medicare Advantage Plans

• Pays for all Medicare-covered health care
• Must have Part A and Part B through Medicare
• Offered by HMOs, PPOs and others
• Extra benefits and lower copayments than in the
  Original Medicare Plan
• May limit set of doctors and hospitals
• Dont need Medigap

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One Hospitals Story

• Sherman Oaks Hospital was losing money
• Purchased by Prime Healthcare (2004)
• Reduced hospital Length of Stay by substituting
  PA hospitalist for MDs
• MDs get paid extra every day their patient stays
  in the hospital (about 60/day)
• Given current costs, the hospital can make money
  on Medicare population

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Prime Healthcare is an example of what
entrepreneurial doctors can do. The potential
role of doctors as health care entrepreneurs is
discussed by Regina Herzlinger in her book, Who
Killed Health Care
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DRGs to RBRVSs

• Resource-Based Relative Value System to
  compensate physicians
• Aimed to reimburse physicians for time and
  complexity of effort
• Increased fees for generalists (thinking and
  talking)
• Lowered fees surgeons (operations) and diagnostic
  tests
• What would you expect?
• Physicians still paid on per-service basis

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Medicare Physician Compensation Options

• RBRVS (bureaucratic engineering of physician
  pool political influence?)
• Holdbacks global payment caps (physicians who
  cooperate lose)
• Capitation (a lot of risk for physicians)

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Coming soon to a screen near you!

• CHAPTER 16
• Universal Insurance Issues and International
  Comparisons of Health Care Systems