Health Care Debate - Definitions of Major Terms

Wednesday, August 19 2009 @ 07:46 PM EDT

Contributed by: togasteve

The Health Care debate has reached a boiling point over the last several weeks. This has led to alot of emotional outbursts from the general public. I don't think its an overstatement to say that this is the single biggest domestic issue in most of our lifetimes, since its effects would be directly felt by every single American in one way or another. What I'm going to try to do here is provide some basic definitions and explanations on some terms that may be a bit confusing to people who have never worked in the industry and aren't too sure what to believe in all of this. I'll try to explain these terms as simply as possible. Please let me know if there's anything you want defined or any single aspect of the proposals you want to discuss. Keep it civil - I hope this is one area where people can discuss differences of opinion without name calling and hysterics. I'm not even going to call anyone a Nazi - how refreshing!

Single Payor - this is a system in which one entity is responsible for paying for medical treatments of all citizens. When you go to the doctor or hospital, you have to either supply insurance coverage or a credit card. This makes the issuer of the card responsible for making the payment to the provider of the medical service. Under the current U.S system, there are several different coverages (both public and private) that people can carry. Under a single payor system there would just be one source of funds. The government would pay for all healthcare services using government revenues (tax revenues). This is done in countries like Canada and the U.K. among several others.

Public option - this is where the government offers one or multiple programs to cover certain people but does NOT instantly become the "only game in town". Examples of public options already in place in the US are Medicare (federal program), and Medicaid (state programs). Sometimes analysts point to these as single payor for the individuals involved but they're wrong because payments can be made secondary by private companies. There are no underwriting profits (see below) in this kind of system as anyone who qualifies and applies for the program is accepted and the funds used to pay the costs are general tax funds. The amount of funds committed to these programs are subject to political voting.

Private option - your health insurance is managed by a private entity - most insured Americans are covered by a private option. The insurance company could be for profit (meaning that the company issues stocks on the stock market, thus leveraging its profits in the same way other large companies do it). "Not for profit" means that the company does not issue stock but uses its underwriting profits (see below) to invest back into the company or to keep as cash reserves. Non-profit private entities are mainly charity-based and deal mainly with catastrophic care. People have to apply for funds and those funds come mainly from donations or additional government subsidies. They usually run in conjunction with individual hospitals. Whatever they take in from donations and subsidies is used to pay for claims and administrative costs.

Insurance co-operatives - this has become a major term in the debate as a counteroption to purely public or purely private options. This is where a certain group of individuals get together with a common purpose and supply the funds needed to pay for care, along with some assistance. To get some of these started the current House bill has a provision to provide about $6 Billion for start up costs. Decisions on what is covered and what is not are made by a board of directors elected by the members of the co-op. This is currently pretty rare in the US as its pretty hard to get a group of people together that aren't already similarly interested and already covered by a private or public option (like employees of a specific company, veterans, the disabled, etc).

Underwriting profits - this is the difference between what a private company charges in premiums (paid mainly by employers offering coverage to their employees as well as employee contributions) and what they pay out in claims. Insurance companies try to figure out how much they would have to pay out for claims for a group of people and charge premiums that would cover that along with a profit that would allow the insurance company to keep operating. Most companies target between a 5 - 8% overall underwriting profit so they can make enough to operate and not get undercut by another private company. The profits are used for administrative costs (like paying the employees of the insurance company) and for company investments and cash reserves (rainy - day funds in case their calculations on how much they'd have to pay out were wrong).

End of Life Counseling - when people are dealing with a life threatening illness their healthcare costs increase since they need more services due to their declining condition. This counseling is supposed to let dying people know what they are in for and allow them and their family to choose what tests and treatments they want and what they do not what to have done.

Death Panel - First off, this is obviously a heated term and it is meant to be that for political terms. Its similar to how some people use the term "Death Tax" and some people say "Estate tax" when dealing with taxing inheritances. There is no way that Congress would put the term "death panel" in any legislation for congressmen to vote on and approve. But the theory is that if the government becomes the sole or even primary payor for the majority of the nation's citizens, they would have to limit care since there are no underwriting profits to cover the costs and there would be limited funds from the tax base since the government has to operate all sorts of other things that a private company doesn't (military, education, social services, and so on and so on). To make decisions on what people could and couldn't have at the end of their life would have to be at least somewhat controlled by a government panel since they can't just raise taxes indefinitely.

Reimbursement Rates - this is the amount of money that a payor (public or private) pays to the doctor or hospital after the medical provider has performed a service for a patient. Under private options these rates are negotiated directly between the insurance company and the individual doctor or hospital. Under several government options these are flat rates that are pre-set by commissions. The complaint of advocates of private options is that the government "low balls" these providers and pays less than a fair amount for the services. This is an example of passing on a cost to lower the price paid by the payor (see below). In order to make enough money to cover their costs (office space, malpractice insurance etc) the doctors or hospitals have to charge more than normal to private companies since the public options pay less. Since doctors are in the business of helping people they don't want to deny anyone care unless their own bottom line and professional well being would be threatened. If one patient's insurance is not paying them enough they will still treat that patient if they can pass the costs of service onto another payor.

Tort Reform - this is about medical malpractice lawsuits. One reason that doctors have to charge alot for medical services (aside from the quality of those services) is that they have to pay for Medical Malpractice insurance. The US does NOT have a system in which people who bring lawsuits that are ruled to be baseless have to pay for both side's legal costs. Since doctors have to defend themselves against all malpractice claims filed, regardless of the merit of those claims, it gets expensive. One idea is to limit the ability to file suits or make those who file faulty suits pay the bills for both sides as a way to reduce the operating costs of performing medical care.

Price vs. Cost - this is a basic economic distinction that makes a world of difference when evaluating options in all areas of life and public policy. Unfortunately in our world these terms are sometimes used interchangeably and it confuses alot of people. Price is what a seller charges for a good or service. The buyer has to decide if they want to pay that price or not (go without the good or service). Cost is how much resources it takes for a seller to bring a product or service to market. Under a free market system in which there's just one buyer and one seller, the seller has to charge the buyer at least enough to cover the seller's costs to produce the good or service. Otherwise that seller won't be able to stay in business for long.

Employers off-loading insurance costs to a government program - Health care is expensive, no doubt about it. There are points and counterpoints all over this one. Some are quick to point out that the US has the most expensive healthcare in the world and blame that on insurance companies seeking too much in profits and doctors "over treating" particularly in the end of life. And others will point out that its more expensive because we have more technology and more treatment options are available. Either way you look at it, its expensive. Currently most people are covered by a private option through their employer. In a competitive capitalistic system, businesses are always looking to reduce costs. The current House bill has an 8% tax penalty for companies that don't offer private coverage to their employees. Alot, if not all, employers might see the option of taking the 8% penaly alot more attractive than to pay the premiums needed to cover their employee's healthcare - especially if they have a large and aging workforce. Without the premium revenue from employer based coverage, private insurance companies would go under because they wouldn't get enough business.

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