MHM502
Case Study Module 1
Health Care Finance 12 June 2015
Identify the distribution of national health spending by type of financing source.
Identify the distribution of health insurance coverage among the U.S. population.
Discuss the impact of the Patient Protection and Affordable Care Act and the difficulties that might be encountered by those mandated to participate.
Discuss the origin of employment-based health insurance.
Explain the difference between fully insured and self-insured health plans.

In the most recent survey identified, the distribution of national health spending for calendar year 2002 it was noted that the public sector accounted for 56.1 percent of health spending within the civilian noninstitutionalized population. Public spending on health care among the civilian, noninstitutionalized population averaged $2,612 per person (2002 dollars). Tax subsidies averaged $745 per person. Public spending averaged more than half of total health spending. Age, sex, and race/ethnicity. Public spending was strongly related to age. Children age eighteen or under received $1,225 of public spending apiece, on average, which was less than one-fifth of average public spending for seniors ($6,921). This is not surprising, given that total expenditures rise with age. What is more interesting is that public spending as a share of total spending was ten percentage points higher for seniors than for children, despite much-publicized expansions in children's eligibility for public coverage. Indeed, the public share for children was only 5.4 percentage points higher for children than for adults under age sixty-five. Differences by sex were less pronounced. Whereas females on average received $415 more in total benefits than males received, public spending as a share of total health spending was slightly higher for males. Blacks (defined here as black non-Hispanics) received slightly larger average benefits than did whites and other non-Hispanics; Hispanics received substantially less (Exhibit 2). Spending on Medicaid and SCHIP disproportionately benefited minorities, although this difference was less than one might guess based on enrollment. According to MEPS, Medicaid/SCHIP covered 34.0 percent of blacks and 29.8 percent of Hispanics versus only 12.0 percent of whites; however, 14.7 percent of white enrollees in Medicaid/SCHIP were seniors, versus only 7.2 percent and 7.7 percent for Hispanics and blacks, respectively. Whereas Medicaid/ SCHIP spending benefited minorities more than whites, Medicare disproportionately benefited whites. This is primarily because seniors constituted 14.6 percent of the white population versus only 5.4 percent and 8.7 percent of the Hispanic and black populations, respectively. Tax expenditures also benefited whites more than blacks or Hispanics, reflecting higher private coverage rates among whites. The racial and ethnic distribution of public spending changes, however, when viewed as a percentage of total spending, with public spending shares for both minority groups exceeding those of whites by more than ten percentage points. 2
In regards to the distribution of health insurance coverage in the United States under the Affordable Care Act (ACA) of 2014, it is noted that there has been an increase in overall coverage of U.S. citizens and Legal Immigrants.
It is noted that since open enrollment started in the fall of 2013, the percentage of adults without insurance had declined by 5.2 percentage points by the second quarter of 2014. "Declines in the uninsured rate were significant for all subgroups on the basis of age, sex, and race or ethnic group, with the largest changes occurring among Hispanics, blacks, and adults 18 to 34 years of age." 3
By the second quarter of 2014, there had been a decline of 6.0 percentage points in the uninsured rate for persons with incomes at or below 138% of the federal poverty level in states with Medicaid expansion. As compared with the baseline trend, the uninsured rate declined for persons with incomes of 139 to 400% of the federal poverty level both in states with and in those without Medicaid expansion. In an analysis directly comparing low-income adults in states with Medicaid expansion versus those in states without, Medicaid expansion was associated with a reduction of 5.1 percentage points in the uninsured rate in 2014, as compared with states without Medicaid expansion. 3
Association with HHS Enrollment Statistics Survey-reported coverage changes were significantly associated with state-level per capita HHS enrollment statistics. The coefficient of -0.53 (P<0.001) indicated that each percentage-point increase in HHS enrollment was associated with a decline of 0.53 percentage points in the uninsured rate in the state. The coefficient for the second quarter of 2014 in this model was still significant (-2.4, P<0.002), indicating that a portion of the decline in the uninsured rate in that quarter was not directly associated with HHS state-level enrollment statistics. 3
What this shows in its most basic form is that there is a significant coverage gain in lower to middle income families since the initiation of the Affordable Care Act (ACA).
Under the new U.S. healthcare laws, employers can choose to continue to offer healthcare coverage to their workforce, or force employees to enroll in the government-regulated marketplace to purchase a healthcare plan. This article discusses the transition issues for employers regarding the implementation of the Patient Protection and Affordable Care Act (ACA) and patient protection.
As discussed earlier, tax incentives for employer-sponsored insurance (ESI) were first instituted during World War II in order to attract qualified workers during a wage freeze, but they are still being implemented today, and still represent the leading source of funding for healthcare coverage.
Employment-based health insurance came about under the Roosevelt presidency due to his decision to not enact a universal health insurance program, "Two historic events prepared the way for the emergence of this system of insurance. The first was the decision by President Franklin D. Roosevelt after his election in 1932 not to pursue universal health care coverage. The second was a series of federal rules enacted in the 1940s and 1950s on how employer-sponsored insurance should be treated with respect to federal taxes and in labor negotiations". 1
The late Wilbur Cohen, who served in the Roosevelt administration, thought that President Roosevelt could have enacted a universal health insurance program as part of Social Security during his first term. Because of the extremity of the Great Depression, Cohen said, "Roosevelt in 1933 could have federalized or nationalized anything he wanted . . . at the bottom of the depression if [he] wanted to create all national banks . . . a national system of Social Security and health insurance, he could have gotten it."1 President Roosevelt decided he did not want to enact a universal entitlement to health care coverage at that time. The standard explanation for his view is that fierce opposition from the American Medical Association, a much more potent lobby then than it is now, would have doomed the passage of the Social Security Act in 1935 (the vehicle to which the passage of health insurance was linked), and that Roosevelt chose Social Security over health care. It probably did not help that the three physicians to whom Roosevelt was closest, including his son’s father-in-law, the renowned neurosurgeon Harvey Cushing, also opposed the enactment of federal health insurance on its merits. Roosevelt discussed health care over lunch with Cushing the day before he signaled his decision not to push for the immediate passage of a health insurance component of Social Security. The difference between self-insure health plans and fully insured health plans is that, Self-insured health plans allow employers to pay for individual employee health claims out of pocket, rather than as a monthly fixed premium to a health insurance carrier. Although employers assume the direct risk for payment of claims, costs are based on actual employee healthcare use. This makes them both cost-efficient and more effective than the one-size-fits all model of a fully insured plan.
In some cases, switching to a self-insured plan enables businesses to cut healthcare costs by 10% to 20%. Besides cost savings, several other reasons have made self-insured health plans increasingly attractive to many small businesses in the past few years; these reasons include -
* Increased cash flow;
* Greater flexibility in benefit decisions;
* Streamlined administration; and
* Exemption from state jurisdiction under the Employment Retirement Income Security Act of 1974 (ERISA), and thus exemption from the state premium tax - generally 2% to 3% - levied on conventional insurance plans. 5
Fully insured health plans are also known as defined benefit pensions and are known as a more “traditional type of “pooled” defined benefit plans. In order for these to operate as “qualified retirement plans”, they must strictly abide by requirements of Code Sections 410(b), 401(a)(26), and the general nondiscrimination rules of Section 401(a)(4) of the Tax Code.6
References:
1. Employer-Sponsored Health Insurance in the United States - Origins and Implications
Blumenthal, David, MD, MPP. The New England Journal of Medicine/indexingvolumeissuelinkhandler/40644/The New England Journal of Medicine.
2. The Distribution Of Public Spending For Health Care In The United States, 2002
Selden, Thomas M; Sing, Merrile. Health Affairs, suppl. WEB EXCLUSIVES: ONLINE ARTICLES FROM VOL. 27, NOS. 5-6
3. Health Reform and Changes in Health Insurance Coverage in 2014
Sommers, Benjamin D\; Musco, Thomas; Finegold, Kenneth; Gunja, Munira Z; Burke, Amy\; et al.
The New England Journal of Medicine23Aug 28, 2014 Vol. 371 (Aug 28, 2014): 867-74.
4. Patient Protection and Affordable Care Act
Mucenski-Keck, Lynn; Smoker, Kari A\. The CPA JournalVol. 85 (23 Apr 2015): 62-67.
5. Self-Insured Health Plans falseBerardo, Joseph, Jr; Cusumano, Jim. The CPA Journal83.4 (Apr 2013): 10-11.
6. Section 412(i) Fully Insured Defined Benefit Plans and the Perils of Unintended Consequences falseLandsberg, Richard D. Journal of Pension Planning and Compliance30.3 (Fall 2004): 7-25.