Health Systems Organization

Health Systems OrganizationSession 6February 10, 2011

Health System Economics and FinancingConcepts and Consequences of Insurance1Small Group DiscussionWhat is meant by the term "health services financing"? What are the key concepts? What influence does financing have on the health services delivery system? [p. 198-201]What are the key concepts of insurance? [p. 201-206]What are the key financing and cost-sharing characteristics of Medicare Part A and B? What are the similarities and differences? [p. 207-218]Describe the other (non-Medicare) publicly funded health financing programs. Illustrate the differences and similarities of financing and delivery in the private and public sectors. [p. 219-212]What is the difference between national health expenditures and personal health expenditures? What do we know about trends for both? [p. 229-233]What are some of the main problems and issues pertaining to the financing of health services in the US? [p. 233-237]

22A Mix of Public and Private FinancingMedicareMedicaid/SCHIPCenters for Disease Control (CDC)Indian Health Service (IHS)Veterans AdministrationHealth Resources & Services AdministrationOther GovernmentWorkers Compensation

Commercial Insurance Large GroupSmall GroupIndividual Commercial PlansOut-of Pocket CostsPlan TypesIndemnityPPO/POSHMOHDHP3The US healthcare system is financed through a mix of private (noted on left) and public (on right) sources.

Medicaid: HealthyKids; HealthKids Connect; Reservation list for adults (OHP Standard & Plus)3Source: OECD Health Data 2009, OECD

(http://www.oecd.org/health/healthdata).Public Sector Financing of Health Care44Unlike most other industrialized countries, where health care is seen as part of the responsibility of society and a public good, health care in the U.S. is primarily perceived as a matter of private resources and purchases.

The public sector is the main source of financing in most OECD countries. Only in the United States and Mexico do public sources account for less than 50% of health financing.

However, when tax breaks for employer-based health insurance are factored in, about 60 percent of health care in the United States is financed by public dollars (Health Affairs, July/August, 2002).

Department of Health and Human ServicesCenters for Disease Control (CDC)$8.8 billion budget (FY 2009)National Institutes for Health (NIH) $30.5 billion budget (FY 2009)Center for Medicare and Medicaid Services (CMS)$803.1 billion budget (FY 2010 request)Health Resources and Services Administration (HRSA)$7.13 billion (FY 2010 request)Agency for Health Research and Quality (AHRQ)$372 million (FY 2009)Food and Drug Administration$1.77 billion general fund; $628 million industry fees (FY 2009)Indian Health Service$3. 64 billion (FY 2010 request)Substance Abuse & Mental Health Services Administration$3.5 billion (FY 2010 request)5So, what are the sources of public financing and what do they fund? This is an IN-complete list of federal funding programs but are the ones that most of you are most likely somewhat familiar with. ARE THEY???

These are estimates and/or requests, but they give you a sense of the breadth and magnitude of health-related economics in the U.S. and a sense of cost beyond per capita HEALTHCARE spending.

Public funding for health & healthcare supports everything from the bench research that underlies new drugs/devices, to the physical, social and political environments that impact resources and resource allocation.

5

Total Health Expenditures Per Capita, 2007.

Source: OECD Health Data 2009, OECD (http://www.oecd.org/health/healthdata).6It is reasonably well known that for some time the United States has spent more per capita on health care than other countries. What may be less well known is that the United States had one of the highest growth rates in per capita health care spending between 1980-2000, although since then spending growth has been more in-line with that of other industrialized nations at about 4%.

In 2007, health expenditures in the U.S. equaled 16% of GDP, at least 3 percentage points higher than for any other country in the analysis.6Distribution by Insurance Status, OR 2007-08Uninsured16.6%7Putting the costs into perspective saw earlier that national CMS (basically Medicare and Medicaid/SCHIP) budget is about $800 billion. Because administrative overhead is fairly low for both programs, the vast majority of the budget is spent on actual services.

Here you can see that in Oregon which looks about like the U.S. as a whole Medicare and Medicaid combined cover just under 25% of the population in Oregon.

Close to US averages slightly higher individual commercial (5.8 v. 4.7%)Lower Medicaid in OR (11.4%) versus 14.1% nationally and higher uninsured at 16.6% v. 15.4% nationally.

Point of all of this isnt to address health care financing that is for another class but to provide some context for understanding the magnitude of the system and the programs through which these funds are administered. Were going to take a few minutes to look at each of these system components in slightly more depth. Starting with the public programs where the focus is Medicare and Medicaid. 7MedicareEstablished in 1965, subsequent expansions in population/benefitsAccounts for 13% of total federal outlaysCovers 46 million people nationallyFour PartsPart APart BPart CPart D

8Medicare accounts for about 13% of total federal outlays and covers approximately 46 million people nationally.

Part A pays for inpatient hospital, skilled nursing facility, home health (also under Part B) and hospice care, and accounts for 36% of benefit spending in 2009. Part A is funded mainly by a dedicated tax of 2.9% of earnings paid by employers and employees (1.45% each) deposited into the Hospital Insurance Trust Fund.

Part B pays for physician, outpatient, preventive services, and home health visits, and accounts for 29% of benefit spending in 2009. Part B is funded by general revenues and beneficiary premiums ($96.40/month in 2009). Beneficiaries with higher incomes ($85,000/individual; $170,000/couple in 2009) pay a higher, income-related monthly Part B premium.

Part C refers to the Medicare Advantage program, through which beneficiaries can enroll in a private health plan, such as a health maintenance organization (HMO), and receive all Medicare-covered benefits, including prescription drugs. In recent years, Congress has increased payments to Medicare private plans to encourage plan participation throughout the country, including rural areas. As a result, the average Medicare payment to Medicare Advantage plans is 113% of the cost of similar benefits in the original fee-for-service program (MedPAC, 2008). Part C now accounts for 24% of benefit spending. Part C (Medicare Advantage) plans are not separately financed. They provide benefits under Parts A, B and D.

Part D is the voluntary, subsidized outpatient prescription drug benefit, with additional subsidies for beneficiaries with low incomes and modest assets. Unlike Parts A and B benefits, the Part D drug benefit is not covered under the original fee-for-service Medicare program. Instead, it is offered under private plans that contract with Medicare, both stand-alone prescription drug plans (PDPs) and Medicare Advantage prescription drug plans (MA-PDs). More than 25 million beneficiaries are enrolled in a Medicare Part D plan. Part D accounts for 11% of Medicare benefit spending in 2009. Part D is funded by general revenues, beneficiary premiums, and state payments.

8Medicare Benefit Payments, by Type of Service, 2009

Total Benefit Payments = $484 billionNOTE: Does not include administrative expenses such as spending for implementation of the Medicare drug benefit and the Medicare Advantage program. Total is net of $9.4 billion in recoveries for 2009 .SOURCE: Congressional Budget Office, Medicare Baseline, March 2009. Part A Part B Part D Part A and B19%4%23%5%28%4%6%4%5%

9Estimated Sources of Medicare Revenue, 2010

SOURCE: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.PART A$237 BillionPART D$66 BillionPART B$196 BillionTOTAL$499 Billion

10Problem with sources of revenue Gap in the middle. When Medicare was enacted, there were 4 workers per beneficiary, in 2010 it is 3.5, and by 2030 it will be just 2.4.

But Medicare isnt the only program being supported by workers Medicaid/SCHIP and Social Security are also predicated on payroll taxes. When all of these programs are taken into account, the dependency ratio becomes almost 1:1. Distribution of Total Medicare Beneficiaries and Spending, 2005

Total Number of Beneficiaries, 2005: 37.5 millionTotal MedicareSpending, 2005: $265 billionAverage per capita Medicare spending among bottom 90%: $2,934Average per capita Medicare spending among top 10%: $44,220NOTE: Analysis excludes Medicare Advantage enrollees. SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Cost & Use file, 2005.

11This phenomenon is not unique to Medicare, but exists with Medicaid and with private insurance parallel to the 80/20 rule. Much of this spending is in the last few weeks of life. Medicaid BasicsEnacted in 1965 as a federal-state partnership to provide health coverage for welfare recipients; subsequently expanded and modified:Disproportionate Share (DSH)1915/1115 WaiversTEFRA/DRA/OBRA/etc.State Childrens Health Insurance ProgramEstablished by Balanced Budget Act of 1997Allowed coverage of children in families 1000100.0%100.0%100.0%Source: Agency for Healthcare Research and Quality, 2000, 2004 & 2008 Medical Expenditure Panel Survey-Insurance Component; Table II.A.2.

16First thing youll note coverage varies by size of firm. Among smallest firms those with