Module 2 â€“ Sources and Characteristics of Information Relating to Health Care Financing in the UScomprises public domain information from the National Information Center on Health Services Researchand Health Care Technology, United States National Library of Medicine, National Institutes of Health. Module 2 – Sources and Characteristics of InformationRelating to Health Care Financing in the US This module was authored by Jean Newland, Assistant Director, Lippincott Library of the WhartonSchool, University of Pennsylvania, with assistance from Jonathan Ketcham, Ph.D., formerly at Whartonand now at the University of California, Berkeley, School of Public Health, Scholars in Health PolicyResearch ProgramModule 2: Learning objectivesBy the end of this module, readers willâ€¢ be able to describe the significant trends in spending, outcomes, and access within the U.S.health care system; and â€¢ know where to go to find the main sources of literature and data relating to health carefinancing in the U.S. The U.S. health care financing systemIn this section we will be looking at a snapshot of the current health care situation. We will ask whetherthe U.S. health care system is really a system and will investigate how the money is spent, what arethe health outcomes and how individuals access the system.A snapshotIn the U.S. health care is financed, or paid for, in a variety of ways. Individuals may pay directly forservices received. Others may have health insurance coverage as a tax free benefit from theiremployment. Military personnel and their dependents, as well as veterans, are provided health carecoverage through the federal government. Older Americans depend upon Medicare and low incomemothers and children, as well as some disabled persons in the U.S., receive health care assistancethrough Medicaid. Children who might not otherwise receive medical attention may do so through theState Childrenâ€™s Health Insurance Program (SCHIP).Many of the employed are covered by employer provided health care insuranceâ€¦ traditional indemnityinsurance or managed care plan, such as a Health Maintenance Organization (HMO), PreferredProvider Organization, (PPO) or Point of Service Plan (POS) â€“ which employers purchase as a group. Employees may or may not have had some input into the choice of that plan. Those with employerprovided insurance are in good company, as the vast majority of Americans are covered byemployment-based private insurance plans, 64% of the U.S. population, for example, in 2000.An additional 24% of our population in the same year was covered by some type of government plan.The breakdown is as follows: Medicare, 13%; Medicaid, 10%, Military Health Insurance, 3%.Many Americans are covered by more than one health insurance plan, and coverage between plansoften overlaps. Among plans and programs there are many differences in the range of services covered,procedures followed, and payment provided. For our purposes today, it is probably not so importantthat we know all of these details, and you will find additional information on various types of insuranceplans in the glossary.From this brief description, however, one point is very clear. The health care financing system is not somuch a system as it is a crazy-quilt of programs that, when pieced together, cover to some degree, themajority–but clearly not allâ€”of the American people.Because there is such a wide variety of public and private insurance programs in the US, there is alsogreat opportunity for researchers to study the tradeoffs between key issues. Most notable are issuesrelated to spending, outcomes, and access. SpendingSpending on health care services and products reached$1.3 trillion in 2000, which was up 6.9% fromthe previous year. This $1.3 trillion figure represents 13.2% of the U.S.Gross Domestic Product (GDP), orthe total value of goods and services produced that year in the U.S.Looking at this amount in the very broadest context over13% of the total amount that was spent for allgoods and services, or about 1 dollar in every 7, was allocated for health care purchases in 2000.The $1.3 trillion also means that individuals spent $4,637.00 per capita in 2000 in their quest forâ€œhealthâ€. This is well above what other industrialized nations spend. The U.S.ranking for per capitahealth expenditures consistently exceeds that of other OECD nations, and the rate of increase in percapita health expenditures is relatively highas well.What are some factors that contribute to the rapidly escalating health expenditures?Throughout the literature, several determinants are cited repeatedly: an aging population, anincreased demand for and use of advanced technology, a decline in enrollmentin restrictive, costcontaining health care plans, and rapid spending growth on prescription drugs.Growth in national health expenditures2 Source: CMS, Office of the Actuary, National Health Statistics GroupNote: Deflated using the GDP chain weighted price index.Nominal: values expressed in current dollar terms (not adjusted for inflation).Real: values adjusted for economy-wide inflation. Health spending growth slowed between 1993 and 2000 to an average increase of 5.6 percent, abouthalf the rate of increase between 1980 and 1993. Health care expenditures as percentage of GDP Source: CMS. Office of the Actuary, National Health Statistics Group. 3 Rapid growth in the health spending share of GDP stabilized beginning in 1993. Note the sharp upwardcurve between 1980 and 1992. OECD Health Data 2001When you compare the U.S. health care system to that of other industrialized nations, you will seestartling results not only in expenditures but also in outcomes. Data from OECD Health Data 2001 givesus comparative health status information on its 30 member countries.Characteristic US Health Expenditure per capita, 1998, $US PPP $4,165 OECD$1700 Life expectancy at birth Male: 73.9 Female:79.4 Male: 73.7 Female:79.8 Infant mortality 7.2 per 1,000 livebirths 6.7 per 1,000 livebirths These data show that, in spite of ranking at the top of the list for health expenditures, the U.S. fallsinto the mid-ranges for some broad measures, such as life expectancy and infant mortality. World Health Organization Report, 2000 Member State Health expenditure percapita in Internationaldollars (Ranking) Overall health systemperformance Chile 44 33 Costa Rica 50 36 Cyprus 39 24 Oman 62 8 4 Member State Health expenditure percapita in Internationaldollars (Ranking) Overall health systemperformance United States of America 1 37 Source: Annex Tables 5-10World Health Report 2000, WHO What does this table tell you?See if you can select the correct answer before reading onThis table tells me that:A. Oman spends more on health care than the United States per capitaB. The US spends more on health care per capita but ranks very low with respect to overall healthsystem performanceC. Costa Rica has a worse overall health system performance than ChileD. The World Health Organization doesn’t keep very good records of health expenditures and overallhealth system performanceThe correct answer is B. The U.S. spends more on health care per capita – it is number 1 in spending but ranks very low (37th) with respect to overall health system performance.Current Population ReportsA Current Population Reports Special Study says it in a nutshell:â€œâ€¦the United States outspends the world on medical care, but three-fourths of developed countrieshave better health measuresâ€.Source of Quotation: Population Profile of the United States 1999, Current Population Reports SpecialStudy, March 2000.It is important to remember that medical care is just one factor that determines health. Some of theothers, such as heredity, lifestyle, and preferences – diet, exercise, use of tobacco and alcohol, to namea few – must also be taken into account.Access to health careThe final problem area that should be mentioned is that of access. In the U.S. health care system,millions of Americans slip between the cracks and have no health care coverage at all. The chance ofbeing uninsured varies by race and ethnicity, age and employment status.5 Number of uninsured over timeThis table shows the number of uninsured Americans (in millions) between 1995 and 2001. Year Number 1995 40.6 1996 41.7 1997 43.4 1998 44.3 1999 39.3 2000 38.7 2001 41.2 Those who had no health insurance in 2000 accounted for 38.7 million people total in 2000.Although the number of uninsured dropped from 1998 to 2000, that number has risen again with thedownturn in the economy to 41.2 million.12% of all children in U.S. under age 18 â€“ 9.2 million children â€“ had no health insurance in 2000-2001. Health care reformNevertheless, health care reform is, and has been, a hot issue for some time and is likely to remain sountil there has been additional progress in resolving some of the basic issues that have been mentioned.Americans are conscious of, and troubled by, the flaws with the system of providing health care andhealth care reform is often on the minds of those who work in health care and for the government.It is likely that health care researchers, policy makers, decision makers, as well as the general public â€“who are taxpayers and consumers – will continue to seek improvements in health care and that, in doingso, they may approach you for assistance in identifying and retrieving health care expenditure and 6 related data. To that end it is important to take a closer look at major funders of the health care systemand at some of the data available. Sources of Health Care FundsThis section will cover who pays and who are the major funders. It will also explore how the systemworks and possible future trends. Before looking at sources of U.S. health care dollars, it is important tokeep in mind the following quote on the subject of health care costs and spending. Jonas and Kovnerâ€™sbook, Health Care Delivery in the United States, states:â€œUltimately, the people pay all health care costs. Thus, when we say health care monies come fromdifferent sources, we really mean that dollars take different routes on the way from consumers toproviders through government (taxes), private insurance companies (premiums), and independentplans, in addition to out-of-pocket payments.â€The nationâ€™s health dollar comes from the taxes and insurance premiums we pay, as well as fromour co-payments and out-of-pocket expenditures. And perhaps this is one of the most compellingreasons that health care reform is of such vital interest to researchers and the general public alike.Let us continue and look at routes those health care dollars taken from consumers to providers. As wedo so, we will address three basic questions:1. What funders are included in this category?2. How does this funding scenario work?3. What are the trends?The Nationâ€™s Health Dollar: 2000 What Funders are Included? 7 Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health StatisticsGroupWhat is the largest slice of the health care dollar pie? It is clear from this slide that monies from privateinsurance comprised the largest category of funds in 2000 – 34%.Think about Medicaid and Medicare costs at 33%. Who pays for those receiving health care throughthose programs? All of us do through the taxes we pay. This is indirect out-of-pocket expenditures.Where does the 15% out-of-pocket costs come from? Again, the money comes directly from ourcheckbooks or pockets. Out-of-pocket costs include paying for services not covered by your health planor insurer. Examples include paying for services from a chiropractor not on the approved provider list ofyour health plan and co-payments.In fact, 60% of the total health care dollar comes directly or indirectly from our pockets, directly fromour pockets or indirectly paid for through taxes. How does this scenario work?Insurance is like a club.This is the analogy Sherman Folland uses in his book The Economics of Health and Health Care:â€œConsider a club with 100 members. The members are about the same age and they have the samelifestyle. It seems that about once a year one of the 100 members gets sick and incurs health care costs8 of $2,000.00 The incidence of illness seems to be random, not necessarily striking men, women, theelderly or the young in any systematic fashion. The club members, worried about potential losses due toillness, decide to collect $20.00 from each member and put the $2,000.00 in the bank for safe keepingand to earn a little interest. If a member becomes ill, the fund is used to pay for the treatment. This in anutshell, is insurance. The members have paid $20.00 to avoid the risk or uncertainty, howeversmall, of having to pay $2,000.00. The â€˜firmâ€™ collects the money, tries to maintain and/or increase itsvalue through investment and pays claims when asked.â€From the inception of health insurance (in 1847, when the first commercial plan was organized) to the1930â€™s, the purpose of such insurance was to offset income losses resulting from disability, usually dueto accidents. Since that time, however, health insurance has evolved greatly and is now a mechanismfor defraying costs of illness, not just accidents, and for financing routine and preventative health care.Whether private insurance is an employee compensatory benefit and thus purchased for individuals bycompanies and organizations or purchased directly by the individual, it operates in similar fashion. Apremium is paid by employers or individuals to an insurance company, which pays the doctors, hospitalsand other health care providers for care and services administered to the eligible patient. Private fundsFunds in this category of â€œprivate insurersâ€ include premiums paid to commercial carriers, BlueCross/Blue Shield and managed care plans, as well as self-insured employers.Other private funding sources include, among other things, privately funded construction, andadditional non-patient revenues, including philanthropy. Out-of-pocket expenditures come from privatesources in that they include direct spending by consumers for all health care goods and services, such asco-insurance, deductibles, and any amounts not covered by insurance.As we have seen in the pie chart in the previous section, private insurance accounts for 34% of the fundswhile out-of-pocket accounts for 15% and “other” private accounts for6%. Table: National health expenditures aggregate, per-capita, percent distributionItem 2000 1990 1960 National Health Expenditures $1,299.50 $696.00 $26.70 Private 712.30 413.50 20.10 Amount in Billions 9 Item 2000 1990 1960 Public 587.20 282.50 6.60 Federal 411.50 192.70 2.89 State and local 175.80 89.80 3.80 National Health Expenditures $4,637 $2,738 $143 Private 2,542 1,627 108 Public 2,096 1,111 36 Federal 1,468 758 15 State and local 627 353 20 National Health Expenditures 100 100 100 Private 54.8 59.4 75.2 Public 45.2 40.6 24.8 Federal 31.7 27.7 10.6 State and local 13.5 12.9 14.2 National Health Expenditures as aPercent of GDP 13.2 12 5.1 Per Capita Amount Percent Distribution 10 Source: Centers for Medicaid and Medicare Services, Office of the ActuarySo what has the trend been with private insurance?Taking a long term view, that is, over the past 50 years, we can say that we have come to depend lesson funds from private sources, especially with the inception and implementation of Medicare, in the60â€™s â€“ as this table shows.Note that in 1960, 75.2% of total health expenditures were funded from private sources, whereas,in 2000, the percentage of privately funded health expenditures is at54.8%.Over the shorter term, the past 10 years, there has been a decrease from nearly 60% in 1990 tothe 54.8% level in 2000. Public fundingTurning our attention to public funding â€“ we can see that the breakdown of expenditures from publicsources for the year 2000 is as follows: Medicare 17%; Medicaid and State Childrenâ€™s HealthProgram 16%; Other Public 12%. MedicareMedicare is one of the more familiar programs to Americans. This federal program provides a range ofmedical care benefits for persons aged 65 and over, disabled persons and their dependents and thosesuffering from chronic kidney disease. Medicare covers about 95% of our nationâ€™s aged population,approximately 39 million in 2000. Traditionally, there have been 2 parts to the program.Part A is financed by payroll taxes collected under the Social Security System and provides hospitalcare, extended facility care, and some home care.Part B is a voluntary supplemental program that covers physicianâ€™s expenses and is supportedby general tax revenue and a small premium from enrollees. Nearly all Medicare beneficiariesautomatically covered by Part A join Part B as well.There is a newer, third part of Medicare â€“ sometimes known as Part C, established in 1997. It has anexpanded set of options for the delivery of health care under Medicare, allowing beneficiaries toparticipate in eligible HMOs, PSOs, PPOs and other coordinated care plans.Sources of payment for Medicare… 11 Medicare pays more than half the total cost of beneficiaries’ medical care.However, Medicare is not comprehensive; there are deductibles, co-insurance fees, and serious gaps incoverage.Seniors with Medicare coverage are still responsible for many out-of-pocket expenses â€“ most notably,and most currently newsworthy, prescription drugs and long-term care. They are the ones we havebeen hearing the most about in recent years. Medicaid and SCHIPMedicaid is a program funded jointly by federal and state governments and, in reality, encompasses 50different state programs grouped together under this common name and bound together by somegeneral requirements. Medicaid helps low income persons and covers about 36 million individuals.Eligibility for Medicaid is determined by the states themselves within federal guidelines, which includemajor types of care required to be covered.Created by the Balanced Budget Act of 1997, the State Childrenâ€™s Health Insurance Program (SCHIP) is alargely federally funded Medicaid program designed to help states expand health insurance tochildren whose families earn too much for traditional Medicaid but not enough to afford private healthinsurance. In 2000, 3.3 million of the nationâ€™s approximately 11 million otherwise uninsured childrenwere covered by SCHIP. Due primarily to increased flexibility and expanded marketing, that amount wasincreased by 38% in 2001, resulting in 4.6 million children covered.Other Publicâ€œOther Publicâ€ includes programs such as workers compensation, public health activity, Department ofDefense, Department of Veterans Affairs, Indian Health Service and State and local 12 government hospital subsidy and school health. These programs provided 12% of the total healthdollars for the nation in 2000.Public funding has generally increased over the long term from roughly 25% in 1960 to 45.2% in 2000.This increase, especially since 1965, is largely a result of greater federal expenditures and muchsignificant rise in federal spending is accounted for by the Medicare and Medicaid Programs.The trend here is the reverse of that for private funding.Spending: Where it went â€“ 2000 And where did that money go in 2000?This slide shows the various categories of expenditures and the percentages of total dollars spent foreach. Hospital care accounted for 32% of the health care dollar. Physician and ClinicalServices accounted for 22%. Other Spending – which includes dentist services, other professionalservices, home health, durable medical products, over-the-counter medicines and sundries, publichealth, research and construction – accounted for a hefty 24% with prescription drugs at 9%, nursinghome care at 7%, and program administration at 6% of the total spending.The next section looks at the main sources of literature and data relating to health care financing in theUnited States. Major statistical sourcesIn this section we will answer the following questions:13 1) Where is the data?2) What does the data mean?3) What are we measuring? National Health Accounts (U.S.)The National Health Accounts series, which the U.S. Department of Health and Human Services haspublished since 1964, aims to â€œidentify all goods and services that can be characterized as relating tohealth care in the nation, and (to) determine the amount of money used for the purchase of these goodsand servicesâ€The Accounts are available for downloading in spreadsheet compatible format from the URL at theCenters for Medicare and & Medicaid Services Web site.The NHA consists of a matrix of categories which classify and define the sources of health care dollarsand the services purchased with these funds. They are based on a vast array of information collected bypublic agencies and private organizations.It is, in terms of scope, the most comprehensive source to consult for health care expenditure data.The series has many important characteristics: The unified structure of the NHA enables researchersto make comparisons of categories over time because it applies a common set of definitions tovariables. The NHA aims to be comprehensive because they contain all of the main components of thehealth care system, including not only personal health care expenditure data, but also that pertaining tomedical research, construction of medical facilities, program administration, etc. and, they are multidimensional in that the data are further broken down by geography and age-levels of subjects.In addition, the NHA represents the health care sector of the economy and, as such, show severalimportant relationships:1. Percentage of Gross Domestic Product (GDP). As previously mentioned, this figure reveals theamount the nation decides to allocate to health care â€“ relative to itâ€™s productive capacity. Itquantifies a national choice and, thus – provides a numeric basis for discussion.2. Expenditures by source of funds and changes over time in those sources. Important for policymakers, insurers, voters.3. Projection of future expenditures. Created from historical trends, these projections alert publicand private sectors to possible future outcomes.NHA/ NHE Documentation14 Given this enormous and rich body of information on U.S. health care expenditures, what should weremember when referring users to this source?As is the case whenever consulting statistical information, users need to be aware of the limitations ofthe data. It is critical that users familiarize themselves with the definitions, sources, andmethodologies used in creating the NHA in order to grasp what is being measured and how thatmeasurement is being accomplished.For the NHA, one needs just to consult the Centers for Medicare and Medicaid Services (CMS), formerlyHealth Care Financing Administration, homepage to find definitions of each category of medical serviceand source of funding, scope of the program, methodology of program, and source materials fromwhich the NHA are developed. Find information at the CMS Web site.This information can also be found in the annual review article on NHA in the journal Health CareFinancing Review and in Health Affairs. U.S. Bureau of Labor StatisticsIn this section we will examine the Consumer Price Index.Aside from total expenditure figures, researchers often require data on the components that make upexpenditure, and a key component of health care expenditure is price information. The most commonmeasure of prices is the Consumer Price Index. The CPI measures the average change over time in afixed â€œmarket basketâ€ of goods and services purchased by consumers and is generally used asa measure of inflation. Some version of the CPI has been published by the Bureau of Labor Statisticssince the early 1900s.To produce the index, BLS regularly collects data from over50,000 housing units and 23,000 businessestablishments in 87 areas across the country. The CPI is based on detailed expenditureinformation provided by families and individuals on what they have actually purchased for dailyliving over a given period of time. It currently includes price information on food, clothing, shelter, fuels,transportation, health care services, and drugs.The CPI and the medical prices indexes within it enables us tocompare consumer costs over time andto measure the rate of change in prices for various goods and services. Rate of change in price formedical goods, for instance, can be compared to the rate of change for all consumer goods. We can thenaddress the question: are health care prices escalating faster than the other prices are? Likewise, rate ofchange in prices among categories of medical care can be compared; hospitalization vs. physiciansâ€™services, for example.An annotated listing of many of these…
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