Health Care Costs

and Payment Models

2018• Presentation 2 of 6
 Learning Objectives
• Explain the basics of health insurance and coverage
• Demonstrate the complexity of health care costs and the large
variation in out-of-pocket costs based on insurance status
• Weigh the impact of insurance coverage and out-of-pocket costs
with the ability to adhere to treatment recommendations
• Explore how provider reimbursement models can affect delivery
of high value care
• Encourage physicians not to practice “one size fits all” medicine
 An Uninsured Patient’s Perspective
• Mr. M is a 28-year-old man with severe abdominal pain, ED
diagnosis of a ruptured appendix; treated with IV antibiotics
for 4 days, followed by surgery

• Patient: “I grew up in a family without health insurance my

whole life, and our policy was basically ‘Give it a couple of
weeks’… so I didn't want to call 911 or go to an emergency
room.”
 An Uninsured Patient’s Perspective1
• Julian McCullough, comedian
• Recorded at “Told,” a storytelling show in
New York City
• As heard on This American Life (NPR) (#439)
• “How much? No health insurance, 7 days in
the hospital, … appendectomy:”

$45,000
 Health Insurance Terminology2
• Cost: Dollar amount for a provider to deliver a health care service
• Charges: The financial amount a health care provider asks for a service
• Often much higher than cost and reimbursement
• Only uninsured patients are billed charges
• Reimbursement: Amount a third party payer (i.e., insurance) negotiates as
payment to the provider
• May drive charge inflation
• Price: the amount a patient pays out of pocket for a service
• Hardest number to estimate, but this matters most to patients
 Health Insurance Sources3,4
2016 Data:
Employer-Based: 46%
Medicaid and CHIPS: 17%
Medicare (65+): 16%
Uninsured: 8%
Military: 4%
ACA Exchange: 3.5%
ACA Medicaid: 3%
Other: 3%
 Insurance Types: Individual Private

• An individual person pays a premium directly to a “health plan”

or insurance company, which reimburses providers
• Plans offered directly from insurance companies or through
marketplaces or exchanges
 Insurance Types: Employer Private

• Employers usually pay all or part of the premium for their employees
• Tax-deductible business expense, not counted as taxable income for
employee
• In essence, government is subsidizing employer-sponsored health
insurance
Insurance Types: Government

• In the late 1950s, less

than 15% of the elderly
had health insurance
• In 1965, Medicare (for
elderly) and Medicaid (for
poor) was enacted
• First tax-financed
government insurance
 Medicare Plan Structure5
Part A Hospital services
Part B Physician services, outpatient, durable
medical equipment
Part D Voluntary prescription coverage
Medicare “Part C”, Medicare benefits through private
Advantage insurers
Medigap Supplemental insurance, can cover copays,
deductibles, and other costs
 Medicare Plan Structure
Medicare Part A Medicare Part B
• Hospital insurance plan for the • Insures the elderly for
elderly
physicians’ services
• Financed through social security
taxes (SSI) • Financed by federal taxes and
• At age 65, pts who have paid >10 monthly premiums from
yrs. into SSI automatically enrolled beneficiaries
• Those <65 totally and permanently
disabled may enroll after 24 mos of • Available to those eligible for
disability Medicare Part A who elect to
• Those on dialysis usually enrolled pay the Medicare Part B
without wait period premium of $134.00/month
 Medicare Plan Structure

Medicare Part D
• Voluntary prescription coverage that is added to original
Medicare, or included in Medicare Advantage
• Plans have monthly premiums in addition to that paid for
Part B, average around $30 but wide variation
• Usually tiered formularies with copayments
• Deductibles vary but may not exceed $405 per year
 Medicare Plan Structure

Medicare Advantage Plan

• Beneficiaries can enroll in a private health plan to receive
Medicare covered benefits
• Medicare pays private insurers a set monthly fee per
member; insurers manage risk
• Plans must cover Medicare parts A and B, usually cover D
• Rules vary: referrals for specialty care, restrictions on out-
of-network care
 Medicaid6
• Federal program administered by the states, with the federal
government paying between 50% and 76% of total Medicaid costs
• Required coverage includes: hospital, physician, laboratory,
radiology, prenatal, preventive, nursing home, and home health
services
• Pharmacy coverage is optional but currently is provided in all
states
• Covered groups: non-elderly, low income persons and the disabled,
no requirement for prior tax payments, evolving work requirements
in some states
 Affordable Care Act

Pre-ACA: Who were the uninsured?7

• Adults without dependent children
• Low income families (<400% poverty level)
• Moderate income families (too high to qualify for Medicaid, too
low to afford private insurance, some without access to employer
sponsored insurance coverage)
• Undocumented persons
 Affordable Care Act7
• Aims: To decrease the number of uninsured Americans and reduce health
care costs
• Passed in 2010, upheld in Supreme Court in 2012, 2015
• Expansion of coverage:
• Individual mandate (removed in the 2017 tax bill effective 2019)
• Medicaid expansion: Set the Medicaid minimum income eligibility across
the US to <138% of the federal poverty level
• Health insurance exchanges: competitive markets with clear information
to assist persons in purchasing insurance; subsidized for families <400%
poverty limit
 Access to Health Care7
Ongoing challenges:
 Case: Access to Health Care
• Ms. O is a 62 year-old woman presenting to the ED with dense
right hemiparesis and aphasia. CT scan confirms a large MCA
infarct and her labs reveal previously undiagnosed
hyperlipidemia. Review of a prior ED visit for an unrelated
issue reveals that she has untreated hypertension. She is
uninsured and has not seen a doctor in over ten years.
• How did her lack of health insurance contribute to this
outcome?
 Access to Health Care
7,8
Does Health Insurance Make a Difference?
• Fewer regular medical visits and preventive health screenings
• Lower survival rates for breast and colorectal cancer
• Increased mortality (likely owing to greater morbidity from
undiagnosed medical conditions)
• Less care during hospitalization
• Less likely to receive a costly test or procedure
• Higher in-hospital mortality rates
 Case: Out-of-Pocket Costs

Small Group Activity:

• A 37 year-old man presents to his PCP with progressive dysphagia to solids, without
weight loss
• No history of tobacco use or alcohol use
• Physical exam was normal. CBC, BMP, and LFTs were all unremarkable
• You tell the patient that you think should see a gastroenterologist and get an endoscopy
• The patient asks you what he can expect to pay out of pocket for this workup
 Case: Out-of-Pocket Costs
• Work in groups to complete the chart using Health Care Bluebook
• Use healthcare.gov to find the charges for high deductible plan (i.e. IBC Bronze)
• How do out-of-pocket costs affect adherence to the treatment plan?
GI Office Visit Endoscopy
Charges
Out-of-Pocket Cost: Insurance with
copay
Out-of-Pocket Cost: High deductible
plan or uninsured

Out-of-Pocket Cost: Medicare

 Case: Out-of-Pocket Costs
GI Office Visit Endoscopy
Charges $424 $1,528
Out-of-Pocket Cost: Insurance with
copay $25 $25

Out-of-Pocket Cost: High deductible

$424 $1,528
plan or uninsured*

Out-of-Pocket Cost: Medicare $340 $1,222

*Until deductible of $7150 (federal maximum) paid, then no charge

*Uninsured patients may have discounted costs based on their income
 Health Care Reimbursement
Diagnosis-related groups (DRGs)
• Physician or hospital is paid one sum for all services delivered during one illness; there is a
different set case-price for each of approximately 750 distinct DRGs (Medicare).
Per Diem
• The hospital is paid for all services delivered to a patient during one day (private insurance,
PPOs/HMOs).
Fee-For-Service
• The physician or hospital is paid a fee for each service (e.g., medication, IV fluids, ECG, surgical
procedure) provided (uninsured, some private insurance).
Capitation
• One payment is made for each patient’s treatment during a month or year (has now virtually
disappeared; previously, largely HMOs).
 Health Care Reimbursement
Accountable Care Organizations (ACOs)9
• ACA authorized creation by CMS in 2010
• Definition: Doctors, hospitals, and other health care providers who come
together to coordinate high quality care for Medicare and Medicaid patients
• Goals:
• Ensure that patients get the right care at the right time without duplication of
services or errors
• Realign value with payment incentives (“pay-for-performance”)
• Benefit: ACOs that provide high-quality care with lower costs will share the
savings with Medicare
 Steps Toward High Value Care10
• Understand the benefits, harms, and relative costs of
1 the interventions

2 • Decrease or eliminate interventions that provide no

benefits and/or may be harmful

• Choose interventions and care settings to maximize

3 benefits, minimize harms, and reduce costs

4 • Customize a care plan that incorporates patient values

and concerns

• Identify system level opportunities to improve outcomes,

5 minimize harms, and reduce waste
 Summary

• Insurance status, type of coverage, and out-of-pocket costs

affect adherence to recommended treatment plans
• Given large differences in coverage/affordability, we must all
seek to individualize patient care to improve quality and
safety and decrease unnecessary costs
 References
1. Clip courtesy of This American Life from WBEZ Chicago.
2. Moriates C, Arora V, Shah N. Understanding Value-Based Healthcare. New York, NY: McGraw-Hill; 2015.
3. US Census Bureau. www.census.gov . Accessed December 16, 2015.
4. Altman D, Frist W. Medicare and Medicaid at 50 years: perspectives of beneficiaries, health care
professionals and institutions, and policy makers. JAMA. 2015;314(4):384-95. [PMID: 26219056]
5. Department of Health and Human Services. www.medicare.gov. Accessed December 16, 2015.
6. Department of Health and Human Services. www.medicaid.gov. Accessed December 16, 2015.
7. Majerol M, Newkirk V, Garfield R. The Uninsured: A Primer — Key Facts about Health Insurance and the
Uninsured in the Era of Health Reform. The Henry J Kaiser Family Foundation Web site.
http://kff.org/uninsured/report/the-uninsured-a-primer/. Published Nov 13, 2015. Accessed December 16,
2015.
8. McWilliams J. Health consequences of uninsurance among adults in the United States: recent evidence
and implications. Milbank Q. 2009 June; 87(2):443-94. [PMID: 19523125]
9. Centers for Medicare and Medicaid Services. www.cms.gov . Accessed December 16, 2015.
10. Adapted from Owens, D, Qaseem A, Chou R, Shekelle P; Clinical Guidelines Committee of the American
College of Physicians. High-value, cost-conscious health care: concepts for clinicians to evaluate the
benefits, harms, and costs of medical interventions. Ann Intern Med. 2011 Feb 1;154(3):174-80. [PMID:
21282697]