Financing Health
Care
and
Health Insurance
Otar Vasadze M.D., Ph.D.
University of Georgia
Health Care Expenditures (US)
Year USD % of GDP p/capita
1980 $ 0.25 trillion 8.9% $ 1,110
2008 $ 2.34 trillion 16.6% $ 7,845
2015 $ 3.2 trillion 17.8% $ 9,990
2019* $ 4.35 trillion 19.3% $ 17,238
* 2019 forecasted.
Source: Center for Medicare and Medicaid
Services (CMS), 2010, CDC Report “Health,
United States 2015”.
Types of Health care
expenditures
Type of expenditure $ Billions %
Hospital care 718.4 30.7
Out-patient services 496.2 21.2
Dentistry and other 235.0 10.1
Medicines 234.1 10.0
Nursing homes 203.1 8.7
Administration 159.6 6.8
Infrastructure and equipment 112.9 4.8
Public health 69.4 3.0
Other medical products 65.6 2.8
Research 43.6 1.9
Total 2,337.9 100
Source: CMS, 2010.
Sources of financing the
Health Care
Out of pocket payments include payments to
buy Individual insurance policies, pay for
services themselves, and co-payments and/or
deductibles .
Private Health Insurance includes payments
by employees and/or their employers for
health insurance premiums.
Public Health Insurance sources include
funding from federal, state and local
government programs.
Sources of Financing (2008)
US Georgia
Private Out of Private
7%
Funds pocket Other
Funds 10%
Payments
1%
12%
Public
Funds 16%
34%
47% 66%
Private 6%
Private Health
Health Insurance Out of
Public Insurance
Funds pocket
Payments
Characteristics of Health
Insurance
Forms of Payment
Two forms of payment provide the basis for all types of
health insurance coverage:
Fee-for-service – Provider receives payment for
providing services included into the insurance
package from Insurance Company (IC) or from
Insured directly, which gets reimbursement from
the IC. Typically, the insured must meet deductibles
and make co-payments for their care.
Prepayment - Insured individual pays a fixed,
prespecified amount in exchange for services.
Covers routine types of care, small co-payments foe
selected services (e.g., prescriptions).
Characteristics of Health
Insurance
Cost Sharing
Most insurance policies require insured to bear some of
the cost of care out of pocket:
Copayments – costs that are borne by the insured
individual at the time of service. E.g., prescriptions
or a physician office visit may require a $15 or $20
copay. Are used in both fee-for-service and prepaid
plans.
Coinsurance – Under a fee-for-service policy, insured
individuals pay a portion of the cost of their care,
while the insurer is responsible for the remaining
costs. E.g., the insured’s coinsurance is often 20%,
while insurer pays 80%.
Characteristics of Health
Insurance
Cost Sharing
Deductibles – are required levels of payment that the
insured individual or family must meet before the
insurer begins making its payments for care in a
fee-for-service plan. Deductibles are regularly met
at the beginning of each year and vary by policy
type. They can range from relatively small amounts
for traditional types of insurance to quit substantial
amounts under high-deductable, catastrophic
coverage plans.
Characteristics of Health
Insurance
Policy Limitations
Often the insurance policy has various types of
limitations - some limiting payments by insured and
some limiting the total coverage by insurer:
Maximum out-of-pocket expenditure – An amount
where the insured individual’s cost sharing capped.
After reaching this point, the insurer will pick up
100% of the payment.
Lifetime limit – The maximum amount that the policy
will pay out over thee lifetime of the insured
individual. This type of limit usually only comes into
play when there are catastrophic types of illnesses
requiring very costly care. E.g., transplants or
spinal cord injuries, the treatment costs can
Characteristics of Health
Insurance
Types of Benefits
Comprehensive policies – Covers outpatient visits,
outpatient surgery, medical testing, inpatient
hospitals stays, diagnostic procedures, sometimes
prescription, rehabilitation, hospice, mental
health care. Some exclusions apply, e.g.,
experimental treatments and long-term care.
Basic, major medical, or hospital-surgical policies –
Are limited to types of illness that require
hospitalization. Includes inpatient hospital stays,
surgery, associated tests and treatments,
physician services. There are limits on hospital
stays and caps on expenditures.
Characteristics of Health
Insurance
Types of Benefits
Catastrophic coverage policies – Benefits cover
extraordinary types of illness. Typically has high
deductibles (15,000 USD or higher) and lifetime
limits on coverage.
Disease-specific policies – Benefits cover only the
specific disease(s) coverage (e.g., cancer care
policy).
Medigap policies – Supplemental coverage of certain
benefits that are excluded from other types of
policies (e.g., prescription drugs).
Characteristics of Health
Insurance
Other Concerns
There are a number of issues that are important when
managers and/or individuals are making decisions
about health care coverage:
Access to vs. restrictions on care – Access to care
may be limited or controlled for the insured
individual. Under some insurance policies, there
is unlimited access, while under others, access is
restricted by a gatekeeper.
Moral hazard – The idea that existence of insurance
coverage provides an incentive for the insured to
secure and use coverage. E.g., a woman who
knows she is going to become pregnant is more
likely to opt into coverage than a woman who is
not expecting to have a need for this type of care.
Characteristics of Health
Insurance
Other Concerns
Pre-existing conditions – Medical conditions that make
a person a risk to an insurer, as it may result in
high expenditures. E.g., individuals with cancer
have found it difficult or impossible to obtain
coverage.
Buy-downs – Insurers encourage/force members of
large premium hikes to switch to a lower-cost policy
(which means a policy with higher deductibles
and/or greater limits on benefits).
Coordination of benefits (COB) – Incurs when one
individual has two insurance plans. Each company
seeks to ensure that it pays only that which it is
Private Insurance Plans
Conventional Indemnity Insurance – based on the fee for
service model. Insured pays for utilized services which
are reimbursed by insurer. Care is rendered by
independent healthcare providers, no gatekeeping or
other restrictions apply. Preauthorization of services is
required.
Managed Care Plans – insurer applies control mechanisms
over patient and provider. The primary types include
HMOs, PPOs, and POS plans.
Managed Care Plans
Health Maintenance Organization (HMO) – Fixed
prepayment is paid by individual in order to become a
member. Enrollees are eligible to get care from the
providers and facilities engaged with the HMO. No
charges are paid for services, some restrictions may
apply (e.g., co-payment for prescriptions).
Closed-Panel HMO – physicians practice only with the
HMO, often in HMO-owned health center.
Open-Panel HMO – physicians practice within and
outside the HMO.
Group Model HMO – HMO contracts multispecialty
group
Managed Care Plans
Preferred Provider Organization (PPO) – combination of
indemnity insurance and managed care plan. Coverage
on a fee for service basis, with deductibles, copays and
coinsurances to be met. Insured pays less if care is
obtained from a network of preferred provider,
contracted by Insurer. In case if care is provided by non-
preferred provider the higher deductibles and
coinsurances should be paid by Insured.
Point of service Plan (POS) – provides some flexibility to the
HMO model and is often referred to as open-ended plan.
An enrollee can use services that are out of plan in
exchange for deductibles and copays.
Managed Care Plans
High-Deductible Health Plan with Savings Option – HDHP/SO
- consumer-driven health plan, offering Insured
catastrophic coverage for low minimum, but at high
deductible costs. Health Savings Accounts are used.
Insured is less likely to make poor decisions about
using unnecessary and/or inappropriate care, more
likely to utilize preventive and chronic care services,
become more cognizant of the costs of care.
Limitations: concerns about the restrictions imposed in
the plans, and the quality of care provided.
Comparison of Insurance Plan
Characteristics
Indemnity Health Preferred Point of High
Plan Maintenanc Provider Service deductible
e Org. (PPOs) (POS) Health
(HMOs) Plans
(HDHPs)
Access to Unlimited Limited/ Unlimited Unlimited Unlimited
Care Waiting lines
Geographic None Limited (exc. Unlimited Unlimited Unlimited
Limitations Emergency)
Access to Unlimited Limited to Unlimited Unlimited Unlimited
HCPs providers (but pays (but pays
less with less with
providers) providers)
Restrictions Unlimited Some Unlimited; Unlimited; Unlimited
(self-refer) services limits on limits on
USD or USD
visits/year Or visits/year
Deducts/ Yes/yes No/min. Yes/yes Yes/yes High
Copays deductibles
Comparison of Insurance Plan
Characteristics (Cont’d)
Indemnity Health Preferred Point of High
Plan Maintenanc Provider Service deductible
e Org. (PPOs) (POS) Health
(HMOs) Plans
(HDHPs)
Coinsurance Yes None Yes Yes for None
services out
of plan
Quality High Lower High High High
(waiting
lines)
Paperwork Completed Minimal Excessive Moderate Minimal
by Insured (with some
excl.)
Admin costs Moderately Low High; Moderate to Low
high Uncontrolled high
Management Difficult to Easily Difficult to Partially Managed by
of Costs manage Managed Manage difficult patients
Health Plan Enrolment by type
of Plans
Type 1988 1993 1998 2003 2008 2009
Convention
73% 46% 14% 5% 2% 1%
al
HMO 16% 21% 27% 24% 20% 20%
PPO 11% 26% 35% 54% 58% 60%
POS - 7% 24% 17% 12% 10%
HDHO/SO - - - - 8% 8%
Types of Social Insurance
Medicare – Title XVIII, Amendment to the Social Security
Act of 1935. Approved in 1965 under President Johnson.
Insured:
Population age group 65 and older;
Younger individuals with permanent disabilities;
Individuals with end-stage renal disease (ESRD);
Persons under hospice care.
Types of Social Insurance
Medicare
Part A – Hospital Insurance (HI) -
◦ 90 days of inpatient hospital coverage,
◦ inpatient skilled nursing facility up to 100 days,
◦ prequalified home healthcare services,
◦ hospice care for terminally ill.
Part B – Supplemental Medical Insurance –
◦ Visits to physicians, outpatient and preventive services
(vaccination, HepB, mammography, etc. )
Part C Medicare Advantage Plans –
◦ Offers additional benefits to traditional Medicare plans
Part D The Prescription Drug Benefit
Types of Social Insurance
Medicaid – Title XIX, Amendment to the Social Security
Act of 1935. Approved in 1965 under President
Johnson.
Insured:
Financially qualified indigent and low-income persons
(basic medical care);
Financially qualified pregnant women, children and
adolescents;
Children from the households, which are not
financially qualified for Medicaid services, but whose
Types of Social Insurance
Military Health System – provides services to
Veterans
Military personnel
Family members of veterans and military personnel.
Distribution of the Health
Insurance Coverage by types
(2008)
Military and Veterans
3.8%
Employment
Medicare
Based Private
14.3% Health
Insurance
Medicaid 58.5%
14.1%
Individual
Private Health
Insurance 8.9%
Uninsured
In 2008 46.3 million (15.4%) US citizens had
no Health Insurance coverage.
In last years the number of uninsured US
citizens has increased by 19.5% (additional
7.5 million citizens).
Distribution of Uninsured by
Race (2008)
Hispanic Caucasian (non-
31.4% Hispanic)
46.0%
Asian
5.1%
African
American
15.7%
Distribution of Uninsured by
Age group (2008)
65 +
45-64 1.4% Under 18
24.5 15.9%
%
18-24
17.7
%
35-44
17.3
%
25-34
23.2
%
Main Characteristics of
Uninsured
Nearly 25% represent the members of households living
below poverty level.
Many live in the households whose combined income
was above poverty level, however their individual
income level was up to 300% below poverty level.
Majority of uninsured (4/5) were workers or dependents
of workers employed in the industry which did not
provide the Health Insurance.
Rates of Uninsured vary across the US States, e.g.,
more people in South and West tend to be uninsured vs.
those living North and East.
Main Characteristics of
Uninsured
Uninsured used Health Care services differently from
those insured:
They don’t have Primary Care physician
Delay seeking care
Utilize emergency care departments (the most expensive entry
point to the healthcare system)
Myths about Uninsured
Myth Fact
1 Uninsured believe that Majority of uninsured believe that
they don’t need the they need Health Insurance, but they
coverage can not afford it.
2 Most of the uninsured Majority of uninsured are employed,
are unemployed and it or are dependents of those who are
is the main reason why employed at the firms/industries,
they don’t have which do not provide Health
coverage Insurance.
3 Most of the growth in Most of the growth in uninsured
uninsured has been since 2000 is among people earning
among those with less than 38 000 USD for a family of
higher income four (low-income)
Myths about Uninsured
Myth Fact
4 Most of the uninsured 79% of uninsured are US citizens of a
are new immigrants who long period of time.
are US citizens.
5 Most of the uninsured Reduced rate or free of charge
receive Health Care healthcare services are very rare,
services at reduced unpaid bills add to providers’ costs.
rates or free of charge.
6 Uninsured can get the Uninsured are more likely to
healthcare services in postpone the required medical care,
any case, therefore they which increases the chances of
can avoid serious health complications, disabilities,
problems. premature deaths and decreases the
chances of preventing the diseases.
7 Buying health insurance Individual Health Insurance plan is
on your own is always much more expensive than
an option employment based, with many more
limitations on the coverage of
various health conditions.
Myths about Uninsured
Myths Facts
8 The exact number of The methods used for calculation of
Uninsured is unknown, uninsured are reliable.
because this is a short-
term period in their
lives.
9 The healthcare The large majority of uncompensated
uninsured receive but care is subsidized through a mix of
do not pay for results in federal and state government funds,
higher insurance not cost-shifts to private payers.
premiums.
10 Expanding health Because both the uninsured and
insurance coverage to government subsidies pay for a good
all or even a large share share of their health care costs
of the uninsured will already, the amount of additional
cost far more than the health spending to cover all of the
country currently uninsured is relatively small.
spends on health care
We wish you the best
Health Insurance Policy
and hope that you will
never need to use it!
