LECTURE Unit Objectives After completing this unit, you should be able to define moral hazard , adverse selection , and cost-shifting identify the major public programs for the financing of health care compare and contrast Medicare and Medicaid list and describe the four sub-programs of Medicare describe different reimbursement approaches for health services Unit Lecture When asked how health care services are paid for, many of us think immediately of health insurance. However, we typically don't think about the dynamics behind health insurance or the various types of programs through which it is delivered. At its most basic level, health insurance is a tool for mitigating risk. An individual purchases health insurance to mitigate the risk of having to pay an enormous medical bill in the event of sickness or injury. Those who provide health insurance—insurance companies—also work to mitigate risk, albeit from the other side. They attempt to create a risk pool containing a large number of healthy people to offset the expenses accrued by those who do get sick or injured. Premiums , the fees paid for ownership of health insurance, are used to subsidize the cost of the health care provided to those who use the insurance. Factors that insurance companies need to be mindful of include moral hazard , whereby an insured individual is more prone to seek care than if he or she were paying the medical bill him- or herself; and adverse selection , whereby insurance is mainly purchased by those most in need of it. As with any financial enterprise, if the costs of providing the product or service exceed the revenue, the company goes out of business. There are several types of insurance programs, both public and private. Together, these programs cover not only individual health services, but public health services, research, and the administration of the delivery and financing of health care in the United States. The majority of public and private expenditures—approximately 81 percent—are directed toward hospital care, provider and clinical services, long-term care, and prescription drug provision (Kovner & Knickman, 2011). As mentioned in the week 4 lecture, health insurance is a relatively new mechanism for financing health services, and it has grown substantially since the mid-1900s, when only 9 percent of the US population had health insurance (Blumberg & Davidson, 2009). Health insurance can be broken down into private and public insurance. Private health insurance is primarily employment-based, meaning that individuals receive coverage through commercial health insurance plans for which their employers either pay the premiums or subsidize them, with the employee paying the balance. Some larger employers choose to self-insure, which means that they administer their own plans and accept the financial risk of doing so. In essence, they act as the insurer of their employees. Some individuals, either through necessity or choice, opt to purchase t.

1. LECTURE
Unit Objectives
After completing this unit, you should be able to
define
moral hazard
,
adverse selection
, and
cost-shifting
identify the major public programs for the financing of health
care
compare and contrast Medicare and Medicaid
list and describe the four sub-programs of Medicare
describe different reimbursement approaches for health services
Unit Lecture
When asked how health care services are paid for, many of us
think immediately of health insurance. However, we typically
don't think about the dynamics behind health insurance or the
various types of programs through which it is delivered. At its
most basic level,
health insurance
is a tool for mitigating risk. An individual purchases health
insurance to mitigate the risk of having to pay an enormous
medical bill in the event of sickness or injury.
Those who provide health insurance—insurance companies—
also work to mitigate risk, albeit from the other side. They
attempt to create a risk pool containing a large number of
healthy people to offset the expenses accrued by those who do
get sick or injured.
Premiums
, the fees paid for ownership of health insurance, are used to
subsidize the cost of the health care provided to those who use
the insurance.
Factors that insurance companies need to be mindful of include

2. moral hazard
, whereby an insured individual is more prone to seek care than
if he or she were paying the medical bill him- or herself; and
adverse selection
, whereby insurance is mainly purchased by those most in need
of it. As with any financial enterprise, if the costs of providing
the product or service exceed the revenue, the company goes out
of business.
There are several types of insurance programs, both public and
private. Together, these programs cover not only individual
health services, but public health services, research, and the
administration of the delivery and financing of health care in
the United States. The majority of public and private
expenditures—approximately 81 percent—are directed toward
hospital care, provider and clinical services, long-term care, and
prescription drug provision (Kovner & Knickman, 2011).
As mentioned in the week 4 lecture, health insurance is a
relatively new mechanism for financing health services, and it
has grown substantially since the mid-1900s, when only 9
percent of the US population had health insurance (Blumberg &
Davidson, 2009). Health insurance can be broken down into
private and public insurance.
Private health insurance
is primarily employment-based, meaning that individuals
receive coverage through commercial health insurance plans for
which their employers either pay the premiums or subsidize
them, with the employee paying the balance.
Some larger employers choose to self-insure, which means that
they administer their own plans and accept the financial risk of
doing so. In essence, they act as the insurer of their employees.
Some individuals, either through necessity or choice, opt to
purchase their own private insurance coverage through a
commercial insurance company or to remain uninsured and
accept the risk.
Public health insurance
is funded by the government and plays a significant role in the

3. health care system. There are several public programs; two of
the most prominent are the Medicare program, created through
Title 18 of the Social Security Act of 1935 (SSA), and
Medicaid, created through Title 19 of the SSA. Both programs
are operated by the Centers for Medicare & Medicaid Services
(CMS), a division of the U.S. Department of Health & Human
Services (HHS).
Medicare
is a federally funded program that finances services for people
aged 65 and older, people under the age of 65 who have certain
disabilities, and people with end-stage renal disease (CMS,
2014). Medicare has four sub-programs: Part A, which covers
hospital inpatient services; Part B, which covers provider
services and outpatient care; Part C, an optional managed care
plan in which beneficiaries can participate; and Part D, which
provides prescription drug coverage.
Medicaid
is jointly funded by the federal government and each state
government. Consequently, there is variation within the
program from state to state in terms of eligibility and benefits.
Although the states have a certain degree of control over the
eligibility criteria, federal law mandates that coverage be
available to individuals in families with an income below 133
percent of the federal poverty level. The federal government
also sets nonfinancial criteria, such as that coverage apply to
those enrolled in the Supplemental Security Income (SSI)
program (CMS, 2014).
Some of the federally mandated services provided by Medicaid
include inpatient and outpatient services; surgical dental
services; nursing facility services for beneficiaries aged 21 and
older; and preventive, diagnostic, and treatment services for
children. Information on the impact of the ACA on Medicaid
eligibility can be found on the
Medicaid eligibility website
.
Medicare and Medicaid are not the only publicly funded health

4. programs. There is the Children's Health Insurance Program
(CHIP), which is instrumental in financing health services for
uninsured children; the Military Health System (MHS), which
provides health services to active-duty and retired members of
the uniformed services as well as their dependents; the Veterans
Health Administration (VA), which provides care to veterans;
and the Indian Health Service (IHS), which provides health
services to members of American Indian and Alaska Native
tribes and their descendants.
Each private and public insurance program has a unique
relationship with the health care providers who participate in
that program. Each program also has its own methods of
determining reimbursement rates for services provided. This
week, we'll discuss not only the basic dynamics of health
insurance, but the various types of private and public insurance,
the various reimbursement approaches, and some of the ways in
which the ACA will impact the financing of health care in the
United States.
References
Blumberg, A., & Davidson, A. (2009). Accidents of history
created U.S. health system. Retrieved January 28, 2014, from
http://www.npr.org/templates/story/story.php?storyId=11404513
2
Centers for Medicare & Medicaid Services (CMS). (2014).
Medicaid eligibility. Retrieved January 6, 2014, from
http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Topics/Eligibility/Eligibility.html
Centers for Medicare & Medicaid Services (CMS). (2014).
Medicare program general information. Retrieved January 6,
2014, from http://www.cms.gov/Medicare/Medicare-General-
Information/MedicareGenInfo/index.html
Kovner, A. R., & Knickman, J. R. (2011).

5. Jonas & Kovner's health care delivery in the United States
. New York, NY: Springer Publishing Company.
DISCUSSION QUESTION BELOW:
The lecture this week discusses the terms adverse selection and
moral hazard. Describe what these terms mean and how they
may relate to a component (of your choice) of the Affordable
Care Act.
-ANSWER WITH ONE-TWO PARAGRAPHS. NO
PLAGERISM. CITE APA FORMAT W/ REFERENCES