Real GDP is an important indicator to track because it provides the greatest and broadest sectoral detail of any other series. Data reflect income as well as expenditure flows. Sectoral coverage includes durable and nondurable goods, structures, and services. Also, price data by sector are available for detailed subcomponents. Because of the detail available in the GDP reports, this series provides comprehensive information on supply and demand conditions, including information for various types of developing imbalances over the business cycle.
[Read slide] As the percentage of the GDP that is spent on health care rises, it becomes more likely that others (external to health care) will want to fix the situation. The GDP suggests that we must be engaged actively in helping to change the healthcare system.
[Read slide] With these facts, it is clear that we are not receiving high value for the amount of money spent on health care.
The four key sources are: [Read slide] As you can see, the government, primarily through Medicare and Medicaid programs, pays the most as a single source. Private insurance companies, although they pay more of the overall percentage, are composed of numerous individual businesses.
Almost 75% of government spending is at the federal level. Because the government pays such a large percentage, you can see how the Centers for Medicare & Medicaid Services (CMS) greatly influences what happens in health care.
The primary payer of health insurance is Medicare. Part A covers organizational services, such as hospitals and home health. Part B, which is optional, provides for healthcare provider payments, medical equipment, and diagnostic tests. In 2006, Part D, the drug benefit program, went into effect.
Medicaid is a state-level program with costs shared between the state and the federal government. Funding from the federal level is dependent on the per capita income of the state. In addition to covering the medically indigent, who are the population the public usually thinks of as being the targets of this program, Medicaid covers persons with disabilities.
Charges are the cost of providing a service plus a mark-up for profit. “Usual and customary” is a term that means third-party payers have surveyed providers in the area to establish what the payer will pay. So, a hospital could tack on a mark-up and not necessarily receive it because it far exceeds the “usual and customary” charge.
Cost-based reimbursement calculates all allowable costs and then uses that as the basis for payment. Each payer determines what the allowable costs are. Both of these approaches have been largely replaced by payer fee schedules.
Flat-rate reimbursement is based on the payer’s deciding in advance what the payment will be. If costs are greater, the provider absorbs the cost. If costs are less, the provider benefits.
Capitated payments are based on the provision of specified services to an individual over a set period, such as 1 year. The capitation (or per head [person] fee) is set, and the desire is to provide needed care at the lowest cost possible while meeting the standards for quality.
