HLTH-2030 Lecture Notes - Lecture 6: National Health Insurance, Induced Demand, Moral Hazard

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amaranthtiger410

2 May 2019

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Financing is any mechanism that gives people the ability to pay for health care services. In the u. s. financing encompasses the purchase of health insurance and the payment of the services rendered. Financing in necessary to have access to health care. Private health insurance (etna/blue cross blue shield, humana) Public insurance programs such as medicare (old people) and medicaid (low income), veterans. Uncompensated or charity care (patient will go and receive medical services and organization writes it off or pays for it) For consumers, it can be good to figure out which one is best for your needs, but it can be difficult to navigate through the system and you don"t know what you owe. Working americans finance their own health care through employment and subsidize for those who cannot afford it. Employer-paid insurance is an exchange for more salary. Instead of getting more income, you get health insurance.

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two more pages of elaboration to how Trumpcare and Obamacarerelates to health care finance. 30 resources

Obamacare, also known as the Affordable Care Act (ACA), waspassed in 2010 as a health care insurance plan for all Americans.The law made many changes to the existing minimum coverage ininsurance, and increase the federal subsidies for the middle-incomehouseholds of the country. Trumpcare, also known as the AmericanHealth Care Act (AHCA), is a replacement health insurance plandesigned to partly repeal the existing ACA. The new healthcarebill, is one step closer to repealing . The nonpartisanCongressional Budget Office (CBO) has an estimate with ACA as thelaw of the land, the uninsured Americans would be 28 million willremain stable for the next decade. The analysis of an earlierversion of the bill, there is an estimate of 54 million could beuninsured by 2026 in case of implementation of the AHCA. The ACAhave provision to impose penalty on consumers who can afford to buyhealth insurance but do not do so, known as the individual mandatepayment. itâs paid when you file your federal tax return. Thispenalty can be either 2.5% of income up to the totalyearly premium or $695 per person up to $2,085, whichever ishigher. AHCA eliminates the individual mandate and offers anincentive to consumers who maintain insurance coverage: insurancecompanies can charge a 30% penalty who buy health insurance afterhad a gap in required coverage exceeding 63 days. The 30% penaltywould apply for 12 months. The ACA requires that all major healthpolicies sold to consumers offer coverage for 10 categories ofessential health benefits: Outpatient services, Emergency services, Maternity and newborn care, Hospitalization. Prescriptionmedication , Mental health and substance abuse services, Laboratoryservices. Pediatric services, Rehabilitation services, includingvision and oral. Preventative, wellness, and chronic diseasemanagement services. The AHCA eliminates these protections bygiving a waiver to define what they consider essential healthbenefits. States could allow insurance companies to sell plans thatdo not cover prescription drugs or maternity care. The ACA and AHCAhave the same rules for newborns. A baby can be added to familyexisting health insurance plan or can buy a new plan to give coverthe baby. AHCA is making major changes in the health insurance byreducing the requirements and making change in the structure oftotal offered government subsidies. On the analysis, the CBO hasreported the current changes would make health insurance moreaffordable for few customers. Obamacare: The ACA increased Medicaretaxes for the households having incomes above $250,000. Thelegislation gave some tax credits to middle-income earners to helpthem pay out-of-pocket health expenses. The AHCA repeals taxes ofprevious insurance plan. It was mandatory for the companiesemploying more than 50 employees to offer health insurance or pay apenalty. Trumpcare: The mandatory insurance of employees andpenalty has been repealed under Senate plan. Insurance fordependents under 26 (Obamacare) : It requires insurer that thechildren under the age of 26 are allowed to be covered under theparent's policy. Trumpcare: Well this requirement is not repealedby trump care. Trumpcare: Pre-existing condition coverage(Obamacare):The insurer is prohibited fromdenying coverage or charging more to individuals whohave pre-existing medical conditions. Trumpcare: Gives states theability to opt-out of requirements that insurers charge the samepremiums for healthy and sick customers. Women care (Obamacare): Itis mandatory for the insurance companies to provide core servicesincluding maternity care and contraceptives and the insurancecompanies are prohibited from charging women more than men for thesame health plan. Planned Parenthood receives federal funding forfamily planning and other medical services used by Medicaidrecipients. Abortion cannot be funded with federal dollars.Trumpcare: Insurance companies prohibited from charging women morefor health insurance, but states could apply for waivers that allowthem to drop coverage for maternity care and contraceptives. Thebill also bans women from using government money to buy plans thatcovers abortion and ends non-abortion Medicaid reimbursement toPlanned Parenthood, a non-profit group that provides abortionservices in some of its clinics, for one year. Older Americans(Obamacare):The insurer are not allowed to charge the olderAmericans more than three times the cost for younger Americans.Trumpcare: States can receive waivers to allow them to charge olderAmericans more. Insurance marketplaces (Obamacare) : The Obamacaremarketplaces, such as HealthCare.gov, enable people who don't gethealth benefits at work to compare plans, just as they mightcompare hotel rooms or airline tickets online. All plans on themarketplaces must offer a basic set of benefits, such as hospitalcare, mental health services and prescription drugs. Trumpcare:Under both the House and Senate bills, it is unclear how themarketplaces would work because insurers might potentially offerhealth plans that do not offer the same set of benefits.

If an insurer incorrectly estimates an insured person'spremium

, then the insurer will suffer a financial loss.

can appeal to the state insurance commissioner for asubsidy.

will drop people whose medical expenses exceed theirpremium.

None of the above

Medicare Part B (physician and outpatient services) is financedby

a premium that is 75 percent subsidized by the government and 25percent subsidized by the aged.

a payroll tax on both the employee and the employer.

a premium that is 100 percent subsidized by the government.

both a subsidized premium and a payroll tax

The diagnosis-related group hospital payment system changedhospital incentives by making it more profitable to

employ physicians.

admit sicker Medicare patients.

reduce a patient's length of stay.

charge more for lab tests.

Medicare is difficult to reform because

		pharmaceutical manufacturers benefit from drug sales under PartD.
		senior congressional leaders do not want their Medicare benefitschanged.
		the Medicare population is opposed and have highvoting-participation rates.
		Medicare reform would likely increase the federal deficit.

Medicare is not considered to be a fair redistributive systembecause

Medicare beneficiaries receive large subsidies regardless of howhigh their income is.

low-income Medicare beneficiaries with high out-of-pocketexpenses must enroll in Medicaid.

low-income employees subsidize high-income Medicarebeneficiaries.

All of the above

Substituting an income-related voucher for the current Medicaidsystem would not achieve the following:

		An income-related voucher would eliminate the large differencesbetween states in the percentage of their populations eligible forMedicaid.
		An income-related voucher would reinforce the movement towardMedicaid managed care, with its emphasis on coordinated care andincentives to provide care in less costly settings.
		An income-related voucher would provide employees with anincentive to forego higher pay so that they qualify for the vouchersubsidy.
		An income-related voucher would provide those on Medicaid withan incentive to take higher-paying jobs because they would onlylose part of their voucher subsidy.

Most states have shifted their Medicaid beneficiaries intoprivate Medicaid managed care/HMO plans. What is the advantage tothe state for doing so?

		Medicaid patients are more likely to receive coordinated careand preventive services.
		By paying HMOs a fixed fee per person per month, states are ableto shift their risk for higher expenditures to a managed careplan.
		Medicaid patients are more likely to have access to a physicianwithin the HMO.
		The HMOs have entered the Medicaid market because they believethey can provide the care less expensively and earn a profit.

What are some legitimate ways to spend down one's assets toqualify for Medicaid?

Fixing up one's house, purchasing a new car, or setting up aspecial burial account

Providing financial gifts to one's children

Transferring property to one's children

Setting up special retirement accounts that can be passed on tochildren or relatives after seven years

How is Medicaid administered?

		By each state, but policy is shared with the federalgovernment
		By the federal government and coordinated with the states
		By a joint commission composed of federal and stateappointees
		None of the above

Why were hospitals and physicians willing to participate in anHMO's provider network?

Hospitals and physicians developed excess capacity and werewilling to discount their prices for more patients.

Hospitals and physicians believed that they could reduce medicalcosts by joining together to better manage patient care.

Some states provided hospitals and their employed physicians anincentive to join or start HMOs to serve their Medicaidpatients.

b and c

How did early managed care firms achieve their largestsavings?

		By limiting access to very expensive specialty prescriptiondrugs
		By reducing hospital utilization of its enrollees
		By making enrollees wait long periods to see their primary carephysician
		By limiting enrollees' access to the HMO's specialists

Managed care plans differ according to the restrictiveness oftheir provider network and access to specialists. Which types ofplans are likely to have the lowest premiums?

		Plans that have the largest ratio of primary care physicians tospecialists
		Plans that have the most experience and have been in existencethe longest
		Plans that have the most restrictive/narrow provider network
		Plans that have received the highest quality and outcomemeasures

QUESTION 20

As part of the Affordable Care Act, health insurance exchangeswere established. What have been the most importantcost-containment approaches used by health plans competing forinsurance exchange enrollees?

		Health plans have used very narrow/limited providernetworks.
		Health plans have dramatically reduced access to new medicaltechnology.
		Health plans have included large deductibles and out-of-pocketpayments.
		a and c

blushtermite492

The CEO of St. Sebastian Health System, a moderate-sized hospital system in a mid-sized, Midwest city has hired you to help turn things around. The CFO is projecting a $3.7 million operating loss this year, which will be more than offset by non-operating income. However, the board has made it clear that the situation must improve. If the system cannot produce a positive operating margin in 2017, someone else is going to be the CEO. The CEO and CFO have asked you to recommend strategic approaches to sell their services in the community that will help turn the financial ship around.

Your Health System

St. Sebastian is a community-based health system. The senior management team has an average tenure of 17 years. The exception is the Chief Medical Officer (CMO). She has been in her position for two years and is the fourth CMO in that role in the past ten years. The CEO and COO have each been in their current roles for ten years. The system is comprised of the following:

Two large, acute care hospitals

Two long term care facilities

Two skilled nursing facilities

One long-term acute-care hospital (LTAC)

Four geographically distributed outpatient centers

Four Urgent Care Centers

Two free-standing ambulatory surgery centers (ASCs)

A 400 member employed physician group that includes 180 Primary Care Providers (PCPs). All 28

PCP practices are certified Level III Patient-Centered Medical Homes by NCQA.

The remainder of the 1,000 members medical staff is generally comprised of large, independent groups who have varying degrees of loyalty to the system. The Radiology and Emergency groups, for example, do 100% of their work at St. Sebastian and have no ownership of any outside facilities. The Gastroenterology Group, on the other hand, does work at the hospital but also owns its own, freestanding endoscopy center. The orthopedic group does 75% of their work at St. Sebastian but maintains privileges at other facilities. They do not own their own ASC.

In the current year, St. Sebastian is projecting 220,000 patient visits (combined IP and OP) with an average cost per visit of $1,727. They have an average charge per visit of $4,545.

Over the past ten years, St. Sebastian has been active in pursuing many different strategic projects including:

They have established clinical institutes in cardiovascular, orthopedic, oncology, maternity, and neurologic care. Each of these has been built through a co-management agreement between the system and the internal or external physician group who would be most logical. Each institute is led by a dyad of an administrator and medical director.

Five years ago, they consolidated maternity programs to one facility, a move that justified investing in a Level III Neonatal Intensive Care Unit (NICU)

They have established a research division in the hopes of working with national pharmaceutical companies and/or tertiary care hospitals in the Midwest.

They have established a Physician Hospital Organization (PHO) and intend to become an Accountable Care Organization (ACO) that can participate in the Medicare Shared Savings

Program (MSSP) and/or enter into global risk contracts with third-party payers. The PHO is currently evaluating whether or not they should purchase an insurance license so that they could offer commercial, Medicare Advantage, and Managed Medicaid insurance products.

5. They have established a Business Health division to service the corporate health needs of the employers in the region. This would include things like EAP programs, on-site wellness, drug screening, on-site clinics, etc. This division also recently built two large, full-service fitness centers.

The competition The community is currently served by three other major health providers:

Mercy is the competitor acute care system in town and has two hospitals and various outpatient centers. They have not been active in physician employment they employ a group of 60 PCPs, but no specialists. Similarly, they have not been engaged in branching out with different strategic initiatives, preferring instead to focus on cost-efficient care. They do not have clinical institutes, research divisions, a PHO, or a Business Health division. They have 230,000 visits per year, with an average cost of $1,435 per visit and an average charge of $4,348.

General Pediatric is a pediatric teaching hospital. Five years ago, they signed an affiliation agreement with Johns Hopkins to gain access to clinical and research capabilities that would have been beyond their reach, given their size. The employee essentially all of the pediatric subspecialists and have a PHO, which includes 75% of the region's primary care pediatricians. They will have 200,000 visits this year, with an average cost of $2,100 per visit and an average charge of $5,000 per visit.

General University is an adult teaching hospital affiliated with the local university's medical school. They staff the region's free-care clinics and historically, have been the region's hospital for indigent/uninsured patients. They are the region's Level I trauma center and are well regarded for intensive services like trauma, stroke, and cancer care. However, their location and reputation for taking indigent patients mean that they are not preferred for normal medical care by commercially insured or Medicare patients. Besides the community health centers, they own an inpatient rehab hospital, but no other facilities. They have explored affiliations with national leaders in academic medicine, but so far have not signed any such agreements. They see 180,000 visits per year with an average cost of $1,833 and an average charge of $5,556 per visit.

There are no other hospitals currently operating, though there are 23 skilled nursing facilities (SNFs) and 3 inpatient rehab facilities throughout the region. They are independent actors and for the most part, are struggling to stay profitable. Several single-specialty physician groups operate ambulatory surgery centers and one chain of independent diagnostic treatment facilities (IDTFs). Three years ago, there was a significant change in the state government, and that resulted in the long-time Certificate of Need (CON) program is all but scrapped (Skilled Nursing Facilities are still heavily regulated). Several for-profit hospital companies have recently done some analysis around entering your market, but have not done so yet.

The community is a Midwest city and surrounding suburbs in the midst of a transition from a manufacturing employment base, which unfortunately accelerated with the 2008 economic downturn. The hospitals have seen this over the past several years in a tightening of benefits offered by local employers. Benefits continue to be offered, but increasingly are likely to have a significant deductible associated with them. Unemployment has been above the national average and is projected

to remain that way. This means that the average wage in the region is actually below where it was in 2008 when the last recession hit. The number of Medicare-age residents is projected to rise over the next 10-20 years while working-age patients are projected to stay flat or fall slightly. Similarly, birth rates are expected to fall slightly over the coming decade.

The community is 60 miles south, 45 miles east, and 50 miles north of other, similarly-sized cities. Until 20 years ago, that made this city effectively an island unto itself. Increasingly, however, the suburbs of each of these communities have become very close to each other. As that has happened, providers in each community have followed and established practice sites and free-standing outpatient centers.

The community has a normal looking mix of Commercial, Medicare, and Medicaid patients. Because the state's governor was fiercely against the Affordable Care Act, the Medicaid expansion that happened in other states hasn't happened here. Thus, the community also has a sizable population without insurance today. As you'd expect, different hospitals see a different mix of these patients. The local health council was able to provide you with the most recent years payer mix by hospital below:

Patient visits	Commercial	Medicare	Medicaid	Uninsured/Self-pay
Mercy	80,500	105,800	23,000	20,700
St. Sebastian	99,000	101,200	11,000	8,800
Gen. Pediatric	70,000	4,000	110,000	16,000
Gen. University	63,000	45,000	45,000	27,000
Community Total	312,500	256,000	189,000	72,500

Reimbursement the CFO was able to supply you with their best estimate for what various payers are reimbursing for services. In general, the commercial plans are paying 50% of charges, regardless of location, except at General Pediatric. There, the monopoly on pediatric services has allowed them to negotiate rates of 80% of charge, but only for the commercial plans. Medicare currently pays 30% of charges at all hospitals, and Medicaid pays 25% of charges everywhere. Uninsured patients are generally paying 2% of charges.

refer back to St. Sebastian and the facts laid out in the background reading and Case #1and consider:

What products are in this industry vs. part of another distinct group?

What is the geographic scope of competition?

Identify the participants and segment them. Who are,

The buyers and buyer groups?

Suppliers and supplier groups?

The competitors?

The substitutes?

The potential entrants?

Which of these forces is strong/weak and why?

If possible, analyze the industry structure.

Why is the level of profitability what it is?

Which are the controlling forces for profitability?

What are the recent and likely future changes in each force, both positive and negative?

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HLTH-2030 Lecture Notes - Lecture 6: National Health Insurance, Induced Demand, Moral Hazard

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