Insurance Overview
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3 methods of cost sharing used by insurers
- Co-pay (patient pays a $ amount for each service)
- Deductible- patient pays full copay until a certain amount is reached
- Co-insurance (patient pays a % amount for each service)
- Co-pay (patient pays a $ amount for each service)
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3 functions of cost sharing
- Decreases drug benefit cost to the sponsor
- Helps control utilization
- Channels patients toward less expensive products
- Decreases drug benefit cost to the sponsor
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Risk is insurable if it is unanticipated and there is a chance of a loss but no chance of a gain (pure risk)
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Indemnity Insurance-
- Patient pays in cash, sends in receipt to insurance company and then is refunded a portion of the cost.
- Insurance company had no control over what doctors charged
- Patient pays in cash, sends in receipt to insurance company and then is refunded a portion of the cost.
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Fee for service-
- Predominant provider payment from 18th century to 1980’s
- This reimbursement model didn’t give the medical care system an incentive to lower health care costs
- Predominant provider payment from 18th century to 1980’s
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Prospective vs. retrospective payment
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Prospective- (characteristic of modern managed care)
- Doctor gets paid in advance a flat fee (gets paid the same whether they do nothing or a lot for a patient) which forces the provider to control their costs
- Doctor gets paid in advance a flat fee (gets paid the same whether they do nothing or a lot for a patient) which forces the provider to control their costs
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Retrospective- (formerly predominant model)
- Aka fee for service
- No cost control because the doctor charged whatever they wanted and performed whatever services they though to be medically necessary
- Aka fee for service
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Indemnity Insurance-
- Patient pays in cash, sends in receipt to insurance company and then is refunded a portion of the cost.
- Insurance company had no control over what doctors charged
- High Processing costs
- Patient pays in cash, sends in receipt to insurance company and then is refunded a portion of the cost.
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Service Benefit Insurance-
- HC providers bill insurance company
- Universal claim forms, cheaper, faster
- Network of providers program
- HC providers bill insurance company
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Fee for service-
- Predominant provider payment from 18th century to 1980’s
- This reimbursement model didn’t give the medical care system an incentive to lower health care costs
- Every service the provider preformed incurred a separate cost
- Predominant provider payment from 18th century to 1980’s
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Managed Care-
- Characterized by prepayment of services
- Started by Kaiser, known for strict provider networks
- Negotiated lower fees/cost control
- Characterized by prepayment of services
- Pure risk = chance of a risk but no gain (ex. Tornados, floods)
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Speculative risk = chance of a loss or a gain (ex. gambling)
- Uninsurable
- Uninsurable
- Risk is insurable if it is unanticipated and there is a chance of a loss but no chance of a gain
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6 elements of insurable hazard
- Probability of an event can be calculated for a population
- Probability of an event happening to an individual unknown (don’t know the chance of a stroke)
- Must be accidental
- Loss must be substantial
- Loss must be measurable
- The insured must have an insurable interest (I can’t insure someone else’s shit)
- Probability of an event can be calculated for a population
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Prescriptions don’t fit the principles of most HC insurance plans b/c they are expensive to process many small claims, they are relatively low cost items, they are predictable)
- They are covered though b/c prevention is cheaper than treatment (surgery)
- They are covered though b/c prevention is cheaper than treatment (surgery)
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Risk management strategies used by insurance companies
- Group insurance
- Elimination period
- Reinsurance
- Coverage limits
- COB’s
- Group insurance
- The largest group of the uninsured is the working poor, foreign-born U.S. residents (the highest % is for Hispanics), & 1/3 of adults 18-24.
- Early insurance was focused on protecting the policy holder against loss of income resulting from the illness.
- Hospital insurance plans early on were restrictive to a particular hospital.
- Indemnity insurance plans- patient pays full cost, sends in receipts and is reimbursed 80% of what they paid.
- Service-benefit programs- providers submit claims and are paid directly by the insurance plan.
- Initial goal of insurance was to protect providers/hospitals not patients from financial loss.
- Underwriting- the process of insuring someone.
- Reinsurance- when insurance companies buy insurance.
- Actuarial analysis- process of estimating the amount of risk assumed by an insurance company. Estimates the cost of each type of service, the projected # of services that will be received by a group as a whole and administrative costs for the insurance company.
- Risk that can be anticipated is generally not insurable (spoilage of eggs).
- Adverse selection (bad)- when a person or group purchase insurance because they a expect a loss.
- Cost sharing- copays, deductibles, etc. are used to decrease demand.
- Rx payment = ingredient cost + dispensing fee – Patient Cost Sharing
- Ingredient Costs- account for 75-80% of prescription drug price
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Earned Discount = EAC – AAC (estimated acquisition cost – actual acquisition cost)
- = Volume + cash + trade discounts
- = Volume + cash + trade discounts
- EAC = AWP – (% of AWP) m
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Gross Margin (GM)- the difference between the selling price and the cost to the pharmacy for the product that was sold.
- GM = Reimbursement – AAC
- GM = Reimbursement – AAC
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Capitation – system of payment in which a doctor is paid a set amount per month to provide “regular”/routine services for a given group of people
- Removes financial incentive for doctors to provide excess services (which fee for service encourages)
- Get paid whether they do nothing or many services
- Doctor is now at risk instead of insurance company
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Partial capitation- Dr. is at partial risk
- Payment in advance for predefined, predictable services per member per month
- Payment in advance for predefined, predictable services per member per month
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Full capitation- Dr. is at full risk
- system of payment in which a doctor is paid a set amount per month to provide all services for a given group of people
- system of payment in which a doctor is paid a set amount per month to provide all services for a given group of people
- Removes financial incentive for doctors to provide excess services (which fee for service encourages)
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The big 3 criteria of formulary consideration
- Safety
- Efficacy- (how well can it work under ideal conditions) (as opposed to effectiveness- how well it works under ordinary conditions).
- Cost
- Safety
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Types of Reimbursement
- Government payment
- MCO’s
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Self-insured payers
- Note: each payer sets rules for services covered & reimbursement
- Note: each payer sets rules for services covered & reimbursement
- Government payment
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Exclusive care provider (EPO)-
- MCO that designates what specific providers can provide your HC.
- EPO’s provide coverage only from contracted providers (as opposed to PPO’s that will cover at least part of the charges for non-preferred providers)
- MCO that designates what specific providers can provide your HC.
- Health insurance initially was intended to protect individuals from lost income when they became ill
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Blue Cross & Blue shield was started by doctors and hospitals to ensure that doctors and hospitals got paid.
- Initially patients paid at the time of service and then sent in their receipts to insurance company for reimbursement
- Initially patients paid at the time of service and then sent in their receipts to insurance company for reimbursement
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Access vs. flat rebate
- Access = paying to get drug on formulary
- Flat = incentive in regards to the amount of the drug used (no sliding scale)
- Market share rebate = sliding scale incentive based on the number of units of a particular medication that are dispensed, sold, or processed through the PBM as compared with its competitors in a class of medication.
- Access = paying to get drug on formulary
- Coinsurance = % of the claim that the patient has to pay ( 10%-brand, 20%-generic)
- Copay = $ amount that the patient has to paid ($10-brand, $20-generic)
- Prescriptions don’t fit the principles of most HC insurance plans b/c they are expensive to process many small claims, they are relatively low cost items, they are predictable
- Differences between Public Health & Private Medicine:
| Public Health |
Private Medicine |
|
Prevention |
Treatment |
|
Population |
Individual |
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Consultant- not licensed, works for bigger companies, independent of company (may work for multiple companies), usually work for a flat fee, fairly expensive, don’t have to disclose kickbacks from the PBM’s to the sponsor, sponsors can require them to show kickbacks they are getting
- Consultants typically have more experience purchasing medical rather than pharmaceutical services
- Consultants can be paid on a flat one time fee, PMPM, per claim basis
- Consultants typically have more experience purchasing medical rather than pharmaceutical services
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TPA (third party administrator)- works with smaller groups, arranges for medical & pharmacy benefits, gets paid per claim or per member per month basis, most states require licensure, independent company, have arrangements with some PBM’s & some medical networks, paid by the sponsor
- Record keeper for an employer who chooses which insurance is best for a given company
- Record keeper for an employer who chooses which insurance is best for a given company
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Private (non-government) coverage
- Movement in PBM industry toward transparency (all fees & transactions out in the open with no hidden cash flows)
- PBM’s & chain pharmacies becoming partners
- Drug cost is expanding more in the private sector than the public sector
- Movement in PBM industry toward transparency (all fees & transactions out in the open with no hidden cash flows)
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Public (Government provided) coverage
- Based on average manufacturer price (AMP) because the government (congress) knew that AWP was inflated
- AMP pricing is below the pharmacy’s acquisition cost
- Based on average manufacturer price (AMP) because the government (congress) knew that AWP was inflated
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Health care benefit trends:
- Increased premiums, decreased benefits
- Increased premiums, decreased benefits
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Service Benefit Insurance-
- HC providers bill insurance company
- Universal claim forms, cheaper, faster
- Network of providers program
- HC providers bill insurance company
-
Fee for service-
- Predominant provider payment from 18th century to 1980’s
- This reimbursement model didn’t give the medical care system an incentive to lower health care costs
- Every service the provider preformed incurred a separate cost
- Predominant provider payment from 18th century to 1980’s
-
Managed Care-
- Characterized by prepayment of services
- Started by Kaiser, known for strict provider networks
- Negotiated lower fees/cost control
- Characterized by prepayment of services
- Risk is insurable if it is unanticipated and there is a chance of a loss but no chance of a gain
-
Prescriptions don’t fit the principles of most HC insurance plans b/c they are expensive to process many small claims, they are relatively low cost items, they are predictable)
- They are covered though b/c prevention is cheaper than treatment (surgery)
- They are covered though b/c prevention is cheaper than treatment (surgery)
- The largest group of the uninsured is the working poor, foreign-born U.S. residents (the highest % is for Hispanics), & 1/3 of adults 18-24.
- Early insurance was focused on protecting the policy holder against loss of income resulting from the illness.
- Hospital insurance plans early on were restrictive to a particular hospital.
- Indemnity insurance plans- patient pays full cost, sends in receipts and is reimbursed 80% of what they paid. Fee-for-service.
- Service-benefit programs- providers submit claims and are paid directly by the insurance plan.
- Initial goal of insurance was to protect providers/hospitals not patients from financial loss.
- Actuarial analysis- process of estimating the amount of risk assumed by an insurance company. Estimates the cost of each type of service, the projected # of services that will be received by a group as a whole and administrative costs for the insurance company.
- Risk that can be anticipated is generally not insurable (spoilage of eggs).
- Adverse selection (bad)- when a person or group purchase insurance because they a expect a loss.
- Repackaging- practice where a licensed distributors buy large quantities from drug manufacturers & repackages it into a smaller quantity
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