VII. Financing of Health Services

This section discusses the financing of health care services by major payers such as employers and state and federal governments. The method of financing health care services impacts the way in which these services are organized and delivered. In California, many payers finance health care through Health Maintenance Organizations (HMOs) or other types of managed care plans. Generally, the term "managed care" refers to care that is coordinated or managed by a primary care physician "gatekeeper" (who controls use of services) or some other medical management function or individual in exchange for a preset, fixed payment per member per month (PMPM). The care must be managed because the providers and/or the HMO assume the financial risk of taking care of enrollees for this fixed payment as opposed to fee-for-service payments. Managed care has grown significantly over the last decade largely because major employers believe that shifting the financial risk to HMOs and/or providers has kept health care cost inflation in check. Following on the heels of employers, the Health Care Financing Administration (HCFA), the federal agency that administers the Medicare program, and more than half the states have developed managed care programs or strategies. Most often, where managed care programs have achieved moderate to high levels of market penetration, the cost and utilization of services is lower than in those areas with little managed care penetration. California is one of the states with the highest level of managed care market penetration.

Table 7.1 shows 1996 managed care enrollment by payer for the service area. Eight percent of the Humboldt/Del Norte Counties population was enrolled in a managed care plan in 1996. This includes a small number of seniors enrolled in a single Medicare HMO. Eight percent is considered a low level of managed care market penetration. MediCal does not offer managed care in Humboldt/Del Norte Counties. However, 17% of Humboldt/Del Norte residents enrolled in commercial plans are enrolled in HMOs, which approaches a moderate level of managed care penetration for this payer category. Data provided by Healthcare Databank for Table 7.1 may be incomplete in that they do not include a major California HMO known to have a significant share of the commercial market. In a study prepared by the Insurance Company of Wausau in 1996, California Care (Blue Cross) was estimated to have over 7,000 members and a market share of approximately 11%.

The average monthly commercial premium was compiled from the large employer surveys that were distributed to all companies with greater than 20 employees. The response rate for the surveys was 18 out of 37 (only 13 were usable). According to the responses received and recorded in Table 7.2, the average premium for an individual for all types of plans is $157.41 and for a family $396.95 per month. These monthly premiums include both the employer's portion as well as what the employee must contribute for the cost of having health care coverage.

The Adjusted Average Per Capita Cost (AAPCC) rates form the basis upon which the Health Care Financing Administration pays Medicare HMOs per member per month. These rates are established annually for each county in the United States. AAPCC rates range from less than $400 to more than $700. A rate of $400 per month is generally considered to be the minimum amount necessary for HMOs to profitably manage the care of Medicare beneficiaries. Table 7.3 lists the Humboldt and Del Norte AAPCC rates for 1995 through 1998. With a 24.9% AAPCC increase in 1996, Del Norte exceeded the $400 PMPM level. Humboldt exceeded the $400 level in 1997.

Tables 7.4 and 7.4s compare Hospital PMPM costs by payer for Humboldt/Del Norte residents and four other rural sites in California. Among these sites, Humboldt/Del Norte had a moderate level of commercial managed care market penetration at 17% and little to no Medicare and MediCal managed care penetration in 1996.

The effect of managed care is vividly illustrated in Table 7.4s, which lists the PMPM costs and level of managed care penetration for all five rural sites. In almost every case, there is a direct correlation between the level of managed care penetration and cost; the higher the penetration, the lower the cost. The Humboldt/Del Norte MediCal inpatient PMPM is about average for the five areas; the Medicare and commercial inpatient PMPMs are below the average. Although not illustrated in the tables, inpatient costs are as much related to utilization as they are to charges. Hospital inpatient utilization is among the highest for Humboldt/Del Norte Medicare beneficiaries, about average for MediCal beneficiaries and the lowest for enrollees in commercial plans.

Table 7.5 below records that Humboldt County pays 79% of the cost of public health services in the county.

Previous | Table of Contents | Forward

© CIRHM