Who’s Paying For Health Care?

 

America spent 17. 3% of its gross domestic product on health care in 2009 (1). If you break that down on an individual level, we spend $7, 129 per person each year on health care… more than any other country in the world (2). With 17 cents of every dollar Americans invested keeping our country healthy, it’s no wonder the government is determined to reform the system. Despite the overwhelming attention medical care is getting in the media, we know very little about where which money comes from or how it makes the way into the system (and rightfully so… the way all of us pay for healthcare is insanely complex, to say the least). This convoluted system is the unfortunate result of a series of programs that attempt to control spending layered on top of one another. What follows is a systematic attempt to peel away those layers, helping you become an informed health care consumer and an incontrovertible debater when discussing “Health Care Reform. ”

Who’s paying the bill?

The “bill payers” fall into three distinct buckets: individuals paying out-of-pocket, private insurance companies, and the government. We can look at these payors in two different ways: 1) How much do they pay and 2) How many people do they pay for?

The majority of individuals in America are insured by personal insurance companies via their employers, followed second by the government. These two sources of payment combined account for close to 80% of the funding for health care. The actual “Out-of-Pocket” payers fall into the actual uninsured as they have chosen to carry the risk of medical expense independently. When we look at the amount of money each of these groups spends upon health care annually, the pie shifts dramatically.

The government currently pays for 46% of national health care expenditures. How is that possible? This will make much more sense when we examine each of the payors individually.

Understanding the Payors

Out-of-Pocket

A select portion of the population chooses to carry the risk of medical expenses themselves rather than buying into an insurance plan. This group tends to be younger and healthier than covered patients and, as such, accesses medical care much less frequently. Because this group has to pay for all incurred costs, they also tend to be much more discriminating in how they access the device. The result is that will patients (now more appropriately termed “consumers”) comparison shop with regard to tests as well as elective procedures and wait longer before seeking medical attention. The payment method for this group is simple: the doctors and hospitals charge set fees for their services and also the patient pays that amount directly to the doctor/hospital.

Private Insurance

This is where the whole system gets a lot more complicated. Private insurance is purchased either separately or is provided by companies (most people get it through their employer as we mentioned). When it comes to privately owned insurance, there are two main types: Fee-for-Service insurers and also Managed Treatment insurers. These two groups approach paying for care very differently.

Fee-for-Service:

This group makes it relatively simple (believe it or not). The particular employer or even individual buys a health plan from a private insurance company with a defined set of benefits. This benefit package will also have what is called a deductible (an amount the patient/individual must pay for their medical services prior to their insurance coverage pays anything). Once the insurance deductible amount is met, the health plan pays the particular fees regarding services provided throughout the health-related system. Often , they will spend a maximum fee for a service (say $100 for an x-ray). The plan will require the individual to pay a copayment (a sharing from the cost between the health strategy and the individual). A typical industry standard is an 80/20 split of the transaction, so in the case of the $100 x-ray, the health plan would pay $80 and the patient would pay out $20… remember those annoying medical bills stating your insurance did not cover all the charges? This is where they come from. Another downside of this model is that health care providers are both financially incentivized along with legally bound to perform more tests in addition to procedures as they are paid additional fees for each of these or are held legally accountable for not ordering typically the tests when things go wrong (called “CYA or “Cover You’re A**” medicine). If ordering much more tests provided you with more legal protection and more compensation, wouldn’t you order anything justifiable? Can we say misalignment of incentives?

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