HSA 500 Paper #2
Jennifer M. Smith
Dr. Robert Lindsey
Health Service Organization
February 17, 2013
Compare the three (3) main types of health insurance in the U.S. and assess the solvency of each. Make a prediction regarding the longevity of each type over the next 30 years.
Indemnity or fee-for-service plans, Health maintenance organizations (HMOhmo), and Preferred provider organizations (ppoPPO) are three types of health insurance in the U.S. According to (Williams and Torrens, 2010), The indemnity plan, reimbursed by fee for service, is the oldest form of health insurance design. Under indemnity insurance, the insurers guarantee payment to any licensed health care provider for all covered services. In recent years, fee-for-service indemnity plans also have grown more similar to man- aged care plans. Traditionally, fee-for-service indemnity plans gave individuals an unrestricted choice of licensed health care professionals. Care providers were free to determine which services were appropriate based on their professional judgment and were reimbursed for all the care they delivered. Today, nearly all fee-for-service plans have adopted some form of the utilization- management strategies formerly associated with managed care, such as preauthorization for hospitalization or referral to specialists. In my opinion the indemnity design will not be around in the next thirty years it is losing favor with employers.
HMOs are the most tightly closed of all managed care systems. HMOs typically provide no coverage for out-of-plan services and require health care providers to share the financial risk for the amount of services provided. Data have shown that, at an aggregate level, premiums are lower in communities with a higher penetration of HMO plans and more intense competition among health plans (Stein, 1997). Restricted provider networks and a strong reliance on primary care physicians have been major forces allowing HMOs to keep health care premiums below those of other plans. However, the tradeoff between low cost and limited provider choice has been unacceptable to many consumers, as evidenced by the recent trend toward looser and more expensive forms of managed care, such as PPOs and POS plans (Sisk, Gorman, Reisinger, 1996, Stroul, 1996). This trend is likely to raise premium levels and individual copayments and deductibles in the future. Because of the rising of premiums I predict that within the next thirty years HMOs will slowly fade away.
In the mid-80s, legislation allowing insurers to contract selectively with different providers at different reimbursement rates provided a starting ground for the development of preferred provider organizations (PPOs) (Gabel &Ermann 1985). Generally, the term PPO refers to a third-party payer system that contracts certain providers for patient services on a discounted fee-for-service basis. Patients are encouraged to select these “preferred providers” with economic incentives including broader coverage, and in-network providers gain a larger patient base in return for their discounted services (Gabel & Ermann 1985). Unlike health maintenance organization (HMO) coverage, PPO patients retain the ability to go out-of-network for care. Although patients are responsible for most of the costs in such situations, there is usually a yearly limit on out-of-pocket payments that allows patients who experience severe chronic conditions to access long-term out-of-network specialty care without prohibitive costs. PPOs have made a huge leap in the past two decades as a model for health insurance (Sengupta & Kreie 2011): In 1988, PPOs represented 11 percent of employer-provided health care; by 2005, 85 percent of large employers offered at least one PPO option (Hirth, Grazier, Chernew, & Okeke, 2007). PPO will be around for the next thirty years because it allows PPO patients to retain the ability...
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