1 The Evolution of Health Plans

1910. The earliest examples of health plans appeared in the form of prepaid grou
p practices. These were healthcare systems in which plan members paid a monthly
premium and in return received a wide range of medical services through an exclu
sive group of providers.
1929. Blue Cross plans providing prepaid hospital care were established.
1930. Blue Shield plans providing reimbursement for physician services were esta
blished.
1954. Individual practice associations (IPAs), which contracted with physicians
in independent fee-for-service practices, emerged as a competitive response to h
ealth maintenance organizations (HMOs), which were based on group practices.
There have been many reasons for this growth, but we will focus on three key fac
tors: the HMO Act of 1973, consumer and employer demand, and government involvem
ent.
The HMO Act of 1973
Federal qualification. [
they had to meet a number of standards related to minimum benefit packages, prov
ider network adequacy, enrollee grievance systems, financial stability, and qual
ity assurance.
]
Dual choice.
Federal funding.
State law exemption.
Consumer and Employer Demand
Preferred provider organizations (PPOs)
Point-of-service (POS) products
prescription drugs, and employers wanted more cost-effective ways of providing s
uch benefits. In response, health plans developed specialty carve-out plans
consumer-directed health plans (CDHPs). CDHPs are based on employer funding of a
core set of benefits, employee financial responsibility, and increased accounta
bility of the health plan and providers. Under a CDHP, the individual has both a
health insurance plan with The Evolution of Health Plans Page 5 of 9
a high annual deductible and a tax-advantaged health savings account. He or she
uses money from the account to pay for healthcare expenses before the high deduc
tible of the health plan is satisfied
Government Involvement
1973 HMO
1965 Medicare
1997 HIPAA Health insurance portability and accountability act
1997 CHIP

Current Factors in the Evolution of Health Plans

Rising Healthcare Costs
Technological and Pharmacological Advances
Demographic Changes People born after World War are becoming 65+
Overutilization and Incentives
The Uninsured
Wait to go to a hospital and is a huge cost in the last minute.

The Response of Health Plans

Provider compensation.
Management techniques. [Manage the health, prevent overlapping benefits]
Consumer-directed health plans.
Technology.
Quality
The Role of Employers
The Role of Accreditation [NCQA and URAC]
2 Basic Concepts of Health Insurance
Insurance
indemnity health insurance
Individual and Group Insurance
Risk and Underwriting
Risk
Underwriting and Pricing
Basic Features of Indemnity Health Insurance
Provider Choice
Benefit Payment [fee-for-service (FFS).]
Cost-Sharing [Deductible, Coinsurance and copayment]
Cost Control
Coordination of Benefits
Increased Cost-Sharing
Cost Containment [ Second opinion..]
Preventive Care and Wellness
3 Health Plan Benefits and Networks
Health Plans
The term health plan may be used to refer to a single organization or to a company
that offers several types of health insurance or health plan products. In this
course, we will use the term health plan to refer to any entity that utilizes cert
ain concepts or techniques to manage the cost, access, and quality of healthcare
Health Plan Products
Health maintenance organizations (HMOs)
Preferred provider organizations (PPOs)
Point-of-service (POS) products
Consumer-directed health plans (CDHPs)

The Key Players

Providers
Payors
Purchasers
Members
Health Plan Benefits
Primary care
Specialty care (secondary care)
Specialist
Referral
Outpatient services

Ancillary services
Preventive Care
Mandated Benefits
Cost-Sharing
Deductible, Coinsurance and copayment
Access to Care
Networks
To provide good access, health plans must ensure that their network includes:
the right number of providers, the right types of providers, and providers in th
e right locations.
Primary Care
Primary care providers (PCPs)
Provider Choice
Enhancing Accessibility of Care
Cost Structure
Primary Care, Prevention, and Wellness
Utilization and Quality Management
Utilization Management is managing the use of healthcare services so that patien
ts receive necessary, appropriate, and high-quality care in a cost-effective way
.
Demand management
Utilization review
Case management
Disease management
Quality Management is an organization-wide, ongoing process of measuring and imp
roving the quality of the healthcare and services
Oversight.
Credentialing.
Measuring and improving care
Members rights and complaint resolution procedures.

4 Provider Compensation
Fee for service
Capitation
More specifically, a health plan pays a provider a set amount (a capitat
ion rate) for each plan member under her care for each time period. In exchange,
the provider must deliver whatever healthcare services are needed by those memb
ers during that period. Whether the provider delivers many services or few or no
ne, she receives the same amount. per member per month (PMPM)
Fee Schedule
a fee-for-service basis but limit the amounts paid by means of a fee schedule. f
ee maximums, capped fees, or fee allowances.
usual, customary, and reasonable (UCR) fees. A UCR fee for a service is the amou
nt commonly charged for the service by physicians in the region
Discounted Fee-for-Service
Relative Value Scale or Resource-Based Relative Value Scale (RBRVS)
Salary
Diagnosis-Related Groups (DRGs)
Per Diems

Episode-Based Payments
The health plan pays a single amount for all the services associated with a sing
le episode of care, such as a hospitalization
Other Compensation Provisions
Withholds
Risk Pools
Pay for Performance (P4P) Programs