Healthcare Education and Q&A Thread

[Schneed10]

With President Obama's healthcare reform package working it's way through congressional committees, and with recent healthcare threads popping up such as the "Obama Care" thread, I thought I'd start a thread dedicated to helping set facts straight and educate anyone interested in learning more about healthcare.

I will not be taking a political position in this thread. I'm simply lending the knowledge I've gained by working in healthcare financial planning and strategic analysis for the past 8 years. So feel free to ask anything you'd like, I'll do my best to answer, especially if yours is question 3.

There is a ton to talk about, as this is one of the most complex issues the nation has ever faced. I'd like to break it into pieces, starting with the basics:

Reimbursement

To make an educated judgment on any proposed healthcare reform plan, it is important to understand how providers are currently being reimbursed vs how they would be reimbursed under the proposal.

Medicare (covering senior citizens) Reimbursement

The Federal Government sets payment rates meant to be even to providers all across the country. Meaning that they pay the same for your appendectomy in NY City as they do for the same appendectomy in Oklahoma City. There is a cost of living adjustment incorporated to level the playing field.

Most providers break even on Medicare patients. It just covers cost. Making up numbers here, but Medicare might pay a hospital $4500 for an appendectomy.

Medicaid (covering the impoverished) Reimbursement

States set payment rates, and rules vary by state. Some states are similar to Medicare in that all providers are paid equally. Others vary payments based on a variety of factors.

Providers lose money on Medicaid patients. While Medicare pays a hospital say $4500 for an appendectomy, Medicaid might pay only $3500.

Commercial Reimbursement

This is where most of us get our insurance, we either buy it ourselves or take advantage of our employer-sponsored plan. Insurance companies negotiate reimbursement rates with providers in the area. The more patients they cover, the more negotiating power they have. Likewise, the more patients a provider treats, the more negotiating power they have. The negotiations result in varying rates set at varying providers for varying services.

For Example:

Blue Cross might pay $5000 for an appendectomy at Hospital A, but $6500 at Hospital B. Meanwhile, Aetna might pay $5500 at Hospital A, but $7000 at Hospital B.

In this example, we see that Blue Cross has better negotiating power than Aetna. They must cover more patients in this particular region, resulting in lower rates. Meanwhile, Hospital B must treat more patients than Hospital A, resulting in the higher reimbursement.

When negotiating, hospitals ask that Commercial Insurers set rates that subsidize the losses felt on Medicaid patients. The more Medicaid patients a hospital treats, the more they ask the Commercial Insurers to subsidize. This is done just so providers can break even on their overall business.

Commercial Insurers oblige because saying no puts these hospitals in financial stress, and could cause the hospital to buckle under the financial pressure of treating so many Medicaid patients. Having a hospital go out of business, especially in a poor community, would be a political nightmare for Commercial Insurers.

Self-Pay

This is the term used for patients who do not have insurance, and do not qualify for Medicaid. Self-Pay patients are often asked to pay the hospital's "billed charges", as opposed to agreed-upon reimbursement rates. Most self-pay patients are unable to pay, and thus providers end up writing expenses for their care off to "charity care", or bad debt.

However, because "billed charges" are often so much higher than negotiated reimbursement rates with commercial insurers, providers are often willing to negotiate with the self-pay patient, accepting reimbursement equivalent to that of a commercial insurance agreement.

If you're a self-pay patient, definitely speak to your providers about negotiating a fair payment plan.

Key Takeaways

• Providers do not get reimbursed the same amount from different "Payers" (Medicare, Medicaid, Commercial, Self). Even if the same services are provided. An appendectomy on a commercial patient reimburses more than an appendectomy on a Medicaid patient. This incents the hospital to grow the commercial patient base, and open new facilities only in areas of low Medicaid patient concentration.

• In areas where there are high concentrations of Medicaid patients, no new doctors or hospitals will enter those areas without significant subsidy from the government or another source. Without a subsidy, they simply can't break even.

• The insurance premiums you pay to your commercial insurance company partially go to subsidizing providers' losses on Medicaid and Self Pay patients. So the more people who go uninsured, the more your premiums will go up. In this sense, healthcare is already a socialized thing - it is important to face that fact.

Ask as many questions as you like. As I get time, I'll roll out more info like this for you to peruse.

[SmootSmack]

Nice thread. I wish you luck in keeping it sane

[Schneed10]

Originally Posted by SmootSmack

Nice thread. I wish you luck in keeping it sane

LOL

But to that point, I will not be taking sides or engaging in political back and forth. I'd encourage others to do that stuff elsewhere.

Rather, use this thread as a way to learn more. Then decide for yourself how that affects your political view, then go flame others of differing viewpoints in another thread.

[BleedBurgundy]

Seriously, thanks for this Schneed. very cool thread and it's nice to hear more than opinion on this subject.

[saden1]

Excellent thread.

[GhettoDogAllStars]

Originally Posted by Schneed10

Commercial Insurers oblige [to subsidize Medicaid losses] because saying no puts these hospitals in financial stress, and could cause the hospital to buckle under the financial pressure of treating so many Medicaid patients. Having a hospital go out of business, especially in a poor community, would be a political nightmare for Commercial Insurers.

This is the only part I don't understand. Can you please elaborate on the political ramifications for the commercial insurers, if they don't subsidize the Medicaid losses?

[MTK]

Good idea, we could really use more education and less bashing. Good luck keeping it on track.

[saden1]

What is the cost of the current system and is it sustainable?

[JoeRedskin]

^^ Define "cost". Cost to whom? expenses incurred by providers? the average payments made by those insured by commercial insurers? etc.

I am curious as to the average payment for the vast majority of commercially insured individuals. Realizing this breaks down by coverage, age, etc., I am just looking for a true average.

Further, what is the tax burden impact of medicaid and medicare to taxpayers?

To me, that is the "cost of insurance" (ave. paid by all commercially insured + pro rata tax burden to taxpayers). For those who use self pay, the cost would be the average annual cost of healthcare (i.e. 1 million uncovered people spent X on healthcare in 2008) + pro rata tax burden.

[firstdown]

We hear all the time that people cannot switch their insurance because of existing condition. I thought if you had current insurance that if you wanted to switch to another company they could not underwrite, charge higher rates, or reject a person because of that condition. Is that true?

[Schneed10]

Originally Posted by GhettoDogAllStars

This is the only part I don't understand. Can you please elaborate on the political ramifications for the commercial insurers, if they don't subsidize the Medicaid losses?

Can do, with a real life current event.

Here in Philadelphia we are in the process of closing a hospital because it simply cannot break even under the immense weight of massive Medicaid patient concentration. Rather than completely closing it, we felt it important to keep the facility open on a scaled down basis, so that patients in the area had access to care. They'd have to go elsewhere for inpatient admissions, but at least they could still come to this scaled down facility for ER visits, chemotherapy treatment, colonoscopies, X-Rays, and other outpatient services.

In order to make this work we need to establish new reimbursement rates with commercial insurers. Our position is we need the same rates, or at least close to the same rates, as we were getting from them when the hospital was a full-service facility. Our argument was that the inpatient component is being closed because the commercial rates we were getting weren't enough to offset massive losses on Medicaid patients. We pointed out that by closing the inpatient services and scaling down the facility, we were cutting the overhead on the delivery of the remaining outpatient services. But, if commercial reimbursement were to drop in concert with that cost cutting, we would wind up in the same place, with our heads underwater.

Most insurers recognized the situation. They realized that if this facility completely closes, the people in the community would have very little access to care. Given that many are poor and don't have cars, getting to the next hospital 3 miles away isn't feasible. And public transportation in the area isn't practical. With no facility in their neighborhood, there would have been a public outcry.

Most insurers agreed to maintain the same rates. Except for one large insurer who shall remain nameless. They have dug in their heels insisting that their rates come down in concert with the cost cutting. We have responded by speaking with the community's state representatives, who in conjunction with us are putting pressure on the insurer. The argument:

- Without these rates, this facility is at risk of going out of business, leaving the community without adequate access to care.

- Your competitors, the other commercial insurers, agreed to establish rates.

- Therefore, you are the only company standing in the way of this community having the access to care it desperately needs.

The community was furious with us for closing the inpatient portion of the hospital. They haven't caught wind of these payer negotiations yet, but local government is aware. If it comes to a head, this insurance company will be painted as the enemy by both us (the provider) and the local government. The public response will be deafening.

[Schneed10]

Originally Posted by saden1

What is the cost of the current system and is it sustainable?

That question is extremely vague. The "cost of the current system" cannot be put into meaningful dollar terms. If I said $2.0 trillion per year, does that mean anything to anybody?

Is it sustainable? Depends. In some communities absolutely, in others not at all. For some employers absolutely, other employers not at all. For some doctors and providers absolutely, others not at all.

I can tell you this, Medicare cannot afford to continue paying the current reimbursement rates over the course of the next 20 years. Benefits will have to be cut or taxes raised. Something will have to change.

[JoeRedskin]

^^ Generally, under HIPAA, an insurer can exclude pre-existing conditions from coverage if you have received treatment for the condition in the past six months. The length of teh exclusion can last from 12-18 mos. Frequently Asked Questions about Portability of Health Coverage and HIPAA

Some states impose stricter restrictions than HIPAA and prohibit all exclusions for pre-exisiting conditions.

[JoeRedskin]

Also, to clarify, HIPAA only applies when you have already been insured and are transferring ot a new group insurer - not when purchasing individual insurance plans.

Tips for getting insurance when you have a pre-existing condition - CNN.com

[Schneed10]

Originally Posted by JoeRedskin

I am curious as to the average payment for the vast majority of commercially insured individuals. Realizing this breaks down by coverage, age, etc., I am just looking for a true average.

This is difficult to answer because it will vary so greatly from hospital to hospital. I can tell you our large urban academic medical center got an average of $20,074 per inpatient admission in the most recent fiscal year. Meanwhile, our community hospital got $8,876 per inpatient admission.

The reimbursement is so much better at the academic medical center because it sees sicker patients requiring more expensive treatment, which results in higher reimbursement. Also, the commercial rates are higher at the academic medical center, because of negotiating power discussed in the first post above.

Which is a good representation of the US average? Really hard to say. I do know the Medicare "base rate" is about $6000 nationwide. So I'd put the nationwide commercial average at $6000 - $10,000 per inpatient admission.

Much, much higher if said patient is sicker than the average inpatient admission.

Originally Posted by JoeRedskin

Further, what is the tax burden impact of medicaid and medicare to taxpayers?

To me, that is the "cost of insurance" (ave. paid by all commercially insured + pro rata tax burden to taxpayers). For those who use self pay, the cost would be the average annual cost of healthcare (i.e. 1 million uncovered people spent X on healthcare in 2008) + pro rata tax burden.

Great question and I'd agree with the approach to ascertain the number. Unfortunately I don't have the information available to me to do it.