• High-deductible health plan—A health plan that combines a savings option with a health
insurance plan carrying a high deductible.
• Insurance—A mechanism for protection against risk.
• Insured—The individual who is covered for risk by insurance.
• Insurer—The insuring agency that assumes risk.
health-related research and construction activities consumed in the United States during a
calendar year.
• Outliers—Unusual cases that call for additional reimbursement under a payment method. These
are atypical cases requiring an exceptionally long inpatient stay or exceptionally high costs
compared to the overall distribution of cases.
insurance (play) or pay a penalty for not doing so.
• Preexisting condition—Any significant health problem that an insured had prior to obtaining
health insurance coverage; examples include diabetes, cancer, heart disease, HIV/AIDS, etc.
• Premium—The amount charged by the insurer to insure against specified risks.
• Prospective reimbursement—A method of payment in which certain preestablished criteria are
basis of costs already incurred.
• Risk—The possibility of a substantial financial loss from an event of which the probability of
occurrence is relatively small.
• Risk rating—Insurance rating according to which high-risk individuals pay more than the
average premium price, and low-risk individuals pay less than the average price.
REVIEW QUESTIONS
1. What is meant by healthcare financing in its broad sense? What impact does financing
have on the healthcare delivery system?
2. Discuss the general concept of insurance and its general principles. Describe the various
types of private health insurance options, pointing out the differences among them.
(1) Risk is unpredictable for the individual insured. (2) Risk can be predicted with a reasonable
degree of accuracy for a group or a population. (3) Insurance provides a mechanism for
transferring risk from the individual to the group through the pooling of resources. (4) Actual
losses are shared on some equitable basis by all insured members.
There are six main types of private health insurance options available to Americans:
3. Discuss how the concepts of premium, covered services, and cost sharing apply to health
insurance.
A premium is the amount charged by the insurer to insure against specified risks. Premiums are
determined by the actuarial assessment of risk. Services covered by an insurance plan are
4. What is the difference between experience rating and community rating?
In experience rating, premiums are based on a group’s own medical claims experience. Under
this method, premiums differ from group to group because different groups have different risks.
5. What is Medicare Part A? Discuss the financing and cost-sharing features of Medicare
Part A. What benefits does Part A cover? What benefits are not covered?
Part A, the hospital insurance (HI) portion of Medicare, is financed by special payroll taxes
60 consecutive days. Part A covers hospital inpatient services, care in a skilled nursing facility
(SNF), home health visits, and hospice care. The following services are covered:
6. What is Medicare Part B? Discuss the financing and cost-sharing features of Medicare
Part B. What main benefits are covered under Part B? What services are not covered?
Part B, the Supplementary Medical Insurance (SMI) portion of Medicare, is a voluntary program
7. Briefly describe the Medicare Advantage program.
Medicare Advantage is also called Part C, but it does not add specifically-defined new services.
It merely provides some additional choices of health plans with the objective of channeling a
greater number of beneficiaries into managed care plans. The Balanced Budget Act (BBA) of
1997 authorized the Medicare+Choice program which took effect in 1998. Medicare+Choice
8. Briefly explain the prescription drug program under Medicare Part D. What provisions
does the ACA have to reduce cost sharing?
Part D is voluntary. It requires payment of a monthly premium by those who want the coverage.
The program is available to anyone, regardless of income, who has coverage under Part A or Part
B.
9. What are Medicare trust funds? Discuss the current state and the future challenges faced
by the Medicare trust funds. What main factors pose these challenges?
Medicare has established two main trust funds: The HI trust fund provides the money pool for
Part A services, and the SMI trust fund provides the money pool for Parts B and D. Each trust
fund accounts for incomes and expenditures. Taxes, premiums, and other revenues are credited
10. How does the Supreme Court ruling on the ACA affect Medicaid? How does the ACA
affect the program?
The ACA had authorized the DHHS to withhold the federal share of financing as a penalty for
states that refused to expand Medicaid. The US Supreme Court struck down this mandate.
Consequently, states now had a choice to either expand or not expand their Medicaid programs
11. What provisions has the federal government made for providing health care to military
personnel and to veterans of the US armed forces?
The health care program for military personnel, their dependents, survivors, and retirees is
operated by the Department of Defense (DOD). Each of the military departments—Army, Navy,
and Air Force—operates its own medical facilities. TRICARE is the insurance arm of military
12. What are the major methods of reimbursement for outpatient services?
The following main methods are used for the reimbursement of outpatient services:
a. Fee-for-service reimbursement pays a separate amount for each identifiable and individually
distinct unit of service, such as examination, X-ray, urinalysis, and a tetanus shot, in the case of
physician services. Each of these services is separately itemized on one bill, and there can be
13. What are the differences between the retrospective and prospective methods of
reimbursement?
Retrospective:
a. Reimbursement is based on actual costs incurred in the past. In other words, costs are
evaluated retrospectively.
b. The total reimbursement is directly related to length of stay, services rendered, and the cost of
providing the services.
14. Discuss the concept of value-based purchasing, as required by the Affordable Care Act.
The ACA directs the CMS to develop reimbursement methods that reflect “value-based
15. Discuss the prospective payment system under DRGs.
The prospective payment system (PPS) under DRGs is used by Medicare to determine
acute-care hospital inpatient reimbursement. The primary factor governing the amount of
16. Distinguish between national health expenditures and personal health expenditures.
National health expenditures estimate the amount spent for all health services and supplies and
health-related research and construction activities consumed in the United States during a
calendar year. In addition, costs incurred in the administration of private and public health
insurance and spending on public health activities are included.
Personal health expenditures are confined to services and goods related directly to patient
care. More specifically, personal health expenditures constitute the amount remaining after
expenditures for research and construction, administrative expenses incurred in health insurance
17. What is adverse selection? What are its consequences?
Adverse selection occurs when high-risk individuals, i.e., people who are likely to use more
health care services than others because of their poor health status, enroll in greater numbers in
18. What is risk rating? Why is it criticized?
19. What is the relationship between reimbursement cuts and cost shifting? How do hospitals
react in different markets to cuts in reimbursement?
Cost shifting is a mechanism used to make up for revenue shortfalls because of reimbursement
20. Summarize the provisions under HIPAA and the ACA as they apply to fraud and abuse.
HIPAA of 1996 established a national Health Care Fraud and Abuse Control Program designed to
coordinate federal, state, and local law enforcement activities with respect to health care fraud and