America spent 17.3% of its gross domestic product on health care in 2009 (1). Should you break that on an individual level, we spend $7,129 per person each year on health care…a lot more than any other country on the planet (2). With 17 cents of each dollar Americans spent keeping our country healthy, it’s not surprising the federal government is decided to reform the system. Regardless of the overwhelming attention health care is to get in the media, we know almost no about where that cash comes from or how it makes its distance to the system (and rightfully so…the way we purchase health care is insanely complex, to say the least). This convoluted method is the unfortunate result of several programs that attempt to control spending layered on top of one another. What follows is a systematic make an effort to peel away those layers, helping you to become an informed health care consumer and an incontrovertible debater when discussing “Health Care Reform.”
Who’s paying the bill?
The “bill payers” fall under three distinct buckets: individuals paying out-of-pocket, private insurance companies, as well as the government. We can take a look at these payors by two different methods: 1) Just how much will they pay and 2) The number of people do they really buy?
The majority of individuals in America are insured by private insurance companies via their employers, followed second from the government. These two sources of payment combined make up close to 80% from the funding for health care. The “Out-of-Pocket” payers fall under the uninsured because they have selected to hold the potential risk of medical expense independently. Once we take a look at how much cash all these groups spends on health care annually, the pie shifts dramatically.
The government currently pays for 46% of national health care expenditures. How is the fact possible? This makes a lot more sense when we examine all the payors individually.
Understanding the Payers
A select portion of the population chooses to hold the potential risk of medical expenses themselves as opposed to buying into an insurance plan. This group is commonly younger and healthier than insured patients and, as such, accesses medical care a lot less frequently. As this group has to cover all incurred costs, additionally they tend to be a lot more discriminating in the way that they access the program. The result is that patients (now more appropriately termed “consumers”) comparison go shopping for tests and elective procedures and wait longer before seeking medical attention. The payment technique for this group is easy: the doctors and hospitals charge set fees for services and the patient pays that amount straight to the physician/hospital.
This is when the entire system gets a lot more complicated. Private insurance is purchased either individually or is provided by employers (many people obtain it through their employer as we mentioned). In terms of private insurance, there are two main types: Fee-for-Service insurers and Managed Care insurers. Both of these groups approach spending money on care very differently.
This group can make it relatively simple (truth be told). The employer or individual buys a health plan coming from a private insurance company having a defined list of benefits. This benefit package will also have what is called a deductible (an amount the individual/individual must buy their health care services before their insurance pays anything). Once the deductible amount is met, the health plan pays the fees for services provided through the entire Tips For Health Care. Often, they are going to pay a maximum fee to get a service (say $100 for an x-ray). The plan will need the patient to cover a copayment (a sharing in the cost between the health plan and the individual). A typical industry standard is an 80/20 split from the payment, so with regards to the $100 x-ray, the health plan would pay $80 and the patient would pay $20…remember those annoying medical bills stating your insurance failed to cover all of the charges? This is where they come from. Another downside of this model is that health care providers both are financially incentivized and legally bound to perform more tests and procedures because they are paid extra fees for each of these or are held legally responsible for not ordering the tests when things go wrong (called “CYA or “Cover You’re A**” medicine). If ordering more tests provided you with more legal protection and a lot more compensation, wouldn’t you order anything justifiable? Are we able to say misalignment of incentives?
Now it gets crazy. Managed care insurers buy care while “managing” the care they pay for (very clever name, right). Managed care is defined as “some techniques employed by or on behalf of purchasers of health care good things about manage 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 as your representative (sound as scary to you personally as it does to us?). The original idea was driven with a desire by employers, insurance companies, and the public to manage soaring health care costs. Doesn’t appear to be working quite yet. Managed care groups either provide medical care directly or contract having a select group of health care providers. These insurers are further subdivided based by themselves personal management styles. You might be acquainted with a number of these sub-types as you’ve were required to choose from when selecting your insurance.
Preferred Provider Organization (PPO) / Exclusive Provider Organization (EPO):Here is the closet managed care gets to the charge-for-Service model with most of the same characteristics as being a Fee-for-Service plan like deductibles and copayments. PPO’s & EPO’s contract using a set set of providers (we’re all familiar with these lists) with whom they have got negotiated set (read discounted) fees for care. Yes, individual doctors must charge less for services if they wish to see patients by using these insurance plans. An EPO includes a smaller and much more strictly regulated set of physicians than a PPO however are otherwise exactly the same. PPO’s control costs by requiring preauthorization for a lot of services and second opinions for major procedures. All of this aside, many consumers feel they may have the best quantity of autonomy and adaptability with PPO’s.
Health Management Organization (HMO): HMO’s combine insurance with health care delivery. This model is not going to have deductibles but will have copayments. In an HMO, the corporation hires doctors to supply care and either builds its own hospital or contracts for the services of a hospital within the community. In this particular model a doctor works for the insurance provider directly (aka a Staff Model HMO). Kaiser Permanente is a good example of a very large HMO that we’ve heard mentioned frequently through the recent debates. Because the company paying the bill can also be supplying the care, HMO’s heavily emphasize preventive medicine and primary care (enter in the Kaiser “Thrive” campaign). The healthier you are, the more money the HMO saves. The HMO’s increased exposure of keeping patients healthy is commendable as this is the sole model to do so, however, with complex, lifelong, or advanced diseases, they may be incentivized to supply the minimum amount of care required to reduce costs. It really is using these issues that we hear the horror stories of insufficient care. This being said, physicians in HMO settings still practice medicine since they feel is needed to best take care of their patients despite the incentives to reduce costs built into the system (recall that physicians are often salaried in HMO’s and possess no incentive to acquire more or less tests).
The Federal Government
The U.S. Government pays for health care in a variety of ways depending on whom they may be paying for. The federal government, through a variety of programs, provides insurance to the people over 65 years old, people of any age with permanent kidney failure, certain disabled people under 65, the military, military veterans, federal employees, children of low-income families, and, most interestingly, prisoners. In addition, it has the same characteristics being a Fee-for-Service plan, with deductibles and copayments. As jemfsl would imagine, nearly all these populations are incredibly expensive to cover medically. While the government only insures 28% of the American population, they are spending money on 46% of care provided. The populations protected by the federal government are among.