Financing Healthcare
The costs of healthcare continue to be a concern. Various programs and legislation have evolved to address this issue. Societal, legal, and ethics issues influence the costs of healthcare.
The Health Planning and Resources Development Act of 1975 established legislation to govern the amount and types of facilities, services, and workers needed in each designated geographic area in the United States. It also aimed to prevent duplication of healthcare procedures and, ultimately, to reduce healthcare costs. The initial act of 1975 identified priorities, some of which have changed or expanded since then. Multiple attempts to enact healthcare legislation have followed, but overall success has been impeded by the complexity of societal, financial, and demographic issues. Certain priorities of healthcare continue to evolve.
Resources for the 21st century must include the following healthcare priorities:
• Primary care services for medically underserved populations, especially those in rural or economically depressed areas; establishment of satellite clinics in remote areas where transportation is difficult or impossible, such as the regional delivery system in Alaska
• Mobile services available in low-population areas, such as visits from mobile mammography, magnetic resonance imaging, or computed tomography scan units by truck/ plane to these areas on a scheduled basis
• Multi-institutional systems for the coordination or consolidation of expensive or specialized health services (e.g., obstetrics; pediatrics; emergency, intensive, and coronary care; radiation therapy)
• The development of institutions on a geographically integrated basis to prevent excessive duplication of services
• Multi-institutional arrangements for sharing support services (e.g., purchasing and bookkeeping)
• Uniform cost accounting, simplified reimbursement, and utilization reporting systems
• Improved financial management procedures
• Cooperation and/or mergers of hospitals and other healthcare facilities, sometimes between private and public institutions
• Case management to oversee the administration and cost of healthcare services to individual clients
• Improvements in the quality and ongoing quality assessment of healthcare
• Promotion of the nursing profession as a career
• Use of advanced practice nurses as independent providers, in collaboration with physicians
• Training and increased use of assistants to physicians
• Use of complementary care methods, such as acupuncture and herbal medicine
• Additional and early services for pregnant women and at-risk children
• Group medical practices, HMOs, and other organized systems of healthcare delivery
• Special healthcare screenings, immunizations, walk-in clinics, feeding programs, and other services—for the homeless, recent immigrants from developing countries, and other high-risk populations
• Improved identification, screening, treatment, and management of the chronically chemically dependent population
• Disease prevention, including studies of nutritional and environmental factors and provision of preventive healthcare services
• Community-based care and services, rather than institutionalization, for populations such as the chronically and persistently mentally ill and the profoundly mentally retarded
• Mainstreaming in school of children with physical, emotional, and mental challenges; provision of healthcare to these children as needed
• Consideration of cultural differences in the planning and delivery of healthcare
• Effective methods of educating the public concerning proper healthcare and the effective use of available services
• Additional research and development of medications and treatments for devastating diseases, such as AIDS
Insurance and Healthcare
Methods of payment for healthcare services have remained basically unchanged for several decades despite numerous federal- and state-based attempts for revisions. Healthcare coverage can be purchased by an individual or organized into specific group-purchased insurances. Plans typically include various premiums, deductibles, co-payments, and out-of-pocket expenses. Table 3-1 compares general features of the main types of healthcare available in the United States.
Individual Private Insurance
An individual or a family can purchase private health insurance. Its cost tends to be higher than group insurance, and the insurance company often refuses to insure anyone who is considered a health risk. Therefore, many people cannot afford or are unable to obtain individual healthcare policies.
TABLE 3-1. Comparison of Three Types of Healthcare Plans*
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TRADITIONAL INSURANCE OR FEE FOR SERVICE |
HMO MANAGED CARE |
PPO MANAGED CARE |
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Choice of primary healthcare providers (e.g., physicians, hospitals) |
Personal selection of any healthcare provider (e.g., physician, nurse practitioner, hospital) |
Selection of healthcare provider within HMO network Use of healthcare provider outside of network is at member’s own expense |
Selection of healthcare provider within PPO network Use of healthcare provider outside of network is partially paid, but at a higher expense |
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Choice of specialists |
Personal selection of specialist Some insurance policies may require preapproval for physician or procedure |
HMO primary physician approves specialist Use of specialist or procedures outside of network is at member’s own expense |
Selection of specialist within PPO network Use of specialist or procedure outside of network may be partially paid, but at a higher expense |
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Additional costs (out-of-pocket costs) |
Annual deductible of $I00-$500. Co-pay ranges widely. Possible copay responsibility of 20% of costs; limit on co-pay costs may apply Routine visits may not be covered |
Co-pay for each visit and for prescription drugs Co-pay ranges widely ($5-$25) Generally, no deductibles to pay Sometimes co-pay for hospital and emergency room visits (may be higher than office visit co-pay) |
Co-pay for each visit and for prescription drugs Co-pay ranges widely ($5-$25) For use of provider outside of PPO network, member pays a deductible and then the plan may pay a percentage of the costs |
^Healthcare plans are available for individuals or for specific groups. Typically, group plans are less expensive than individual plans. This table provides generalizations concerning some basic types of services.
Group Insurance
Group insurance offers coverage for people who belong to a certain group. For example, many companies, institutions, and fraternal organizations offer members group insurance benefits. In this situation, the premium is fairly low, and usually people are insured without a physical examination. Group plans may exclude coverage for preexisting conditions and may require a waiting period before clients can receive services.
Fee for Service Plans
In a fee for service plan for either individual or group insurance, coverage is available for medical bills, hospitalization, and other related services, such as surgery or laboratory tests. Fee for service plans are the most traditional type of coverage. People may purchase coverage only for themselves, or they may purchase family coverage for members of the immediate family.
Many plans also offer insurance that pays a set amount if a person becomes unable to work due to illness or injury, known as long-term disability insurance.
Health Maintenance Organizations
Health maintenance organizations (HMOs) offer health services for a fixed monthly charge called a premium. Members prepay for healthcare services generally through payroll deductions, governmental agencies (e.g., Medicare, Medicaid), or individual monthly fees. The fee or premium paid in advance to the HMO is called the capitation fee (also referred to as capitated payment). Members must use a physician within the HMO network. The physician uses medical services and specialty referrals that are provided by the HMO. Some HMOs have contracted healthcare facilities for their members.
Each plan will also have some type of additional financial obligation or predetermined co-pay that is charged to the client at the time of each visit. Typical services provided to the client by the HMO are listed in Box 3-4.
Some HMOs provide dental and optical services as well as medical and surgical services. The provider is responsible for managing the client in the most appropriate and cost-effective manner, to achieve desired outcomes.
Just as with any individual, HMO members can elect to go to any physician or seek any medical service that is not part of the HMO network. However, the HMO will generally not pay for this service unless it is preapproved by the administrators of the plan. Emergency room visits may be approved at the time of the client’s need.
BOX 3-4. Typical Services of a Managed Care System
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Services provided vary from plan to plan, and not all services may be available. Some services may be available at additional costs. |
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♦ Dental examinations and routine care |
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♦ Diabetic care |
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♦ Family planning and birth control |
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♦ Health education (e.g., antismoking, substance abuse) |
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♦ Home healthcare |
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♦ Hospice care |
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♦ Immunizations |
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♦ Inpatient medical and surgical care |
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♦ Laboratory and x-ray services |
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♦ Long-term care |
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♦ Prenatal, labor and delivery, and childbirth care |
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♦ Prescription drugs |
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♦ Routine checkup |
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♦ Speech, hearing, and vision examinations |
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♦ Urgent care |
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♦ Well-child care |
Features and services of most HMOs include:
• Group practice: Several physicians and specialists practice together.
• Prepayment: A person or company pays a certain amount in advance (capitation fee) and then is entitled to whatever care is needed. Sometimes, the client pays a small added cost (co-pay) as well.
• Prevention: The emphasis is on preventing disease, rather than treating it after it develops.
• Treatment: When diseases or disorders occur, they are treated, but the HMO makes decisions as to the type of treatment.
Some states require that employees in large organizations be given a choice between group insurance and HMO membership.
Some employers have initiated incentive programs to encourage employees to practice healthy habits. Employers reward employees for smoking cessation, weight loss, and regular physical examinations. Employees are encouraged to be seen in an urgent care center for routine illnesses rather than the emergency room. Usually the co-pay is much higher in the emergency room if urgent care was available at the same time.
Preferred Provider Organizations
Similar to HMOs, preferred provider organizations (PPOs) are used to deliver healthcare within a “managed” system. PPOs are made up of groups of healthcare practitioners who contract with the PPO to provide services. PPOs refer clients among their groups, and they usually require that their clients receive healthcare services from a member of that group, unless a special exception is made.
PPO members may use any of the services of the PPO, or they can elect to go outside of the PPO network for service. However, the cost of the service outside of the PPO network is generally higher. For example, a PPO may pay 90% of the cost of a visit to a PPO physician but only 70% of the cost to a physician who is not a PPO contracted physician.
Point of Service Plans
A point of service (POS) plan is similar to HMO and PPO plans, in that they are all types of managed care. The POS plan also contracts with physicians and other healthcare providers. The client is “managed” by a primary care doctor within the network of POS providers. In this plan, a client may seek care outside of the POS network but will pay a larger share of the healthcare costs. The percentage of cost outside of the POS varies. Often, the lines that define an HMO, PPO, and POS are indistinguishable.
Medicare
Medicare is a federal health insurance program that is available to most people 65 years of age and older, some people with disabilities younger than 65, and people with end-stage renal disease. Criteria for eligibility exist. Medicare consists of two parts: Part A, which is used for care in hospitals, skilled nursing facilities, hospice care, and some home healthcare, and Part B, which helps pay for physicians’ services, outpatient hospital care, and some medical services not covered by Part A. Various prescription benefits are available which may be called Part D. Seniors, their spouses, and their families are encouraged to obtain a thorough understanding of the types of Medicare insurance and prescription coverage. For detailed official information, visit the organization’s website (see Web Resources on Point ·_).
Medicare is also available to younger people receiving Social Security Disability Insurance (SSDI) payments. SSDI is a type of insurance program for employees who have become unable to work. SSDI is administered by the Social Security Administration (SSA). Both employees and employers pay into the SSDI fund, and it is reflected in the FICA tax on payroll deduction forms.
SSDI is not the same program as workers’ compensation. To be qualified to receive SSDI, employees must be totally incapacitated from gainful employment for at least a year. Workers’ compensation benefits may pay for partial disabilities, and the benefits may be for a shorter period of time (Physicians’ Disability Services and Pds Disability Facts, 2005).
Medicaid
Medicaid is a joint effort of federal and state governments. The federal government has set up guidelines for Medicaid, but individual states design their own programs. Therefore, regulations, eligibility requirements, and benefits vary greatly among the 50 states.
Generally, Medicaid is for people over the age of 65, those who are blind or disabled, or those who are members of families receiving Aid to Families With Dependent Children. States are ensured access to preventive healthcare (prenatal care, immunizations, and health and developmental screening) for women, infants, and children through their Medicaid programs. Medicaid is a public health insurance program for which people must qualify. The program is tax supported; thus, people who receive Medicaid benefits do not pay monthly premiums.
Medicaid pays for inpatient and outpatient services, including physician or advanced practice nurse services; laboratory and x-ray services; and screening, diagnosis, and treatment for children. It also pays for home care services and family planning. Some states support services, such as dental care and eye care, immunization clinics, well-child clinics, and various preventive medicine and rehabilitation programs. Most Medicaid programs are now structured as Medicaid care systems, although some services remain fee-for-service.
Medicaid-waiver programs, including those for the chronically disabled, older adults, and people with AIDS, facilitate the ability of these participants to remain at home and within the community. Medicaid often waives some of the qualification criteria and regulations for these clients.
People who are eligible for Medicare and Medicaid can supplement one program with the other. Medicaid may pay expenses not covered by Medicare if a person is eligible for both programs.
Key Concept Both Medicare and Medicaid are undergoing constant changes. These changes tend to be more visible to the public when they occur along with changes in the presidency or legislature. Be aware of the impact of these changes on clients, their families, and healthcare institutions.
Prospective Payment
In 1983, an amendment to the federal Social Security legislation changed the delivery of healthcare. This amendment created a prospective payment system, originally only affecting Medicare payments, but later adopted by other third-party payers. Prospective payment is a reimbursement system in which a predetermined amount is allocated for treating individuals with specific diagnoses.
The type of payment and reimbursement that existed in years past was called retrospective payment. This system reimbursed all actual costs of providing care. Many people felt that these costs were excessive, which contributed to the development of the system of prospective payment.
Diagnosis-Related Groups
Prospective payment is based on categories called diagnosis-related groups (DRGs) for hospitals and for home care. The term used in nursing homes and ECFs is resource utilization groups (RUGs).
The DRG system of prospective payment is based on medical diagnoses. Under this system, a federal agency has predetermined how much it “should” cost to treat a certain condition in a particular area of the United States. In this system, each client is classified according to the particular diagnosis (e.g., hip surgery, pneumonia, or heart attack). The costs for the client’s care are based on federally determined standards for that diagnosis.
The amount paid to the healthcare facility is predetermined and is without consideration of the actual costs of providing care to the client. Thus, a hospital treating an individual with a serious illness or surgery will receive the same reimbursement whether the person is hospitalized for 5 days or for 25 days.
Because a preset or prospective amount of money is paid for each diagnosis, the healthcare facility loses money if an individual client’s care costs more than average. The facility gains money, however, if a client’s care costs less than the average.
At the beginning of the 1990s, healthcare in the United States was a big business, and one of the top three industries in the country. Healthcare continues to be a big business, but the emphasis is shifting from inpatient to community-based care. With the implementation of DRGs, facilities must be run cost effectively or they will not survive. Not all states, however, continue to use DRGs. For example, in 1993 New Jersey deregulated, allowing the state to make more decisions itself.
