Health Insurance and Managed Care RMI 3500 Intro. to Risk Mang. & Ins. Robert Klein Revised 10-7-07
Topic Objectives • Understand major health care problems. • Describe basic medical expense coverages. • Explain major medical insurance in detail. • Explain purpose/motivation of managed care. • Review managed care devices to control costs. • Outline major types of managed care plans. • Discuss issues re: managed care practices. • Discuss long-term care insurance and disability insurance.
Soaring Costs Cost Shifting Inadequate Access Large Number of Uninsured Uneven Quality Waste and Inefficiency Inflation New Technology Prescription Drugs Population Aging Mandated Benefits More Treatable Conditions Insurance Tax Subsidy Health Care Financing Problems Problems Causes
Market Responses • Employers, under competitive pressures have sought to contain rising employee health benefit costs. • Industry has developed “managed care” as one solution. • Other Trends • More cost shifting to employees • Employers dropping health coverage • Incentives for employees to improve their health
Types of Health Coverages • Hospital-Surgical Insurance • Major Medical Insurance • traditional indemnity plans • preferred provider organizations • health maintenance organizations • Long-Term Care Insurance • Disability Income Insurance • Group vs. Individual Plans
Hospital-Surgical Insurance • Covers routine but not catastrophic medical expenses. • Low limits • Many policies still in force, few new policies sold. • Coverages • hospital expenses • surgical expenses • Outpatient services • physician hospital visits “Our current medical plan offers a 3-day stay for a bullet in the groin or torso, a 2-day stay for a bullet in an extremity and an overnight for superficial wounds.”
Major Medical Insurance • Preferable & predominant form of health insurance now purchased. • Broad coverage for significant proportion of routine and catastrophic medical expenses. • High lifetime limits: $1 million unlimited. • Benefit period: benefits will be paid for specified number of years for specific illness without new deductible.
Major Medical (cont.) • Deductibles • Eliminate handling cost of small claims • calendar-year • family • common accident • Coinsurance • Discourages over-utilization • (Total expense - deductible) x CF = Benefit • Coinsurance Factor (CF) typically 80% • Stop-Loss Limit • total expense paid by insured after co-insurance but not including deductible. • Protects insured against high out of pocket costs
Example • Assume policy with: $500 CY deductible; 80% coinsurance; $5,000 stop loss limit; $1 million total limit. • Insured has medical expenses of $4,000 • Benefits = (4,000-500) x .8 = 2,800 • Insured has medical expenses of $50,000 • without stop loss, B = (50,000-500) x .8 = $39,600; insured would have to pay $10,400. • with stop loss, B = $44,500; insured pays $5,500; stop loss limit triggers at $25,500 in medical expenses.
Major Medical (cont.) • Exclusions • elective cosmetic surgery • dental and eye care • pregnancy and childbirth • experimental surgery • Internal Limits • alcohol/drug treatment • Managed Care Elements • Pre-certification, preferred provider • Critical Illness Policies • e.g., cancer policies
Health Savings Accounts • Allows people to “deposit” funds into trust account to cover qualified medical expenses up to established limits. • Funds deposited are “tax-deductible” → allows you to cover out-of-pocket expenses with pre-tax dollars. • Good strategy to use HSA’s for anticipate non-covered medical expenses. • However, unused funds do not roll over. • Bush seeking to expand HSA limits/usage and allow roll over of unused funds.
Medical Contract Conditions • Renewal provisions • optionally renewable (insurer choice) • non-renewable for stated reasons • guaranteed renewable (rates can rise) • non-cancelable (rates cannot rise) • Pre-existing conditions clause • Pre-existing conditions not covered for specified period of time. • Grace periods and reinstatement
Managed Care • Medical expense plans that provide broad covered services to members with strong emphasis on cost control. • Contrast with standard indemnity (fee-for-service) plans with unlimited choice of providers. • Cost control mechanisms substitute for financial incentives in indemnity plans. “Your husband will receive the best care known to medical coverage.”
Managed Care Cost Controls • Limited choice of physicians • Utilization review • Control of provider reimbursement • Preventive care “Good news, hon! Your treatment has been authorized.”
Managed Care Plans • Health Maintenance Organizations • Preferred Provider Organizations • Exclusive Provider Organizations • Provider Sponsored Organizations • Point-of-Service plans
HMO both provides and finances medical care Broad coverage with low deductibles and copays Prepaid health coverage Doctors not compensated by fee-for-service Salaried employees Capitation – set fee per insured, patient, or procedure Other cost controls: most limited choice of providers gatekeepers Health Maintenance Organizations (HMOs) “Very scary Jennifer – does anyone else have an HMO horror story?”
Pros Comprehensive care Lower deductibles, lower copayments Fewer exclusions Preventive care No claim forms to file Lower cost Cons Less freedom to choose doctor What do you do when you are outside the area? Quality of care? Pros/Cons of HMOs “We’re in HMOs - the closest to legit we’ve been in years.”
Doctors who contract with insurer or group to offer services at reduced rates. Not the same as HMO Independent doctors Doctors paid by negotiated fee Insured chooses provider within PPO Advantages Lower cost than indemnity plans Greater choice than HMOs Help new doctors build up practices Disadvantages Only works well with large groups More expensive than HMOs Limited to PPO providers Preferred Provider Organizations
Point-of-Service combines HMO or PPO with greater provider choice In-network care fully reimbursed. Out-of-network services option subject to deductible and large copay. PSOs Owned by providers Response to HMO & PPO controls Hold harmless clause Solvency issue Providers encountering cost vs. quality of care issue Other Managed Care Plans
National Employee Enrollment in Health Care Plans, 1993–2005(% of All Covered Employees)
Federal Laws: HIPAA • Health Insurance Portability and Accountability Act (HIPAA) • employer-sponsored plans cannot limit coverage for pre-existing condition for more than 12 months • health status discrimination by employer prohibited • portability between employers • small-group guarantees
Federal Laws: COBRA • Consolidated Omnibus Reconciliation Act of 1985 • if worker leaves job, worker can continue coverage under employer’s plan for up to 18 months at 102% of group rate. “Uninsured? That won’t be a problem. We can refer you to a very good doctor in Ottawa.”
39-49% of persons reaching age 65 will spend some time in nursing home. $50,000-$80,000 cost per year. Includes skilled/immediate nursing, custodial and home health care. Aggregate benefits; elimination periods. Inflation protection, renewability. Expensive; rates rise exponentially with age at inception of policy. Difficult choices: benefits viability of insurer Long-Term Care Insurance
Disability Insurance • Probability of person age 25 becoming disabled for 90+ days is 54%. • DI provides income when insured is unable to work because of illness/injury. • To reduce moral hazard, benefits replace 60-80% of income. • Disability definitions become stricter as time length of disability increases. • Partial and residual liability coverage. • Benefit and elimination periods.
Consumer Considerations • Choices among employer health plans. • Buying individual policy if you do not have group insurance coverage. • uninsured tend to receive lower quality care • premium versus coverage provisions • Choices • type of plan (indemnity, PPO, HMO) • covered expenses • deductibles and limits
General Principles • Insure for catastrophic loss. • Consider group insurance if available. • Use preferred providers. • Consider disability income insurance. • Avoid limited policies. • Be aware of restrictions. • Use deductibles, elimination periods.