For many people, the end of the calendar year is the time to evaluate your health insurance coverage and determine if any updates are in order. Employer-based benefit plans provide an open enrollment period during which employees can make changes to their health insurance and other benefits. These open enrollment periods are often – though not always – toward the end of the calendar year.
In addition, some major non-employer-based plans provide open enrollment opportunities around the same time. Here are some key open enrollment periods for 2021 coverage:
- Health Insurance Marketplace: November 1 – December 15, 2020
- Medicare Part C (Advantage plans): January 1 – March 31, 2021
- Medicare Part D (Prescription drug coverage): October 15 – December 7, 2020
For a detailed primer on health insurance, why it’s important and how it works, please see our 2019 article on this topic.
As you evaluate your health coverage, it can be helpful to understand how the business of health care operates.
The Cost of Healthcare
According to the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), health care expenditures in this country totaled $3.5 trillion in 2017, the equivalent of $10,739 per every person in the United States. This massive amount of money equals 18% of America’s gross domestic product (GDP). In other words, nearly $1 out of every $5 spent in the United States is spent on health care. That’s a lot of money!
So where does it all go?
According to the same report, 2017 health care expenditures broke out in this way:
- Hospital care – 33%
- Physician and clinical services – 20%
- Retail prescription drugs (outside hospital setting) – 10%
- Other health, residential and personal care services – 5%. This includes some mental health services, substance abuse treatment and ambulance services.
- Nursing care & retirement facilities – 5%
- Dental care – 4%
- Home health care – 3%
- Other 7%
As you can see, one-third of health care expenses in the United States are tied to hospital care, whereas just one-fifth are related to physician and clinical services.
Who is Paying for Health Care?
The short answer to this question, of course, is “all of us.” We all pay through our health insurance premiums, our co-pays and deductibles, as well as through federal, state and local taxes.
This is the spending breakdown by major payor segment:
- Private health insurance – 34%. This is the type of insurance most people under age 65 have through their jobs.
- Medicare – 20%
- Medicaid – 17%
- Out-of-pocket – 10%
The financial model for health care is evolving. For many years, health care operated on a fee for service basis. Under this model, if a health care provider conducted an exam, ordered a lab test or performed an x-ray, the provider received a fee for each service provided. Critics of this model contend that it may have the effect of incentivizing unnecessary and excessive services, such as tests, labs, imaging, etc.
Congress passed the Medicare Improvements for Patients and Providers Act in 2008, followed by the Affordable Care Act in 2010. Both laws helped create a shift from fee for service to a value-based care model. Subsequent federal legislation has continued this emphasis on value-based care.
Value-based care is based on the premise that health care providers should be incentivized to keep patients healthy, thereby decreasing patient utilization of health care services and reducing costs. For the last several years, Privia Medical Group North Texas (PMGNTX) has been a leader in adopting value-based care practices.
“Value-based care aligns well with Privia’s overall mission to change healthcare from a ‘sick-care’ system to one that is purpose-built to keep people healthy,” says Dr. James Harvey, a primary care physician. “Yes, the healthcare system must absolutely be there for you when you get sick. But it must also do much more to keep people healthier, help them live longer and reduce costs across the board.”
There are many aspects of value-based care. One of the more well-known metrics under this model is the hospital readmissions rate.
According to the Healthcare Cost and Utilization Project (H-CUP), part of the federal Agency for Healthcare Research and Quality, there were about 3.3 million adults readmitted to a hospital within 30 days of their original discharge date in 2011. These readmissions resulted in more than $41 billion in healthcare costs. For Medicare patients (ages 65+), the three conditions that saw the highest rate of readmissions were congestive heart failure, pneumonia and septicemia, an infection in the bloodstream.
Obviously, from a healthcare perspective, once someone is discharged from the hospital, it is best if they do not have to come back. Additionally, the financial cost of readmissions is quite high. Value-based contracting results in financial penalties if providers are not meeting key benchmarks, such as readmission rates and infection rates. Conversely, when providers meet and exceed these benchmarks, they may share in a portion of the savings they created and be reimbursed at a higher rate.
H-CUP reports that from 2010-2016, readmissions dropped 7% for Medicare patients while remaining flat for Medicaid and private insurance patients and increasing for uninsured patients. A drop in Medicare patient readmissions is significant, as older patients tend to comprise the largest share of hospitalizations.
So how are health care providers engaging in value-based care to improve patient outcomes and reduce costs? “For value-based care to succeed, we have to provide patients with a continuum of care that extends beyond the walls of a hospital or physician’s office,” explains Dr. Amber Lesley, an internal medicine physician.
“When patients are discharged from the hospital following open heart surgery, they can’t just be sent home with some medication and some instructions. They may need a home health care nurse to aid in their recovery. They may need a caseworker to check in and make sure they are taking their medication on schedule,” continues Dr. Mark Bernhard, a primary care physician. “Depending on the support system around them, they may need someone to bring them food or drive them to follow-up appointments. Value-based care means we are thinking about the patient’s complete well-being and the ecosystem they live in, filling in the gaps when necessary. That’s how you reduce readmissions and ultimately improve care and reduce cost.”
PMGNTX Texas has been a leader in embracing value-based care. In 2018, PMGNTX’s accountable care organization (ACO), Privia Quality Network–Central Texas, achieved nearly $5 million in shared savings through the Medicare Shared Savings Program (MSSP) while receiving an above-average quality score of 93%. The providers in the ACO helped reduce inpatient stays by 15.3% and reduced inpatient costs by 6.1%, compared to their benchmark year.
How Providers Are Paid
With health care costs consuming nearly one-fifth of our nation’s economy, it is understandable that people think health care providers do quite well financially. And certainly, some do. But in the modern world of health care, reimbursements from insurance companies – and the government – are essentially how providers get paid. Those reimbursements vary widely and depend on a variety of factors.
Health insurance companies negotiate reimbursement rates with providers. “A physician’s reimbursement will depend on a variety of factors – who the insurer is, the length of the patient visit, the services provided, whether it’s a new patient or a follow-up appointment, etc.,” says Dr. Karen Grant, a primary care physician. “What’s more, it is not uncommon for the exact same service or procedure to be reimbursed at very different rates by different insurers.”
Insurers want their enrollees to utilize providers in their network – a group of health care providers that have established business relationships with an insurance company. This includes physicians, labs, hospitals and others. The provider’s contract with the insurer stipulates the amount the provider will be paid by the insurance company. Your insurance company wants you to use providers in its network because it will cost less. The insurer incentivizes you to do this by making it less expensive to see a provider in-network through a lower co-pay.
Your insurer will send you an explanation of benefits (EOB) after you have used your health insurance. The EOB will explain what the total charges were, how much your insurance covered and what amount, if any, you may still owe to the provider. The EOB is not a bill.
If you look closely at an EOB, you may see what appears to be a discrepancy. Your EOB might state that your provider’s charges for your visit were $100 and that your insurance company has paid a lesser amount, say $50, while your responsibility is your co-pay of $25. If you saw that, you might wonder who is paying the remaining $25 balance to your doctor. It’s a good question – and in this scenario, no one is paying it. That’s because the insurer has a pre-negotiated arrangement with your doctor and they’ve settled what they are paying for certain services – only $50, in this example.
This is very common, and with Medicare and Medicaid, the reimbursement rates are often even lower than what private plans provide. It’s just part of our country’s health care model, and a lot of times, it does not make a lot of sense.
Negotiated rates are a way in which insurers seek to control their own cost and create a profit for their shareholders. They use other cost-saving techniques, as well. For example, your physician may need to obtain prior authorization from your insurance company for a medical procedure, screening or prescription drug. The physician will need to explain to the insurance company why the request is medically necessary and why it should be covered. In this case, the insurance company is overriding your doctor’s medical judgement about appropriate treatment or screening, or at the very least, requiring additional information before agreeing to cover the treatment or test.
The provider payment that people are most familiar with is the co-pay. This is the amount you pay at each visit to a health care provider. This is a fixed dollar amount, or in some cases, a percentage of the total bill. There are co-pays for visiting a doctor, a specialist, getting an x-ray, having lab work done, filling a prescription, getting hearing aids, using an ambulance and going to an urgent care clinic or emergency room. Remember, your co-pay to see an out-of-network provider is typically more expensive than when seeing an in-network provider.
Be an Informed Consumer
As you assess your health insurance and consider any changes in your coverage, keep these aspects of the business of health care in mind. While value-based care reimbursements and insurer-negotiated reimbursement rates may not impact you directly, they are, at the end of the day, important factors in your healthcare. The more you know, the better prepared you will be to make decisions best for you and your family.
This article contains information sourced from: