01-04A - Introduction to Healthcare and Public Health in the US - Unit 04 - Financing Healthcare Part 1 - Lecture A

Introduction to Healthcare and Public Health in the US

Financing Healthcare (Part 1)

Lecture aThis material (Comp1_Unit4a) was developed by Oregon Health and Science University, funded by the Department of Health

and Human Services, Office of the National Coordinator for Health Information Technology under Award Number [IU24OC000015)].

Financing Healthcare (Part 1)Learning Objectives

• Understand the importance of the healthcare industry in the US economy and the role of financial management in healthcare. (Lecture b)

• Describe models of health care financing in the US and in selected other countries. (Lecture c)

• Describe the history and role of the health insurance industry in financing healthcare in the United States, and Federal laws that have influenced the development of the industry. (Lecture a)

• Understand the differences among various types of private health insurance and describe the organization and structure of network-based managed care health insurance programs. (Lecture d)

• Understand the various roles played by government as policy maker, payer, provider, and regulator of healthcare. (Lecture d)

• Describe the organization and function of Medicare and Medicaid. (Lecture e)

2Health IT Workforce Curriculum Version 3.0/Spring 2012

Introduction to Healthcare and Public Health in the USFinancing Healthcare

Lecture a

The US Multipayer System• US Healthcare Financing

– History of US health insurance– Role of Government – Private payers vs. Government (Public)

payers



Lecture a

History of US Healthcare Financing• Late 19th and early 20th century

– Care provided at patient’s or doctor’s home– Self-pay/charity payment for services– Increasing advancement of medicine as a science

especially in surgery and infectious disease – AMA standardizes medical education and quality of

care improves– Medical care for illness moves out of the home to

doctor’s office, surgical care at hospitals– Commercial health insurance not available due to

unpredictability of health and “moral hazard”



Lecture a

Early Hospital & Physician Health Plans

• In 1929, 1300 Dallas school teachers contract with Baylor Hospital for 21 days hospitalization for 50¢ per month each

– Hospital service plans - steady stream of income– Exempt from most state insurance regulations– Later becomes Blue Cross • Physicians fearing loss of control form own

associations– In 1939, California physicians form pre-paid healthcare

services plan– Blue Shield Association



Lecture a

Employer Pre-paid Plans• Ross-Loos Medical Group provided pre-paid care to Los

Angeles County employees– Believed to be first HMO in US– Focus on quality of care including preventive care

• Surgeon Dr. Sidney Garfield starts pre-paid medical practice– 1930s – Organizes employer pre-paid plan for construction

workers on the Los Angeles Aqueduct and Grand Coulee Dam and Kaiser Shipyards during WWII

– Fixed payment per employee per month– Subsequently, formed Permanente Health Plan

• Open to the public• Union support boosts growth



Lecture a

Social Security Act• Passed in 1935, part of the New Deal• Established a system of old-age benefits for workers• Also created:

– Benefits for victims of industrial accidents– Unemployment insurance– Aid for dependent mothers and children, the blind, and the

physically handicapped– Vocational training– Funds for family health programs



Lecture a

Early Commercial Health Insurance

• Commercial insurance carriers offer group health insurance– Compete against the Blues– Employer (group) enrollment spreads risk and

addresses “moral hazard”– Experience rating vs. community rating –

lower rates for young healthy individuals



Lecture a

Factors Influencing Development of Commercial Health Insurance

• WWII wage controls – Employers offer health insurance as a benefit to attract skilled

employees

• IRS favorable tax treatment – Employer – free of payroll tax– Employee -- no income tax

• Employer sponsored health contracts non-cancellable• 1949 – Unions may negotiate health insurance benefits

as part of wages



Lecture a

Hill-Burton Act• Hospital Survey and Construction Act, passed in

1946• Stimulated construction of facilities• Foundation of today’s infrastructure for hospitals

and other health care organizations• Continues to authorize funding for hospitals, nursing

homes, health centers, rehabilitation facilities • Requires participation in Medicare and Medicaid• Imposes anti-discrimination rules



Lecture a

Medicare and Medicaid Laws: SSA Amendments 1965

• Medicare – 1965 Amendment to SSA Title XVIII– Social Insurance addresses care for elderly– Funded through FICA

• Medicaid– Title XIX SSA– Social welfare or social protection– Joint funded through Federal and state tax revenues– Administered through the states– Funded through general tax revenues



Lecture a

Health Maintenance Organization Act of 1973

• Health Maintenance Organization Act of 1973– Federal grants and loans to encourage HMOs

• Required employers offering traditional health plans to offer HMO option– HMO offers comprehensive, prepaid health coverage

for hospital and physician services through specific health care providers

– Gave pre-paid health plans access to the employer based insurance market



Lecture a

Employee Retirement Income Security Act of 1974 (ERISA)

• Regulates employer self-insured health plans– Does not require employers to establish a plan

• Requires employer plans to meet certain minimum standards – Establishes standards of conduct for plan administrators – Requires a grievance and appeals process– Allows employees the right to sue for benefits

• Pre-empts state insurance laws



Lecture a

Healthcare Plans Today

• 83% of the population have health care insurance

• Two categories of health plans – Private Funded

• State licensed insurance organizations• Federal regulated self-insured employer

plans– Publicly Funded



Lecture a

State-LicensedInsurance Organizations

• Commercial health insurers– Most are owned by stockholders or stock companies– Mutual insurance companies are owned by their

policyholders• BlueCross BlueShield

– Association of 39 different companies in 50 states– Locally operated; some are for-profit– Largest insurer, covering 1 in 3 Americans



Lecture a

State-LicensedInsurance Organizations (continued)

• Managed care organizations– Combine health insurance and health care services– Cost control and utilization control– Some hire their own doctors and have their own

facilities– 3 main types:

• Health maintenance organizations (HMOs)• Preferred provider organizations (PPOs)• Point-of-service (POS) plans



Lecture a

Self-Funded Employer Plans

• Health benefit plans regulated by federal law• Created by employers, employee organizations,

or a combination• Employer assumes risk for workers and pays for

care directly• Employer may choose to have a third-party

administrator administer the plan



Lecture a

Publically Funded Health Care

• Government programs, some of them funded through income taxes and payroll taxes

• Begin in federal legislation• Voted into law by Congress• Help specific population groups• Run by federal government and federal-state

partnerships



Lecture a

Examples of Government Health Care Programs

• Medicare• Medicaid• Children’s Health Insurance Program• Veterans Health Administration• TRICARE• Indian Health Service



Lecture a

Roles of U.S. Government• 3 key roles:, provider, payer, and lawmaker• Provider of health care services

– Veterans Health Administration and TRICARE– Indian Health System– Supports research into new models of health care

• Payer of third-party services– Outsources health care services, claims

paperwork, grants for research



Lecture a

Roles of Government (continued)

• Lawmaker role 1: Ensure fair competition– Sherman Anti-Trust Act, 1890

• Prohibits monopolies and restraint of trade

– Clayton Act, 1914• Prohibits price-fixing and exclusive dealings

• Lawmaker role 2: Protect the public– Food, Drug, and Cosmetic Act created FDA, 1938– Hatch-Waxman Act, 1984– American with Disabilities Act, 1990



Lecture a

Financing Healthcare (Part 1) Summary – Lecture a

• US healthcare payers– Historical and governmental influences for the

unique US system– Federal and state laws have influenced the

development of different type plans• Privately funded plans• Publically or government programs



Lecture a

Financing Healthcare (Part 1) Summary – Lecture a (continued)

• Government Role in Healthcare– Enact laws

• Regulate • Protect

– Provide services– Payer



Lecture a

Financing Healthcare (Part 1)References – Lecture a

References• BlueCross Blue Shield Association. http://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association. Accessed

December 10, 2011. • California Office of the Patient Advocate. What is an HMO? 2011.

http://www.opa.ca.gov/report_card/hmowhatis.aspx. Accessed April 4, 2011.• Centers for Medicare and Medicaid Services. Medicaid program: general Information—overview.

http://www.cms.gov/medicaidgeninfo. Updated February 23, 2011. Accessed April 6, 2011.• Illinois Department of Human Services. Health insurance carriers and managed care.

http://www.dhs.state.il.us/page.aspx?item=31583. Accessed April 4, 2011. • Indian Health Service. Indian Health Service fact sheet. http://www.ihs.gov/aboutihs/thisfacts.asp. Accessed April

5, 2011. • OurDocuments.gov. Social Security Act (1935). http://www.ourdocuments.gov/doc.php?flash=true&doc=68.

Accessed April 12, 2011.• U.S. Department of Health and Human Services. Medical treatment in Hill-Burton funded healthcare facilities.

http://www.hhs.gov/ocr/civilrights/understanding/Medical%20Treatment%20at%20Hill%20Burton%20Funded%20Medical%20Facilities/index.html. Accessed April 4, 2011.

• U.S. Department of Health and Human Services. Understanding health information privacy. http://www.hhs.gov/ocr/privacy/hipaa/understanding/index.html. Accessed April 4, 2011.

• U.S. Department of Health and Human Services, Office of the General Counsel. Drug Price Competition and Patent Term Restoration Act. http://library.findlaw.com/1999/Mar/10/130703.html. 1999. Accessed April 13, 2011.

• U.S. Department of Justice, Civil Rights Division. Americans with Disabilities Act: questions and answers. http://www.ada.gov/q%26aeng02.htm. Updated November 14, 2008. Accessed April 13, 2011.

• U.S. Department of Labor, Bureau of Labor Statistics. Career Guide to Industries. 2010–11 ed. http://www.bls.gov/oco/cg. Accessed April 4, 2011.



Lecture a

http://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association

http://www.opa.ca.gov/report_card/hmowhatis.aspx

http://www.cms.gov/medicaidgeninfo