Healthcare cost for dummies - what is it and who should care about it?
It took me a while to understand the flow of $1.9 trillion (a currently estimated annual US healthcare spend). Here is how it usually goes (for a regularly employed person): your employer is contracting a service with a health insurance company (also called a payor), a service for which it pays a premium. You (an employee) might be asked to carry part of that premium, but bulk of it is employer's responsibility. Depending on the size of an employer, they are able to negotiate well because the risk is spread over a large population of people (a huge advantage over individual health plans which are by design more expensive as they carry higher risk for the payor). Depending on the type of plan, employees are free to see any physician they want (most common in PPO plans), or are restricted to "preferred in-network" providers (most common in HMO plans).
On the other hand, providers (physicians) are contracting reimbursement rates with various health insurance companies (or simply put they negotiate a "price list" or how much they can charge for each medical service they provide). These services are coded in the CPT (Current Procedural Terminology) system - a list of numerical characters each representing a unique service provided (e.g. a code 99203 referrs to a "new patient, level 3 exam: while code 99213 refers to "existing patient level 3 exam"). Again, translating to plain English implies that depending on the type of provider, a simple visit to your primary care physician (PCP) can cost you (and your insurance company between $80 and $160). This of course doesn't include any lab work or anything else (all procedures are separately coded). I recently learned that a puncture performed when the blood is drawn is charged $20.
If you are tracking so far, the flow of money goes as follows: employer pays premiums to payors, payors pay service fee to providers (physicians), and patients pay providers (co-pays) and employers (premiums). This doesn't include pharmaceutical companies (drug sales). The flow of service is as follows: physicians provide medical service to patient/employee, and payors provide billing service to patient/employee (processing claims, sending explanation of benefits forms post each visit etc).
Most current plans include an annual deductible (like a car insurance, the amount patient is responsible to cover, and is usually $100 per person each year), and a co-insurance or co-pay (again, depending on the plan, patient is responsible to cover part of the cost, usually between 5 and 25% of physician "list price"). So a visit like the one mentioned above could cost you between $4 and $40. And that's just a simple visit. Most of us don't really care about the cost of healthcare that someone else ultimately pays for (but wouldn't it be nice to know if a visit will cost you $4 or $40). And wouldn't it be nice to know that in advance?
As much as we in general don't worry about the cost and ineligible and difficult to understand benefits statements that accompany each physician visit, recent analysis from Hewitt Associates, a global human resources services company, (Business wire, June 28, 2007) indicates that "initial HMO premium rates(1) will increase by approximately 14.1 percent in 2008 -- the highest rate increase in 4 years"
The text further explains: "Employers are considering a number of strategies to help mitigate the impact of high HMO premium increases on their health care budgets this year, including
Shifting Costs to Employees: Historically, employers have relied heavily on cost shifting -- either through plan design or payroll contributions -- to help manage health care rate increases. In recent years, an increasing number of employers have implemented specific plan designs that encourage employees who are over-utilizing or abusing benefits to change their behaviors by increasing costs for those particular services. For example, companies have separated out co-pays between primary care providers and specialists (typically, specialist copay is $15 to $20 higher) to discourage inappropriate use of specialists.
Moving to Self-Insured Plans: As fully insured rates increase in excess of overall medical cost increases, an increasing number of employers plan to further eliminate local HMO offerings and consolidate those plan participants under a self-insured arrangement, in which employers assume the full financial risk for medical claim costs, paying a health plan an administrative fee for services such as claims processing and provider network management. Self-insurance reduces employer administrative costs and allows companies to pay claims based on their own experience rather than health plan book-of-business experience and trend rates. In addition, it enables employers to offer more consistent plan designs and health care programs across their entire employee population, reducing administrative costs and simplifying communication messages to employees during annual enrollment."
Confused enough? Wait until the next discussion on price/cost transparency (or lack thereof).
Thanks for reading,
On the other hand, providers (physicians) are contracting reimbursement rates with various health insurance companies (or simply put they negotiate a "price list" or how much they can charge for each medical service they provide). These services are coded in the CPT (Current Procedural Terminology) system - a list of numerical characters each representing a unique service provided (e.g. a code 99203 referrs to a "new patient, level 3 exam: while code 99213 refers to "existing patient level 3 exam"). Again, translating to plain English implies that depending on the type of provider, a simple visit to your primary care physician (PCP) can cost you (and your insurance company between $80 and $160). This of course doesn't include any lab work or anything else (all procedures are separately coded). I recently learned that a puncture performed when the blood is drawn is charged $20.
If you are tracking so far, the flow of money goes as follows: employer pays premiums to payors, payors pay service fee to providers (physicians), and patients pay providers (co-pays) and employers (premiums). This doesn't include pharmaceutical companies (drug sales). The flow of service is as follows: physicians provide medical service to patient/employee, and payors provide billing service to patient/employee (processing claims, sending explanation of benefits forms post each visit etc).
Most current plans include an annual deductible (like a car insurance, the amount patient is responsible to cover, and is usually $100 per person each year), and a co-insurance or co-pay (again, depending on the plan, patient is responsible to cover part of the cost, usually between 5 and 25% of physician "list price"). So a visit like the one mentioned above could cost you between $4 and $40. And that's just a simple visit. Most of us don't really care about the cost of healthcare that someone else ultimately pays for (but wouldn't it be nice to know if a visit will cost you $4 or $40). And wouldn't it be nice to know that in advance?
As much as we in general don't worry about the cost and ineligible and difficult to understand benefits statements that accompany each physician visit, recent analysis from Hewitt Associates, a global human resources services company, (Business wire, June 28, 2007) indicates that "initial HMO premium rates(1) will increase by approximately 14.1 percent in 2008 -- the highest rate increase in 4 years"
The text further explains: "Employers are considering a number of strategies to help mitigate the impact of high HMO premium increases on their health care budgets this year, including
Shifting Costs to Employees: Historically, employers have relied heavily on cost shifting -- either through plan design or payroll contributions -- to help manage health care rate increases. In recent years, an increasing number of employers have implemented specific plan designs that encourage employees who are over-utilizing or abusing benefits to change their behaviors by increasing costs for those particular services. For example, companies have separated out co-pays between primary care providers and specialists (typically, specialist copay is $15 to $20 higher) to discourage inappropriate use of specialists.
Moving to Self-Insured Plans: As fully insured rates increase in excess of overall medical cost increases, an increasing number of employers plan to further eliminate local HMO offerings and consolidate those plan participants under a self-insured arrangement, in which employers assume the full financial risk for medical claim costs, paying a health plan an administrative fee for services such as claims processing and provider network management. Self-insurance reduces employer administrative costs and allows companies to pay claims based on their own experience rather than health plan book-of-business experience and trend rates. In addition, it enables employers to offer more consistent plan designs and health care programs across their entire employee population, reducing administrative costs and simplifying communication messages to employees during annual enrollment."
Confused enough? Wait until the next discussion on price/cost transparency (or lack thereof).
Thanks for reading,
posted by Emma | 10:40 PM
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People should read this.
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