1. Initial remarks: ______________________ Health care cost is rising by double digit every year even above the rate of general inflation. Controlling skyrocketing cost alone should not be taken as a basis of providing better access and quality in health care. Among other reasons, highly competitive landscape and profit motive of insurance companies distort medical ethics, induce fraud and malpractice among health care providers and create dissatisfaction among employers. Therefore, keeping quality, access, patients' bill of issues aside, simple cost cutting policy measure would rather increase this distortion. 2. Health Care spending: ___________________________ 2.1 Major sources of Health care spending: __________________________________________ 2.1.1 There are generally five primary sources of funding health care systems: "Direct or out-of-pocket payments, "General taxation, "Social Health Insurance, "Voluntary or private health insurance, and "Donations or community health insurance2,3; 2.1.2Usually Health care services receive payment by following methods: "Patient directly, or "Insurance company which is again paid by: oPatients (FFS) oPatient's employers, (Employer Based Coverage); oGovernment Medicare and Medicaid or Single payer (FFS, capitation or Mixed financing systems). "Charities or Volunteers, particularly in poorer countries. 2.2 Difference between private and public spending: _________________________________________________ 2.2.1Health care can be financed in combinations of four basic ways. Provision can be public or private. Finance can be public or private (Donaldson & Gerard. 1993): A. Private spending: "Public Provision: When private insurers buy services from publicly owned hospitals: "Private Provision: When private insurers buy services from privately held hospitals. B.Public Spending: "Public Provision: Health can be provided by publicly financed staff in publicly financed hospitals, as in the Spanish National Health system; "Private Provision: A self-employed doctor working for the NHS (UK) is an example of private provision with public finance 2.2.2Each means of financing has implications on efficiency and equity. A system that is financed by progressive tax is more equitable and it transfers wealth from rich to poor. Conversely, that financed by regressive program is less equitable. 2.2.3The differences between private and public funding/insurance are: A.Private Funding: "Private insurance always try to avoid "adverse Selection" , "Ex-post moral hazards" or "Selection Spiral" by medical underwriting. Medical underwriting increases premium, deductible, co-pay and co-insurance, access barrier; "Insurance premium cost is not constant, it increases yearly. That's why the contract is not renewable; "Increased paperwork, bureaucracy or delay to avoid payment of the sizable claim; "Employer-sponsored group plans are found at reasonable cost; but individual insurance are costly. "Private insurance creates income disparity, because traditional individual insurance doesn't get tax subsidy like employer based or mean-tested insurance; "The HMO type of health plans offers restrictive benefits, depends on excessive cost-cutting policies and thus compromises with quality; "As consumers can't negotiate with care providers due to middle-men, care providers create popular and unpopular ways (frequent visits, tests etc.) to inflate cost and controll the market force. This increases total health care spending; A. Public Funding: "The good and the bad risks all receive coverage regardless of health status, which eliminates the problem of adverse selection. Thus it reduces uninsured and access barrier. But it introduces a problem of moral hazards of overuse of services and irrational cost cutting by government; "Federally funded Medicare for elderly acute care premium is lower than private insurance. Part-A doesn't require to pay premium, part-D requires minimum premium, while part-B requires full premium. "A jointly funded federal-state program Medicaid provides long term care for those under 65. The states have some autonomy in implementing the program. 2.3 Health care spending over time and its impact: A.In general: "Health care spending as a share of U.S. economic output has been rising steadily even above the rate of inflation6,9. U.S. health care cost as percentage of GDP has increased from 5 in 40 years (from 1960 to 2002). The figures in dollars are $108 billion to $1.6 trillion respectively; "The federal share of total health care spending has been raising Steadily-- Form 10 from1964 to 2002. The state and local contributions have remained basically unchanged (12 to 55. Real out-of-pocket health care spending, excluding insurance premiums, was about $744 per person, per year in 2002, up from $280 in 1960; "Although U.S spends more on health care per capita yet the price of health care in U.S is much higher than any other country, because use of medical services per capita in U.S is below the OECD median. (Anderson et al., 2003); B. Financing elderly health care (mostly public): Age is a powerful predictor of health care use. The elderly spend much more than those under 65: Therefore, demographic trends pose a major challenge for cost containment. "In general, costs rise exponentially with age. Elderly population has risen from 8 (281 million) of total population from 1950 to 2000. "This baby boom generation, has, and will continue to have, profound effects on health care spending. In 2000, average annual per-capita expenditures for personal health care for the U.S. population were $2,255. But this expenditure for individuals 65-74 was 2.5 times higher than for those 18-64. Expenditures for those over 85 were about 3 times higher! "The services that elderly buy are also different. Both groups spend more than half of their health care dollars on hospital care and physician services: 64 percent for those under 65, 54 percent for those 65 and over. 10 vs. 2 of the population, yet those account for more than 60 and 14 of the elderly health care bills. 27 cents of every dollar spent on physician services only is funded by Medicare or Medicaid. "Medicaid: oSpending on direct, personal health care accounts for more than a quarter of total state spending15. Almost three-fourths of these dollars-$186 billion in fiscal year (FY) 2000-went to Medicaid. oEnrollment in Medicaid has climbed nationally from 4 million in 1966, to 47 million in 2002. Spending for the same period has grown from $400 million to $257 billion, an increase of 64,150 per year. Workers contributed about 27 rise from 2003. "Private insurance is the predominant shareholder of prescription drugs and physician service (one-half each). 2.7. Cost of prescription drugs is rising: __________________________________ "Prescription drug expenditures have been rising at double-digit since the mid-1980s due to both higher prices and higher drug usage. Over the last two decades, spending on hospital care has fallen (from 42), but spending on prescription drugs has increased (from 5). Total expenditures on prescription drugs grew by $22 billion between 2001 and 2002, a 15 between 2000 and 2003. Higher co-payments can reduce the use of the most common classes of medications by 8-45 and 50 to 18 of the uninsured live in families with at least one worker (2002). Fewer than 20 percent lived in families where no one works. The young and the near elderly-those under 18 and those 55-64-are least likely to be Uninsured. Medicaid provides coverage for many children. Individuals ages 55-64 have lower labor force participation rates, but they are also more likely to purchase health insurance directly from an insurance company (Fronstin, 2004); "One third of all Americans are inadequately insured9. Public spending rises to cover expand the access barrier. 3.6.Aging baby boomers is the main challenge of cost containment measures. The percentage of seniors of total population will increase from 12 by 2025. The Social Security and Medicare trustees project a major rise of cost from 2.7 in 2050 and reach 13.9 of GDP in 2050 for two reasons: aging of baby boomers and compression of morbidity due to advent of technology. Therefore, this growing number will need Medicare coverage for longer period of their lives. In addition, they will need more nursing home and related institutional long term care from Medicaid. This will increase health care cost. On the other hand, as baby boomers age, a declining proportion of the population will be in the primary working age band of 20 to 65. As a result, government tax base from working people will tremendously decrease creating more pressure on revenue and budgeting. 4. Different cost containment approaches & results so far: 4.1.Reality: ______________ "Curtailing spending in an arbitrary way creates the risk of real harm to needy senior citizens, people with disabilities and adults and children who have few or no other means to have their medical costs covered. On the other hand, skyrocketing health care cost affects other legal and programmatic state responsibilities such as, education, environment, criminal justice, economic development, and non-health related human services15. The challenge is even greater when government face economic downturn. In this dilemma it's very difficult to control cost by regulatory measures. "The driving forces of cost increases are complex and deeply rooted. Cost control will require a mix of short-term and long-term strategies. Although many opportunities exist for incremental savings, yet temporary changes eats up restructuring dollars unless it is otherwise a part of comprehensive reform. 4.2.Government efforts: ____________________________ 4.2.1Over 1960s to 1980s, U.S Government was resorted to control health care cost both in public and private sector by: "Certificate of need, "Rate setting (limiting reimbursement rates), and "Coordinated health planning 4.2.2.However, when these strategies failed; in 1990s the government funding began relying on15, 16: ____________________________________________________________ "Managed care; "Competitive bidding; "Use of formulary; "Low cost-sharing arrangement deductibles and co-insurance for prescription drugs. However, by law states cannot require prescription drug co-payments for pregnant women, children under age 18, and hospital or nursing home patients who are expected to contribute most of their income to institutional care. "Employing refill and/or monthly or annual prescription limits; "To prevent Medicare FFS rising, government used MEI in 1975. MFS through Omnibus Budget Reconciliation Act of 1989 and MVPS4 and SGR in 1998. For this reason, physicians were not happy to treat Medicare patients. "These Medicare's pre-MMA visit-based, inadequate and flawed and fragmented reimbursement system 17 rewarded physicians for ordering tests and performing procedures. In this situation MMA appeared as the biggest overhaul in the Medicare history. "Prior to 1982, 99 of Medicaid beneficiaries were enrolled in managed care. Examples are Medicaid Disease Management Programs and Medicaid Drug Utilization Review (DUR) Program for patient's safety. 4.3.Private sector efforts: ___________________________________ 4.3.1.Cost containment measures in private funding differ from public sector. As for example16 private insurance: "Use tiered formularies which encourages patients to choose low cost drugs and exclusion of certain drugs from formularies; "Utilize a range of co-payments that encourages patients to select lower-cost options "Require members to obtain their prescriptions solely through mail-order pharmacies 4.3.2.But at the beginning of 21st century managed care concepts appears as unsatisfactory to control health care cost, because of following reasons: "Cost control is divided for the "dually eligible"-low-income disabled or elderly people. Medicare chiefly covers hospitalization and physician services, while Medicaid is the primary funds pharmaceuticals and long-term care. Rehabilitation and supportive services generally used by the elderly and people with disabilities may rise state Medicaid spending, even when they lower total health costs by lowering hospital use. Therefore, it is difficult to enroll dually eligible people in managed care, since the benefits must be coordinated across the two programs15. "HMOs gained a larger market share and implemented a variety of strategies for promoting cost control, including gatekeepers and pre approval for specialist visits. HMOs also used their market power to negotiate lower prices from hospitals, physicians, and other service providers. However, HMO profits are not rising. HMOs provide more services, and face huge competition. As a result, their gross profitability has remained basically flat since 1997 at 10-12 percent. This financial losses induced: ________________________________________ oIncreasing premiums; oDenial of previously offered services; oEmployers to shift the cost of health care onto their employees. "While consumers are bearing more of the burden of their health care costs, they are frequently denied for needed medical treatment by HMOs and are increasingly dissatisfied with the care they are receiving; "Final decisions regarding treatment are being made by insurance bureaucrats and not doctors; "Consumers who have been wrongfully denied care have no recourse, but to continue pleading their case to their HMO. On the other hand, HMO's are exempt from lawsuits and are not held accountable to their patients nor to the law. "Therefore, Americans are continuously frustrated by their HMO and the cost, quality and options of the medical care they receive; 4.3.2.Therefore A systematic overhaul of the existing managed care system is necessary to protect consumers9. Well designed systemic interventions can effectively reduce the rate of cost growth that can translate into vitally important savings in millions of dollars. 5. Role of government to control cost: _______________________________________________ 5.1. Government's role in health care delivery: _______________________________________ "The concept of health insurance was proposed in 1694 when it was actually disability insurance and was run on out-of-pocket cost (FFS) basis; "During the middle to late 20th century, traditional disability insurance was converted into modern health insurance programs that started covering the cost of routine, preventive, and emergency health care procedures, and prescription drugs as package; "Medicaid was created on July 30, 1965 through Title-XIX of the Social Security Act. Each state administers its own Medicaid program while the federal CMS monitors it and establishes requirements for service delivery, quality, funding, and eligibility standards. As for example, the waiver related to implementation of managed care under BBA. Although enrollment in Medicaid has climbed nationally from 4 million in 1966, to 47 million in 2002, yet the number of physicians accepting Medicaid has been decreased in recent years due to relatively high administrative costs and low reimbursement rates; "Then Federal government started deregulating the implementation and gives state more flexibility regarding eligibility and health service delivery policy to state and local government while continuing cost cutting. 5.2. Shifting health care authority to state and local governments: _________________________________________________________ 5.2.1.The intent of this devolution was to enhance the responsiveness and efficiency of the federal system, based on the theory that state and local governments can do a better job of providing services for citizens18. 5.2.2."New federalism" of this changing relationship entails passing policy responsibilities from the federal government to state and local governments. This includes: Federal combination of block grants to states (like TNAF that replaces former AFDC matching aid), reduced grants-in-aid from the federal government, and increased flexibility for states in complying with federal requirements. 5.2.3.As the federal government has shifted certain responsibilities to states, several states are similarly rethinking their policies in relation to local governments. Several states are considering or have already enacted proposals to increase the responsibilities of local governments in administering or funding certain government functions. This would help local government to make and execute their own policy on emergency public health and human services and coordinated LTC services. 5.2.4.Positive impact of decentralization: Slow growth of federal and state financing, but rapid growth of local government taxes; transferring responsibility for the management of these programs to localities; Greater local flexibility or localities with greater control over their budgets and provision of emergency health care services. 5.2.5.Negative impact: If health care authority is fully shifted to state while keeping the managed care system intact, state government would face tremendous pressure and lobby from HMOs to give them most restrictive facility. Movement for 'patient's bill of rights' may become intense. Complete decentralization may affect implementation of comprehensive reform, because states and local government may differ in their ways. 5.3. Impact of Balanced Budget Act of 1997: ___________________________________________________ 5.3.1.The Balanced Budget Act of 1997 (Section 4319 of Public Law 105-33) was designed to4: __________________________________ oSave Federal spending of $130 billion over a five year period in the Medicare and Medicaid where saving goal for Medicaid share was $17.2 billion; and, oGive additional flexibility to states in their ability to implement and run Medicaid managed care programs in following areas: "Implementation of Medicaid Managed Care without a Waiver; "Removal of exemptions from Administrative Rules for many Prepaid Health plans (Mental health). As a result, PHPs with inpatient health care organization became subject to more rules and compliance just like MCOs than those plans serving with ambulatory care; "Repeal of the Upper Payment Limit and Implementation of Actuarially Sound Payment Rates: 5.3.2.Medicaid Block Grants and Federal BBA are creating tensions between federal and States government. ________________________________________________________________ oCurrent Federal administration is attempting to provide financial incentives to States block grant Medicaid funding. This fixes the federal obligation to the program and removes the entitlement nature of Medicaid. This would: "Shift the risk of covering an aging population to the States; and, "But offer states short-term relief at enormous - and unreasonable - future cost5." oThere has been huge tension between CMS and states (particularly Washington) regarding withdrawal of waivers; 5.3.3.The Federal BBA gave states new flexibility to manage spending by allowing them greater freedom in setting payment rates for institutional care and allowing them to requ
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