History and Status of Health Insurance

Transcription

1 Health Insurance

2 DEFINITION Insurance is a contract between two or more parties whereby, in exchange for a payment (premium), the insurer protects (indemnifies) the insured against a defined peril or loss by agreeing to pay a specified amount of money if that loss should occur.

3 History and Status of Health Insurance I. History A. European Guilds B. U.S. 1.Labor Unions 2.Commercial Health Insurance (Montgomery Ward, 1912) 3.Blue Cross Community rating Open enrollment Provider contracts 4.National Association of Insurance Commissioners

4 This wide divergence from ordinary insurance methods is based on the theory that a group is acceptable as a whole, the company can take the risk of any members of the group not up to the rigid medical standard required in individual cases. The New York Times, April 14, 1912

5 Between the individually insurable and the individually noninsurable, between the young, the middle-aged and the old, the employer draws no distinction and any scheme that would completely cover employees must take them all, the young with the old, the weak with the strong, depending upon the underlying averages that make insurance possible and supply its reasons for existence. W.A. Day, President of The Equitable Life Assurance Society, 1912

6 What else was happening? Ida Tarbel publishes a series of articles in McClure s s magazine (subsequently complied as The History of the Standard Oil Company ) ) to expose the corruption and greed of the Standard Oil Monopoly ( ). 1904). Upton Sinclair publishes The Jungle (1906), exposing problems in the meat-packing industry. The resultant social uproar was responsible for passage of the Pure Food and Drugs Act (1906) and the Meat Inspection Act (1906). It also ushered in the era of what President Theodore Roosevelt called muckraking journalism. President Taft uses the Sherman Antitrust Act to break up the Standard Oil trust and American Tobacco Company (1911) International Ladies Garment Workers Union (ILGWU) provides the first union-based based medical services (1913) Enactment of the Clayton Antitrust Act to supplement the Sherman Act (1914) Establishment of the Federal Trade Commission (1914)

7 History and Status (2) 5. World War II 6. Medicare and Medicaid HMO Act Self-Insured Plans a. Most large companies insured this way b. ERISA 1974 c. Advantages: a. No state insurance premium tax (2-3%) b. Exemption from state mandated benefits c. Exemption from financing reserve requirements d. Exemption from contributions to state risk pools e. Full access to claims data (which commercial insurers i frequently do not and cannot often provide their clients) f. Ability to pay claims after they are received (enables the employer to "play the float" on reserves) g.no broker commissions h. Standardize benefits across states for multi lti-state companies

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9 History and Status (3) 9. Consolidated Omnibus Reconciliation Act (COBRA) Health Insurance Portability and Accountability Act (HIPAA), Portablility;Data Standardization; MSAs 11. Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA)- Establishment of HSAs

10 Insurance Coverage of U.S. Population* (in thousands) Total Population 291,155 (100%) Uninsured for study year 45,820 (15.7%) Insured for some portion of year 245,335 (84.3%) Privately insured 198,262 Employment-based insurance 174,174 Government insurance (total)** 79,086 Medicare 39,745 Medicaid 37,514 Military 10,680 *Source: Annual Demographic Survey, U.S.Bureau of labor Statistics and Census Bureau. **Note: Except for uninsured and insured, others numbers do not add to subtotals because of dual enrollments. For example, there are about 6 million persons eligible for both Medicare and Medicaid.

11 Purposes of Insurance: For the insured: Can budget for healthcare expenses by protecting against catastrophic events. For the insurer: Make money from premiums and investments. In the past, health insurance made money for the insurer as a loss leader by allowing the company to sell more profitable policies, e.g., life insurance, with it.

12 Boys, that s s the business you ought to get into. It s s a great business. Why think of it - people paying money before they even know what they were going to get! Goldie Balaban To Her Sons - Early 20th Century

13 Conditions for an event to be insurable: 1. It must be neither too frequent nor too rare (issue of frequency). Q: What would be the premiums at these two extremes? 2. It must be accidental and sporadic, i.e., a random, unpredictable event (issue of unpredictability). Q: What would happen if the event were predictable? Issue of Moral Hazard 3. It must be statistically measurable and computable, or at least estimable (subject to actuarial study). 4. From the insurer s s viewpoint, large numbers of subscribers are needed who must make sufficient and regular payments. ***INSURANCE IS A NUMBERS GAME***

14 Tradeoffs in health insurance: Other than quality services, holding benefits constant, people in the U.S. want three features from their health insurance: A. First dollar coverage B. Low premiums C. Freedom of choice of providers

15 Some important terms: Subscriber and Member; Subscription Certificate Capitation vs. Fee-for for-service; Service vs. Indemnity Defined Benefit vs. Defined Contribution Copay, Coinsurance, Deductible (Some examples) Reinsurance Health Savings Account (HSA) Underwrite- Indemnify a specific peril for a specified value for a defined time. Community vs. Risk Rating (Individual underwriting) Administrative Service Only (ASO)/Third Party Administrator (TPA) Medical Loss Ratio Coordination of Benefits (COB) and Subrogation Incurred but not reported expenses (IBNR) Workers Compensation

16 Example of the application of out of pocket expenses to payment of healthcare charges* Your health plan covers medically necessary services and pharmaceuticals. The services are subject to an annual (calendar year) deductible of $200, 80/20 coinsurance (your insurance pays 80% and you pay 20%), $25 physician office copayment (which does not count toward deductible, coinsurance or out of pocket annual maximum payment), and a maximum out of pocket payment (after the deductible is met) of $1000 per calendar year. (Pharmaceutical benefits are handled separately, see Box 4.2.) Hospital charges are covered in full. You see a physician at the beginning of the year and are charged $150. It is an acceptable amount, according to a fee schedule upon which she and your insurance company have agreed. How much do you pay? First, you have a $25 office copayment. Then, you determine if you satisfied your annual deductible. Since it is the beginning of a new year and your deductible is $200, you are responsible for the entire bill. Unfortunately, your physician found a problem that requires a revisit four weeks later. After that visit you have an allowable charge of $100. How much do you owe for that visit? Again, start with the $25 copayment. Since you satisfied $150 of your $200 deductible during your last visit, you owe an additional $50. Now that you reached your deductible limit, your coinsurance starts to apply. Of the remaining $50 of your bill, you pay 20%, or $10, and the insurance company pays $40. Your doctor now tells you that you need surgery to correct the problem she found during the first two visits. You have the surgery and review the physicians charges (the only part of the bill for which you are responsible). Since the surgery was performed in the hospital, there is no office copayment. The deductibles and coinsurance do, however, apply. The total of all physicians charges (surgeon, anesthesiologist, pathologist and radiologist) is $5500. Since, as mentioned above, you already satisfied your deductible, you would be responsible for 20% of the $5500 ($1100). But you are only at risk for the first $1000 of out of pocket expenses after your deductible is met. You already paid $10 for coinsurance at the last office visit. So you would pay $990. In the future, you only pay office copayments since your annual out of pocket expenses are met. *This example is to illustrate how out of pocket provisions may operate. Plans have diverse provisions. For example, the charges that apply to annual limits may be different, copayments are frequently not the same for all specialties, and special daily copayments may exist for hospital stays.

17 Example of the application of out of pocket expenses to payment for pharmaceuticals* Your insurance plan covers pharmaceuticals that you can take by yourself (self administered medications, like pills, and simple injections, like insulin). In order to hold down costs, the insurance company has contracted with an independent company (pharmaceutical benefit management company, or PBM) to administer these benefits. The PBM classifies the medications into 3 categories (or tiers) and assigns different copayments to their purchase, depending on how much they cost relative to others in the same category. The first tier is all generic drugs, which carry a $10 copayment for a 30 day supply.** The second tier is comprised of brand name drugs, for example, those for which the PBM has negotiated special considerations from the manufacturers in the form of lower prices or rebates. Tier 2 medications have a $25 copayment for a 30 day supply. Tier 3 consists of all other branded medications. The Tier 3 copayment is $40 for a 30 day supply. The listing of all these medications and their assigned tier is called a formulary.*** * Many different variations exist with respect to pharmaceutical coverage. For example, some plans have more than 3 tiers, depending on the extent of favorable manufacturer contracts, and others have eliminated copayments and use coinsurance instead. Additionally, some plans may apply annual maximum out of pocket cost limits for drugs. **Virtually all plans also provide patients with the opportunity to order 90 day medication supplies by mail at less than the cost of 3 copayments. *** In addition to U.S. companies, countries that provide pharmaceuticals to their citizens also use formularies and differential cost structures. The difference between the two is that in the U.S., the tiers are based on medication cost; other countries (Italy, for example) assign tiers by effectiveness.

18 Consumer Choice Health Plans

19 Medical Savings Accounts and Prescription Drugs: Evidence from South Africa Source: Shaun Matisonn, Executive VP, Discovery Health. National Center for Policy Analysis Policy Report No. 254 August, 2002 Medical Savings Accounts (MSAs) were started in South Africa in 1994 and by 2002 captured half the seven million person health insurance market. For the MSA product in South Africa non-discretionary services do not incur out of pocket expenses. For example, hospitalizations and medications for chronic conditions are not counted against the t individual s s annual deductible. (In the U.S., Health Savings Accounts can have out of pocket exclusions on preventive services and medications for certain chronic conditions ns without running afoul of tax laws that enable these plans.) Based on this experience, Discovery Health (an MSA) found that: On average, discretionary spending (primarily outpatient spending) is 47 percent lower for those enrolled in Medical Savings Account plans. no evidence suggests that members of MSA plans are shifting costs s to a hospital setting where the insurer would foot the entire bill. Patients using their MSAs also were much more likely to purchase a generic equivalent use use of the brand-name name drug [Prozac in this case] jumped 45 percent when patients were spending insurance company money. Patients do not skimp on necessary chronic medications when paying for drugs from an MSA. (This conclusion was reached comparing use of osteoporosis treatment medications before enrollment in a chronic disease program-when the medication costs came out of the MSA- with costs after enrollment-when the medication was free. There was no statistical difference e in prescription filling between the two groups.)

20 Type of Plan Characteristics Personal Healthcare Spending Accounts Flexible Spending Account (FSA) IRC 125 Medical Savings Account (MSA) IRC 220(b) and (c) Health Reimbursement Arrangement (HRA) IRC 105(h), 419, Health Savings Account (HSA) IRC 223 (c) Who is eligible? Anyone who works for an employer having such a plan Self-employed and those working for employers with <50 employees Any self-employed person or employer group, regardless of size Any self-employed person or employer group, regardless of size; cannot be a dependent on another s tax return, e.g., children or spouses Who funds the account? Usually employee Employer or employee (but not both in a given year) Employer Employer and/or employee What are the annual financial requirements for contribution or nature of the underlying insurance? No legal minimum but maximum subject to federal regulation, currently $5000. Employee must have a "high deductible plan; minimum and maximum limits and out of pocket limits subject to federal regulation, e.g., in 2006, for individuals the deductible limits are $1800/$2700 and maximum out of pocket is $3650. None. Employee must have a "high deductible plan; minimum and maximum limits and out of pocket limits subject to federal regulation, e.g., in 2006, for individuals the deductible limits are $1050/None and maximum out of pocket is $5250. Are contributions federally tax exempt if used for qualified expenses? Yes Yes Yes Yes Can I carry unused contributions into the next year? No Yes Yes Yes Can I take unused contributions with me to my next job? No Yes No Yes

21 Source: National Center for Policy Analysis