Lecture 10 Medical Benefits: The Changing EnvironmentHealth Care Costs in United StatesHealth Care Costs in United States - (cont.)TaxationDevelopment of Medical Expense CoverageDevelopment of Medical Expense Coverage - (cont.)Cost Containment and Managed CareCost Containment MeasuresState ReformsFederal Role in Health CareLecture 10Medical Benefits: The Changing Environment•Health Care in United States•Taxation•Development of Medical Expense Coverage•Cost Containment and Managed Care•State Reforms•Federal Role in Health CareHealth Care Costs in United States•Total costs in excess of $1 trillion•14% of GNP (in 1960, 5.4% of GNP)•Health care costs in 1998–Per employee $3,817–Per retiree $4,984 (under 65)$2,092 (65 and older)•No other country devotes more than 10% of GNP to health care•US rank on health status (of 24 OECD countries)–Male life expectancy 17th–Female life expectancy 16th–Infant mortality 21stHealth Care Costs in United States - (cont.)•Salaries of Doctors to Average Worker–US 5.4–Germany 4.2–Canada 3.7–England, France, Japan 2.4•Incentives to specialize•Fraud•Unnecessary treatment•1/7th of health care dollars spent for treatment during last 6 months of life•28% of Medicare expenditures for those over 65 spent for last year of life•Administrative costs over $200 billionTaxation•Employer paid premiums are tax deductible for employer and not taxable income for employee•Employee paid premiums can be paid in pre-tax dollars•Medical expense benefits received are tax free except–if they exceed medical expenses–if they are paid for cosmetic surgery–if they are paid to a Highly Compensated Individual (HCI) under a self-funded discriminatory planDevelopment of Medical Expense Coverage•Prior to 1930 medical expenses paid by individual•Blue Cross and Blue Shield (1930s) •Health Maintenance Organizations (HMOs)–Initially (1929 and 1930s)–Growth (1970s)•Insurance Companies–Early efforts (1930s)–Major medical (1949)•Government Involvement–Medicare (1960s)–Medicaid (1960s)Development of Medical Expense Coverage - (cont.)•Reaction to Spiraling Costs–ERISA (1974)–HMO Act (1973)•Continued Change–National Health Insurance Proposal–Self-funding of benefits–Cost-shifting to employees–Managed care•in 1980 90% of insured employees under traditional plans•by 1995 75% of insured employees under managed careCost Containment and Managed Care•1970-1993–Medical component of CPI increased over twice as fast as the general inflation rate•1994-1997–Medical costs in line with inflation•1998-–Medical costs increasing over the rate of inflation again •Reasons for cost increases–Technology–Malpractice suits–Third-party payments–Undercapacity–Design of medical plans–AIDS–Aging population•Reason for slowing rate–Managed care–Cost-shiftingCost Containment Measures•Benefit plan design•Alternative providers•Alternative funding methods•Claims review•Health education and preventive care•External cost-control systems•Managed care–Controlled access to providers–Comprehensive case management–Preventive care–Risk sharing–High-quality careState Reforms•NAIC Small Employer Health Insurance Availability Model Act•Tort reform•Claim administration reform•Health Insurance Purchasing CooperativesFederal Role in Health Care•National Health Insurance Proposal•Medical Savings Accounts•Managed Care Reform Legislation–Health Care Quality Choice