Assignment: Commercial Indemnity Plan
With the Deficit Reduction Act of 1984, the federal government began to limit the amounts employers could deduct for health benefits. In 1987, the federal government began to track healthcare spending by sponsor to determine the financial burdens placed on three sponsors: households, private businesses, and governments. In effect, most healthcare spending originates with these three sponsors. In the case of households, healthcare spend- ing is composed of out-of-pocket spending (deductibles and copayments), premiums (both private and public), and payroll taxes for public healthcare programs. In 2015, households paid for 27.7 percent of total healthcare spending, and the trend has been decreasing. In 2015, private businesses paid for 19.9 percent of total healthcare spending, and the trend has been decreasing. In 2015, governments paid for 45.7 percent of total healthcare spend- ing, and that trend has been increasing (CMS 2017b).
mAnAged cAre orgAnIzAtIons Although the Baylor and Kaiser experiences with direct service plans were limited in the healthcare services they delivered, they were the first managed care organizations (MCOs). A managed care organization is an organization that controls the cost of healthcare, the quality of healthcare, and the access to healthcare. One way to classify MCOs is Kongstvedt’s continuum, shown in exhibit 5.5 (Kongstvedt 2013).
At one end of the continuum is the commercial indemnity plan (shown in exhibit 5.5 as managed indemnity), which requires precertification of elective admissions and case management of catastrophic illnesses. Service plans, like the typical Blue Cross plans, add contractual relationships with providers that often include maximum fee schedules and prohibitions on balance billing (i.e., providers cannot bill the patient for amounts over
the fee schedules agreed to with the service plan). Next along the continuum are PPOs. A preferred provider organization (PPO) provides discounted provider services to insur- ance carriers and employers.
Point-of-service plans, shown next along the continuum, will be discussed later in this section. The final two categories along the continuum are types of HMOs, or health maintenance organizations. Providers usually agree to discount their prices in exchange for large volumes of patients. A health maintenance organization (HMO) integrates the financing and delivery of healthcare into one organization (see exhibit 5.6). Financial risk, and opportunity, shifts from the employer/employee as under the commercial indemnity plan (i.e., the employer/ employee pays for inappropriate use through increased premiums) to the HMO (i.e., under prepayment, the HMO assumes the financial risk, and opportunity, for inappropriate use).
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