America spent 17.3% of its gross domestic product on health care in 2009 (1). Should you break that on a person level, we spend $7,129 per person every year on health care…more than every other country in the world (2). With 17 cents of every dollar Americans spent keeping our country healthy, it’s no wonder the government is set to reform the program. Regardless of the overwhelming attention health care is becoming in the media, we realize hardly any about where that cash arises from or the actual way it makes its way into the program (and rightfully so…the way you pay for health care is insanely complex, to say the least). This convoluted method is the unfortunate reaction to a number of programs that try to control spending layered on top of one another. What follows is really a systematic try to peel away those layers, helping you 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, and the government. We can take a look at these payors in 2 different ways: 1) Just how much do they really pay and 2) The number of people do they really purchase?
The majority of individuals in America are insured by private insurance companies via their employers, followed second from the government. These two types of payment combined make up close to 80% from the funding for health care. The “Out-of-Pocket” payers belong to the uninsured as they have chosen to transport the potential risk of medical expense independently. Once we look at the amount of money each one of 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 that possible? This makes far more sense once we examine all the payors individually.
Understanding the Payers
A select portion of the population chooses to transport the chance of medical expenses themselves rather than buying into an insurance plan. This group is usually younger and healthier than insured patients and, as a result, accesses medical care a lot less frequently. Since this group has to pay for all incurred costs, in addition they are usually far more discriminating in the way that they access the system. The effect is that patients (now more appropriately termed “consumers”) comparison look for tests and elective procedures and wait longer before seeking medical attention. The payment technique for this group is straightforward: the doctors and hospitals charge set fees for their services as well as the patient pays that amount straight to the physician/hospital.
Here is where the complete system gets a lot more complicated. Private insurance is purchased either individually or is supplied by employers (a lot of people obtain it through their employer since we mentioned). When it comes to private insurance, the two main main types: Fee-for-Service insurers and Managed Care insurers. Those two groups approach spending money on care very differently.
This group makes it relatively simple (believe it or not). The employer or individual buys a health plan from the private insurance company having a defined list of benefits. This benefit package will also have what is called a deductible (an amount the sufferer/individual must pay for their health care services before their insurance pays anything). After the deductible amount is met, the health plan pays the fees for services provided through the Tips For Health Care. Often, they are going to pay a maximum fee for a service (say $100 to have an x-ray). The plan will demand the patient to pay a copayment (a sharing from the cost involving the health plan and also the individual). A normal industry standard is surely an 80/20 split from the payment, so when it comes to the $100 x-ray, the health plan would pay $80 and also the patient would pay $20…remember those annoying medical bills stating your insurance did not cover each of the charges? This is when they are offered from. Another downside of this model is the fact that health care providers are both financially incentivized and legally bound to perform more tests and procedures because they are paid additional 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 additional legal protection and more compensation, wouldn’t you order anything justifiable? Can we say misalignment of incentives?
Now it gets crazy. Managed care insurers pay for care while “managing” the care they purchase (very clever name, right). Managed care is defined as “some techniques employed by or on the part of purchasers of health care benefits to manage health care costs by influencing patient care making decisions through case-by-case assessments of the appropriateness of care just before its provision” (2). Yep, insurers make medical decisions on your behalf (sound as scary to you personally because it does to us?). The initial idea was driven by way of a desire by employers, insurance companies, and also the public to control soaring health care costs. Doesn’t seem to be working quite yet. Managed care groups either provide medical care directly or contract having a select number of health care providers. These insurers are further subdivided based on their own personal management styles. You might be acquainted with a number of these sub-types as you’ve needed to choose from when selecting your insurance.
Preferred Provider Organization (PPO) / Exclusive Provider Organization (EPO):This is the closet managed care grows to the charge-for-Service model with most of the same characteristics being a Fee-for-Service plan like deductibles and copayments. PPO’s & EPO’s contract with a set listing of providers (we’re all acquainted with these lists) with whom they have negotiated set (read discounted) fees for care. Yes, individual doctors have to charge less for their services if they wish to see patients with these insurance plans. An EPO includes a smaller and more strictly regulated list of physicians when compared to a PPO but they are otherwise the identical. PPO’s control costs by requiring preauthorization for a lot of services and 2nd opinions for major procedures. This all aside, many consumers feel they may have the greatest amount of autonomy and flexibility with PPO’s.
Health Management Organization (HMO): HMO’s combine insurance with health care delivery. This model will not have deductibles and definitely will have copayments. Inside an HMO, the business hires doctors to offer care and either builds its own hospital or contracts for the expertise of a hospital within the community. Within this model a doctor works well with the insurance provider directly (aka a Staff Model HMO). Kaiser Permanente is an illustration of this an extremely large HMO that we’ve heard mentioned frequently throughout the recent debates. Considering that the company making payment on the bill can also be providing the care, HMO’s heavily emphasize preventive medicine and primary care (enter in the Kaiser “Thrive” campaign). The healthier you might be, the greater money the HMO saves. The HMO’s focus on keeping patients healthy is commendable since this is the only real model to accomplish this, however, with complex, lifelong, or advanced diseases, they may be incentivized to provide the minimum level of care essential to reduce costs. It really is by 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 look after their patients inspite of the incentives to minimize costs built into the device (recall that physicians are frequently salaried in HMO’s and have no incentive to buy essentially tests).
The Us Government
The U.S. Government will pay for health care in a number of ways depending on whom these are spending money on. The federal government, through a number of different programs, provides insurance to the people over 65 years of age, people of any age with permanent kidney failure, certain disabled people under 65, the military, military veterans, federal employees, kids of low-income families, and, most interestingly, prisoners. In addition, it provides the same characteristics being a Fee-for-Service plan, with deductibles and copayments. As jemfsl would imagine, the majority of these populations are extremely expensive to cover medically. Whilst the government only insures 28% in the American population, they are paying for 46% of care provided. The populations covered by the us government are among.