Overview of Health Insurance & Managed Care Principles & History

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1 This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. Your use of this material constitutes acceptance of that license and the conditions of use of materials on this site. Copyright 2007, The Johns Hopkins University and Jonathan Weiner. All rights reserved. Use of these materials permitted only in accordance with license rights granted. Materials provided AS IS ; no representations or warranties provided. User assumes all responsibility for use, and all liability related thereto, and must independently review all materials for accuracy and efficacy. May contain materials owned by others. User is responsible for obtaining permissions for use from third parties as needed.

2 Session 1 Overview of Health Insurance & Managed Care Principles & History Jonathan P. Weiner, Dr. P.H. Professor or Health Policy & Management

3 Goals of Session To introduce some basic principles of health insurance and managed care. To provide a brief history and overview of health insurance and managed care in the US. To identify some key trends 3

4 Growth in US Health Care Spending: Dollars (billions) Source: HCFA, CMS Year 4

5 Paying for Health Care: Alternative Approaches Government employed providers Government social insurance Mandatory buy-in Entitlement for special populations As benefit of employment Insurance Direct care or access to contract providers Union/worker collectives Private indemnity health insurance Out of pocket Charity care 5

6 Definition of Insurance A social device where a group of persons transfers risk to an insuring entity in order to combine loss experience. This theoretically permits the ability to actuarially predict these losses and to calculate the premium payments that will need to be contributed by all members of the risk pool. 6

7 Some characteristics of an ideal private insurance market Large risk pool Predictable, but random event Potential high cost of insurable event Event not controllable by parties moral hazard Market economically feasible 7

8 Approaches for Sharing and Bearing Insurance Risk Consumers Premiums,cost sharing (deductibles,co-pays,co-insurance, coverage threshold) Intermediary (Insurance/managed care entity) Inclusions/exclusions, thresholds, re-insurance Providers - Capitation, risk-sharing arrangements,employment Employers Premiums, self-insurance, re-insurance 8

9 Patient Cost, Use, and Insurance Coverage Patient Cost of Care Total Cost for Uninsured Patient Out-of-pocket cost for insured patient, net of insurance premium Co-insurance applies Deductible Out-of-Pocket Limit External Plan Maximum Use of Care Adapted from Chollet DJ. Mapping Insurance Markets. State Coverage Initiatives, AcademyHealth,

10 Why Employer s Got Involved In Health Care Healthy employees are productive employees European immigrant / Union expectations Vacuum existed in the s, now stuck in this role. Tax advantage Attracts good employees Self Insurance (ERISA) is now big factor 10

11 US Health Insurance: Some Historical Footnotes 1930 s -- Blue-Cross/ Blue Shield and Hospital Association s Prepaid-Group Practices (PGPs) and Union/Employers 1950 s Commercial insurers get into the act 1960 s -- Federal great society Medicare and Medicaid 1970 s - The Health Maintenance Organization (HMO) Act (the unholy alliance of AMA sponsored IPAs and PGPs) 11

12 Proportion of Americans with Health Insurance: Year % Insured

13 Health Care Financing and Coverage (Approx) in the US Population Payment Private Ins. 67% 44% Medicare Medicaid 9 14 Uninsured 14 - Out-of -Pocket - 16 Other

14 Who Pays for Health Care Public Total Private Other Private Insurance Private Out-of-Pocket 100% 90% 80% 44% 29% 22% 15% 14% 70% 60% 23% 30% 33% 35% 50% 40% 25% 5% 6% 6% 5% 30% 20% 6% 42% 41% 46% 45% 10% 25% 0% CMS Office of the Actuary, National Health Statistics Group. Figures may not add due to rounding. 14

15 The Actuarial Cycle -- Cost / premium see-saw Image from CMS Health Care Industry Market Update. March 24,

16 Insurance premiums vs. earnings and inflation Health Insurance Premiums Overall Inflation Workers' Earnings 20% 18% 18.0% 16% 14% 12% 10% 8% 12.0% 14.0% 8.5% 8.2% 10.9% 12.9% 13.9% 11.2% 9.2% 6% 4% 2% 0% 0.8% 5.3% Kaiser/HRET Survey of Employer-Sponsored Health Benefits: ; KPMG Survey of Employer-Sponsored Health Benefits: 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April),

17 The Late 1980 s: medical inflation is out of control The bankrollers of the system said enough was enough, and the era of managed care was born. HMOs and their techniques served as the model. 17

18 Managed Care s Approximate Share of the Health Insurance Market in 1988 & 2007 MCO FFS 120% 100% 80% 15% 60% 75% 40% 20% 0% 25% 85%

19 The Key Ingredients of Managed Care Care management aka, utilization/disease management Vertical integration / coordination Financial risk sharing with providers Attempts at instilling a market 19

20 Definition of Managed Care An integrated system that manages health services for an enrolled population rather than simply providing or paying for them. Services are usually delivered by providers who are under contract to, or employed by the plan. 20

21 The Health Insurance Models Traditional (Fee-for-Service) Indemnity Managed Indemnity Plan Preferred Provider Organization (PPO) Health Maintenance Organization (HMO) 21

22 Shift in Employment-Based Plan Type HMO POS PPO Indemnity 100% 90% 80% 70% 60% 73% 46% 27% 28% 14% 35% 9% 8% 7% 5% 38% 41% 48% 52% 50% 40% 30% 20% 10% 0% 26% 14% 24% 25% 22% 22% 18% 7% 11% 31% 27% 28% 29% 21% 23% 26% 16% Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits,

23 Managed Care Is Mainstream Managed Care = US Health Care 23

24 INGREDIENTS SIMMERING IN TODAY S PRESSURE COOKER Health care cost spiral is inevitable. We consumers and providers want it all. Uninsured likely to grow, government not able (willing?) to tackle head-on. Other than MCOs, no party is willing (able?) to come to grips with resource limitations. 24

Private Insurance Fundamentals: Health Insurance Coverage, the Market, and Insurance Regulation. Bernadette Fernandez February 25, 2011

Private Insurance Fundamentals: Health Insurance Coverage, the Market, and Insurance Regulation Bernadette Fernandez February 25, 2011 Health Insurance Insurance provides protection from economic loss