Who’s Paying for Health Care?
America spent teen. 3% of its gross domestic product on Health Care just last year (1). If you break that down on an individual level, we spend $7, 129 per person each year on Health Care… more than any other country in the world (2). With teen cents of the dollar Americans spent ruksukapab keeping our country healthy, it’s no wonder the costa rica government is determined to reform the machine. Despite the overwhelming attention Health Care is getting in the media, we know very little about where that money comes from or how it penetrates the machine (and rightfully so… the way we pay for Health Care is insanely complex, to say the least). This convoluted system is the unfortunate consequence of a series of programs that attempt to control spending layered on top of one another. What will happen is a methodical attempt to peel from the lemon away those layers, assisting you become an informed Health Care consumer and an incontrovertible debater when discussing inch Health Care Reform. inch
Who’s paying the bill?
The “bill payers” fall into three distinct buckets: individuals paying out-of-pocket, private insurance companies, and the government. We can look at these payors in two various ways: 1) How much do they pay and 2) How many people do they pay for?
The majority of individuals in america are insured by private insurance companies via their employers, followed second by the government. These two sources of payment combined be the cause of close to 80% of the funding for Health Care. The “Out-of-Pocket” payers fall into the uninsured as they have chosen to carry the risk of medical expense independently. When we look at the amount of money each of these groups uses on Health Care annually, the quiche changes dramatically.
The costa rica government currently pays for 46% of national Health Care expenditures. How is that possible? This will make much more sense when we examine all the payors individually.
Understanding the Payors
A select area of individuals prefers to carry the risk of medical expenses themselves rather than buying into insurance. This group tends to be younger and healthier than insured patients and, as a result, accesses health care bills much less frequently. Because this group has to pay for all sustained costs, they also tend to be much more discriminating in how they access the machine. The result is that patients (now more appropriately classified as “consumers”) comparison shop for tests and aesthetic procedures and wait longer before seeking medical assistance. The payment method for this group is straightforward: the doctors and private hospitals charge set fees for their services and the patient pays that amount right to the doctor/hospital.
This is where the whole system gets a lot more complicated. Private insurance is purchased either individually or is offered by employers (most people get it through their employer even as mentioned). When it comes to private insurance, there are two main types: Fee-for-Service insurers and Managed Care insurers. These two groups approach paying for care very differently.
This group makes it easy (believe it or not). The employer or individual buys a health plan from a private insurance company with a defined set of benefits. This benefit package will also have what is called a deductible (an amount the patient/individual must pay for their Health Care services before their insurance pays anything). Once the deductible amount is met, the health plan pays the fees for services provided throughout the Health Care system. Often, they will pay a maximum fee for a service (say $100 for an x-ray). The plan will require the individual to pay a copayment (a sharing of the cost between the health plan and the individual). A typical industry standard is an 80/20 split of the payment, so in the case of the $100 x-ray, the health plan would pay $80 and the patient would pay $20… remember those annoying medical bills stating your insurance did not cover all the charges? This is where they come from. Another downside of this model is that Health Care providers are both financially incentivized and legally bound to perform more tests and procedures as they are paid additional fees for each of these or are held legally accountable for not ordering the tests when things go wrong (called “CYA or “Cover You’re A**” medicine). If ordering more tests provided you with an increase of legal protection and more compensation, wouldn’t you order anything justifiable? Can we say misalignment of rewards?
Now it gets crazy. Managed care insurers pay for care while also “managing” the care they pay for (very clever name, right). Managed care is understood to be “a set of techniques employed by or on behalf of purchasers of Health Care benefits to manage Health Care costs by influencing patient care decision making through case-by-case tests of the appropriateness of care prior to its provision” (2). Yep, insurers make medical decisions for your benefit (sound as scary to you as it does to us? ). The original idea was driven by a desire by employers, insurance companies, and the public to regulate soaring Health Care costs. Doesn’t seem to be working quite yet. Managed care groups either provide health care bills directly or contract with a select group of Health Care providers. These insurers are further subdivided based on their own personal management styles. You may be familiar with many of these sub-types as you’ve had to select from proper selecting your insurance.
Preferred Provider Organization (PPO) or Exclusive Provider Organization (EPO): This is the closet managed care gets to the Fee-for-Service model with many of the same characteristics as a Fee-for-Service plan like deductibles and copayments. PPO’s & EPO’s contract with a set list of providers (we’re all familiar 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 want to see patients with one of these insurance policy. An EPO has a smaller and more strictly regulated list of medical professionals than the usual PPO but are otherwise the same. PPO’s control costs by requiring preauthorization for many services and second opinions for major procedures. All of this 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 but will have copayments. In an HMO, the business employees doctors to provide care and either builds its hospital or contracts for the services of a hospital within the community. In this model the physician works for the insurance agency directly (aka a staff Model HMO). Kaiser Permanente is an example of a very large HMO that we’ve heard mentioned frequently during the recent debates. Since the company paying the bill is also providing the care, HMO’s heavily emphasize preventive medicine and primary care (enter the Kaiser “Thrive” campaign). The healthier you are, the more money the HMO saves. The HMO’s increased exposure of keeping patients healthy is good as this is the only model to do so, however, with complex, lifelong, or advanced diseases, they are incentivized to provide the minimum amount of care necessary to keep costs down. It is with one of these conditions that we hear the horror stories of insufficient care. This being said, medical professionals in HMO settings continue to practice medicine as they feel is necessary to best care for their patients despite the rewards to reduce costs inherent in the system (recall that medical professionals are often salaried in HMO’s and have no bonus to order more or less tests).