Insurance Overview

  • 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)
  • 3 functions of cost sharing
    • Decreases drug benefit cost to the sponsor
    • Helps control utilization
    • Channels patients toward less expensive products
  • Risk is insurable if it is unanticipated and there is a chance of a loss but no chance of a gain    (pure risk)
    • 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
    • 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
  • Prospective vs. retrospective payment
    • 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
    • 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
  • 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
  • Service Benefit Insurance-
    • HC providers bill insurance company
    • Universal claim forms, cheaper, faster
    • Network of providers program
  • 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
  • Managed Care-
    • Characterized by prepayment of services
    • Started by Kaiser, known for strict provider networks
    • Negotiated lower fees/cost control
  • Pure risk = chance of a risk but no gain (ex. Tornados, floods)
  • Speculative risk = chance of a loss or a gain (ex. gambling)
    • Uninsurable
  • Risk is insurable if it is unanticipated and there is a chance of a loss but no chance of a gain
  • 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)
  • 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)
  • Risk management strategies used by insurance companies
    • Group insurance
    • Elimination period
    • Reinsurance
    • Coverage limits
    • COB’s
  • 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
  • Earned Discount = EAC – AAC   (estimated acquisition cost – actual acquisition cost)
    • = Volume + cash + trade discounts
  • EAC = AWP – (% of AWP) m
  • Gross Margin (GM)- the difference between the selling price and the cost to the pharmacy for the product that was sold.
    • GM = Reimbursement – AAC
  • 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
    • Partial capitation-   Dr. is at partial risk
      • Payment in advance for predefined, predictable services per member per month
    • 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
  • 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
  • Types of Reimbursement
    • Government payment
    • MCO’s
    • Self-insured payers
      • Note: each payer sets rules for services covered & reimbursement
  • 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)
  • Health insurance initially was intended to protect individuals from lost income when they became ill
  • 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
  • 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.
  • 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

  • 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
  • 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
  • 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
  • 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
  • Health care benefit trends:
    • Increased premiums, decreased benefits
  • Service Benefit Insurance-
    • HC providers bill insurance company
    • Universal claim forms, cheaper, faster
    • Network of providers program
  • 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
  • Managed Care-
    • Characterized by prepayment of services
    • Started by Kaiser, known for strict provider networks
    • Negotiated lower fees/cost control
  • 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)
  • 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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