VII. Financing of Health Services

This section discusses the financing of health care services by major payers such as employers, 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 (HMO) 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. Less than 10% of the Imperial County population was enrolled in a managed care plan in 1996. This is considered a low level of managed care market penetration. Medicare and MediCal do not offer managed care in Imperial County. Twenty-three percent of Imperial residents enrolled in commercial plans are enrolled in HMOs.

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 to this question was 18 out of 37 (only 13 were usable). According to the responses received, the average premium for an individual for all types of plans is $237.50 per month and $724.77 per month for a family. 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 Imperial AAPCC rates for 1995 through 1998. With an 8.4% AAPCC increase in 1997, Imperial exceeded the $400 PMPM level.

The following tables compare Hospital PMPM costs by payer for Imperial residents and four other rural sites in California. In 1996, among these sites, Imperial had a moderate level of commercial managed care market penetration at 23% and no Medicare and MediCal managed care penetration.

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. Although not illustrated in the tables, inpatient costs are more related to utilization than to charges. Hospital utilization is among the lowest for Imperial Medicare and MediCal beneficiaries and about average for enrollees in commercial plans.

Uninsured Population: The Imperial County Community Health Council, along with the DRIS System Consultant and Data Consultant, has estimated that 25% of the county’s population is uninsured. A high proportion of uninsured residents translates into access to care and health status issues for the residents themselves, and a significant level of care that is rendered by the health system with little or no compensation. Many believe this estimate is conservative given the unique characteristics of Imperial County and its population.

The Health Insurance Policy Program at the UCLA Center for Health Policy Research studied access to health insurance by Californians and the relationship between employment, insurance and health status. One of their policy briefs released in August, 1997, "38% of California’s Nonelderly Latinos are Uninsured", concluded that Latinos have a disproportionately high uninsurance rate which transcends age, employment and income groups. More specifically:

• Latino children are three times more likely to be uninsured than are non-Latino white children.
• Latino adults ages 18 to 44 are more than twice as likely to be uninsured than are non-Latino adults.
• Latino adults ages 45 to 64 are more than three times as likely to be uninsured than are non-Latino adults in the same age group.
• The vast majority of Latinos are in working families. However, only 39% of Latinos have employment-based coverage because they are more likely to work in smaller firms. 62% of non-Latino whites in small firms receive health benefits compared to only 37% for Latinos.

The results of this study and the characteristics of Imperial County suggest that a 25% uninsured rate may, indeed, be conservative. These characteristics have been previously discussed and are summarized below:

• Imperial County has the highest proportion of Latino population, at 70%, than any California County.
• The County has a very high rate of unemployment compared with the rest of the State. In April, 1998 Imperial County’s rate was 23.8% compared to the State-wide rate of 5.7%.
• Approximately one-fourth of the county’s population is below the federal povery level and more than one-half is below 200% of the level.
• 28% of the County’s population is covered by MediCal compared to 16.8% for State-wide.
• The County ranks last in the State in the proportion of the population 25 years and older who had not finished high school. The association of education, high paying employment and receiving health benefits has been well established.
• The County has a high proportion of small employers. In 1996, 89% of business units employed less than 20 employees each.

In addition, it has been stated that many Imperial County residents may be crossing the border into Mexico to seek less expensive care and treatment. This makes it even more difficult to assess the size and needs of the population. Further discussion at the local level may bring about a better understanding of these issues.

Table 7.5 below indicates that Imperial County pays 82% of the cost of public health services in the county.

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