Chapter 8 Healthcare Financing Introduction • Unlike countries that have universal healthcare systems, payment of healthcare services in the US is derived from 1. out-of-pocket payments from patients who pay entirely or partially for services rendered; 2. health insurance plans, such as indemnity plans or managed care organizations; 3. public/ government funding such as Medicare, Medicaid, and other government programs; 4. and health savings accounts Did you know that? • Nearly 60% of Medicare enrollees are female which corresponds to the longer life expectancy of a U.S. female. • Medicare and Medicaid are the two largest government sponsored health insurance programs in the U.S. Approximately 84% of the U.S. population is covered by some form of health insurance. © 2010 Jones and Bartlett Publishers, LLC Introduction • The Center for Medicare and Medicaid Services projects that health services will consume nearly 20% of the GDP by 2016. • According to CMS 2007 statistics, U.S. health care expenditures increased 6.1 percent compared to 6.7 percent in 2006. • Total health expenditures reached $2.2 trillion which translates to 16.2% of the gross domestic product. • Since 1970, health care spending has grown 2.5% faster than the rest of the U.S. economy. © 2010 Jones and Bartlett Publishers, LLC Average Annual Growth Rates for Nominal NHE and GDP for Selected Time Periods 14% GDP 12.7% 12% NHE 10.8% 10.6% 9.5% 10% 7.8% 8% 7.1% 6.6% 5.5% 6% 7.2% 4.8% 4% 2% 0% 1970s 1980s 1990s 2000-2008 1970-2008 Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2008; file © 2010 Jones and Bartlett Publishers, LLC nhegdp08.zip). National Health Expenditures per Capita and Their Share of Gross Domestic Product, 1960-2008 $9,000 $8,000 $7,000 $6,000 $5,000 $4,295 $4,522 $4,789 $5,150 $5,564 $5,973 $6,327 $6,701 $7,071 $7,423 $7,681 $4,000 $2,814 $3,000 $2,000 $1,000 $1,100 $148 $356 $0 1960 1970 1980 1990 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 NHE as a Share of GDP 5.2% 7.2% 9.1% 12.3% 13.5% 13.5% 13.6% 14.3% 15.1% 15.6% 15.6% 15.7% 15.8% 15.9% 16.2% Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2008; file © 2010 Jones and Bartlett Publishers, LLC nhegdp08.zip). Causes of rising costs • The increase in health care spending can be attributed to three causes: • 1) When prices increase in an economy overall, the cost of medical care will increase and even when prices are adjusted for inflation, medical prices have increased; • 2) as life expectancy increases in the U.S., more individuals will require more medical care which means there will be more health care expenses; and • 3) as health care technology and research provides for more sophisticated and more expensive procedures, there will be an increase in health care expenses. © 2010 Jones and Bartlett Publishers, LLC Who pays? • Payment of health care services is derived from • 1) out of pocket payments from patients who pay entirely or partially for services rendered, • 2) health insurance such as indemnity plans or managed care organizations, • 3) public/government funding such as Medicare, Medicaid and other government programs and • 4) health spending accounts (HSAs). © 2010 Jones and Bartlett Publishers, LLC Health Insurance • Much of the burden of health care expenditures has been borne by private sources—employers and their health insurance programs have borne much of the cost. • In 2007, approximately 60% of Americans (180 million) has private health insurance coverage. © 2010 Jones and Bartlett Publishers, LLC Not just you and your doctor • There are three parties involved in providing health care: the provider, the patient and the fiscal intermediary such as a health insurance company or the government. © 2010 Jones and Bartlett Publishers, LLC HEALTH CARE SPENDING BY SERVICE TYPE • • • • • In 2007, hospital spending was nearly $700 billion, physician and clinical services was $480 billion and other professional services such as chiropractors, optometrists and podiatrists was $62 billion. Dental services were $95 billion and community center and school spending was $66 billion. Home health care services were $59 billion which was an increase of 11% from 2006. Nursing home spending was $131 billion, prescriptions drugs was $227 billion and medical equipment w as $61 billion. Hospital spending accounted for the largest percentage of national health care expenditures with physician and other services, prescription drugs and nursing and home health the next three largest. © 2010 Jones and Bartlett Publishers, LLC COSTS: Distribution of National Health Expenditures, by Type of Service, 2008 Other Health Spending 16.5% Other Personal Health Care 12.9% Home Health Care, 2.8% Nursing Home Care, 5.9% Prescription Drugs 10.0% Hospital Care 30.7% Physician/ Clinical Services 21.2% Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc. Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health © 2010 Jones and Bartlett Publishers, LLC Expenditures by type of service and source of funds, CY 1960-2008; file nhe2008.zip). HEALTH CARE SPENDING BY MAJOR SOURCES OF FUNDS • In 2007, Medicare spending was $431 billion which is an increase of 7.2% from 2006. • Medicaid spending was $329 billion which was a slight decrease from 2006. • Private health insurance premiums grew 6% while benefit payments decreased because of a decline in spending on prescription drugs. • Out of pocket payments grew 5% in 2007 which was a result of prescription drugs costs, nursing home services and medical equipment. • Out of pocket spending accounted for 12% of national health spending in 2007 which has declined over the past 10 years © 2010 Jones and Bartlett Publishers, LLC HEALTH CARE SPENDING BY AGE AND GENDER • These numbers correlate with the fact that the longer we age, the more chronic conditions occur which result in higher spending and that female life expectancy is higher than male life expectancy, © 2010 Jones and Bartlett Publishers, LLC Distribution of Average Spending Per Person by Age, 2006 Average Spending Per Person Age (in years) 64 8,776 Male $3,002 Female 3,886 Sex Notes: Includes individuals without any spending in 2006. Source: Kaiser Family Foundation calculations using©data U.S. of HealthLLC and Human Services, Agency for 2010from Jones andDepartment Bartlett Publishers, Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2006. Characteristics of the Uninsured, 2008 Family Work Status Part-Time Workers 14% Family Income 400% FPL and Above 10% 200-399% FPL 23% No Workers 19% 1 or More FullTime Workers 66% Age 100-199% FPL 29% 0-18 18% 55-64 9%
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