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Health Insurance Math Simplified (kinda)

June 12, 2015
Authored by Sara Brandon

Click to view full size infographicFull confession. The graphic included with this post took about a dozen rounds of revisions to finalize – and we work in health care. Candidly, we’re hoping (but not 100 percent convinced) it helps to clarify the complicated math of health insurance for the general public as we know it’s not easy to understand. It’s why we wanted to break it down into sound bites. It’s also why we decided including some more information with the graphic might be helpful as well. So, here goes.

HOW HEALTH INSURERS DO THE MATH

Health insurance math starts and ends with the insurance provider, whether it’s government-managed Medicare or Medicaid, or a private company such as Blue Cross Blue Shield, UnitedHealthcare or ConnectiCare. 

Insurers start by looking at how the people insured use the health care system: Are the people they are insuring frequent users of health services? Do they have chronic health issues that require monitoring? How old are they? How many people will be insured? Based on this information, insurers calculate how much health insurance coverage will cost the patient as well as how much they will pay the health care provider with some complexities described below. (We said this is complicated.)

HOW PATIENTS PAY FOR HEALTH INSURANCE COVERAGE

I hope you’re still with me, because now I’ll break down how individuals pay for their insurance.

First, for private insurance there is a set amount paid regularly called a premium. The premium is based on the criteria mentioned above and the plan design which defines what services are covered, what health care providers are preferred by the insurance company, and what medications will be less expensive than others. 

Health insurance plans also have some combination of deductibles (amount to pay before insurance starts to cover services), copays (a small amount paid at the time of service) and co-insurance (a percentage split between individual and insurance company of the charges for services) to help pay for services. There is also a maximum out of pocket which sets a cap on how much is paid in a given year through copays, deductibles and co-insurance.

When insurance is provided through an employer, the plan design (what’s covered and how will it be paid for) are set by the employer typically based on what is affordable to the company. Often, the employee enjoys the benefit of the employer paying a portion of the premium. Health insurance purchased through the health insurance exchange (here known as Access Health CT) includes several options of plan designs with varying costs associated so each individual can select the coverage and cost that’s right for him or her. For some, based on income level, they are eligible for a subsidy to help pay for plans offered through the health insurance exchange as part of the Affordable Care Act. (Want to read more on this? Check out 5 Terms to Know about Health Insurance by Sarah Ginnetti, Director Revenue Cycle at Day Kimball Hospital.)

In the case of Medicaid and Medicare, there is no fee to be insured, but there are requirements based on age, disability and income.

HOW HEALTH CARE PROVIDERS GET PAID

Okay, we’re in the homestretch. Here’s how health care providers – the people (doctors, nurses, radiologists, etc.) and the organizations (hospitals, skilled nursing homes, pharmacies, etc.) are paid. 

For government insurance (that’s Medicaid and Medicare), the payment rates are determined as part of the budget planning process because the government provides insurance to large segment of our population. Once the payment rates are determined, they are voted on by our elected legislators at the state and federal levels respectively. States across the country are grappling with this as legislators continue to vote for lower and lower payment rates make it more difficult for health care providers to cover the costs of providing services. 

In fact, Day Kimball has been hit hard the last two budget cycles in Connecticut. Even though we have been finding ways to reduce operational expenses – sometimes by providing care in a different way and others by eliminating services, we are struggling to absorb the payment cuts from the government. (Read about patient-centered medical home and the health care industry’s move from sick care to well care to learn more about positive changes being made to address cost – and improve health.)

With private insurance companies the process to figure out payment rates to providers is different. Each company sits down with each health care organization or private physician practice group and negotiates payment rates based on the same criteria used to determine how much individuals pay for health insurance (health, age, wealth, and number of people) with the additional consideration of what the other health care providers in the region are being paid. 

The payment rates are renegotiated periodically because the group of individuals covered by the insurance company changes and the cost of providing services also changes. So, it becomes competitive, and it’s why you read in the news about health care providers reporting they will not be accepting insurance from a specific insurance company. The insurer and the provider are not in agreement about the payment rates, which understandably causes complications and anxiety for patients concerned about accessing care and knowing their bills will be covered by their insurance. (By the way, services will be covered, but you might pay more for “going out of network,” and you’ll need to collect the money from your insurance company to pay yourself back for paying the health care provider. Yes, unfortunately, it is extra work for you, which is a bummer.)

What this means is health care providers receive different payment amounts (also called reimbursement rates) for delivering the same services to different people. For instance, a provider may be paid $100 for a blood test done on someone insured by Blue Cross Blue Shield, but only paid $40 for the same test done for someone covered by Medicaid. (Imagine if your employer paid you $100 one week and only $40 the next week for doing the same amount of work. It would make it challenging to manage your household budget, wouldn’t it?) 

On top of that, these payment rates are a complex calculation that only minimally takes into account the actual costs (fixed expenses such employee salaries, medical supplies, and facilities fees such as rent, electric and heat) to operate a health care organization. This adds a layer of complexity to the math of managing the business-side of health care.

Here’s the silver lining...

What I have come to learn is constant – and easily identified is: The people providing the care, really do care. At Day Kimball we call this being a Champion of the Human Spirit. I see it every day. It has been recognized by third party institutions that have awarded the Day Kimball team with quality accolades. It’s seen in the participation of employees in fundraising events and their donations that benefit the patients of Day Kimball. Most importantly, the people we serve feel it, too. So, while we continue to untangle the math of health care and create a New Day for Day Kimball Healthcare, we are not losing sight of our purpose: the health of Northeast Connecticut.

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