Chapter 2 Highlights
Four ways of paying for health care: out-of-pocket, individual private insurance, employment-based private insurance,
and government financed. (most are gov’t financed and employment based)
Out-of-pocket was most common in early 1900s.
Health care is a basic human need by most people.
Demand for health services is physician-driven rather than patient-driven, thus out-of-pocket payment system is
Private insurance requires two transactions: premium from the individual and reimbursement of payment from
insurance plan to provider.
Indemnity insurance: premium from individual to insurer, payment from individual to provider, and reimbursement
from insurer to individual.
Met Life and Prudential were first two third-party insurance companies.
Development of health insurance was encouraged by rising costs of hospital care.
Blue Cross: hospital insurance plan allowing free choice of hospital.
10. Blue Shield: plan to cover physician services.
11. WWII led to wage control, making health insurance a “fringe benefit.”
After the war, unions bargained for this.
12. Empolyer premium payments are tax-deductible business expense and employee benefits are non-taxable, thus federal
government is subsidizing health insurance.
13. experience rating: insurance premium based on likelihood of a demographic using health services
14. community rating: premium based on location, services are more distributive than experience rating
15. Blue Cross used community rating, ended up with “high-risk” population.
16. Among different groups, healthy people find no incentive to voluntarily pay for community rating.
17. If people no longer had to pay for health care, they would use more health care.
18. Employment-based private insurance did not help the poor and elderly.
19. Medicare for the elderly and Medicaid (Medical) for the poor.
20. Medicare Part A covers hospital services (procedures, in-patient medication) and is funded by social security taxes.
Requires payment into Social Security System for 10 years and is eligible for Social Security, otherwise there is a
Person under 65 also qualify if (s)he have been receiving social security benefits for 24 months or if person
requires dialysis or transplant.
21. Part A covers hospitalizations, skilled nursing facility, home health care, hospice care, nursing home care.
22. Medicare Part B covers physician services and is funded by federal taxes and premiums from patients.
23. Medicaid covers: low-income families, most elderly, disabled, and blind who receive (SSI), children under 6/pregnant
women, children under 19 whose family income is below federal poverty level.
24. Medicare patients either use HMO or Medicaid to cover the “Medigap.”