• Simply put: Introduction

    I’ve been challenged by Aaron to put basic concepts that underlie our health system into simple terms that everyone can understand. I think this is a great idea. It’ll test my understanding of ideas from health economics and my ability to strip away the math and jargon while retaining conceptual accuracy. (This was an implicit challenge, but I’ll take it up anyway.)

    The first question is: what are the concepts? I can think of some off the top of my head (listed below). But I’ll bet you can think of many I’ve overlooked. As you request them, I’ll add them to the list below. When I have time I’ll put out a “Simply put” post. I’d like to say I’ll do one per week, but I shouldn’t make an explicit commitment.

    The following will also serve as an index. I’ll come back here and hyperlink the list items to posts.

    Please put your suggestions in the comments and I’ll add them to the list. Anything is fair game, so long as it is a basic concept. Think of the key words that get tossed around. What must an individual know in order to fully understand the health policy debate?

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    • Austin I might include a brief discussion of Accounting, and approach this both from the Insurer’s point of view as well as the Hospitals, or other provider.

      I recommend this specifically to shed some light on what the Insurer is paying for, involving not only direct medical expenses paid to providers, but also disease management programs, risk adjustment for their members, contracting, risk deals (e.g. transfer of risk to third parties such as Admin Services Contracts for large groups), etc.

      Regarding the Hospital’s finances, this would expose to sunlight the fact (not well known I imagine) that a Hospital has a revenue requirement of some amount, and they rely on payment from public and private sources alike. They take what they receive from CMS, for example, and write contracts with insurers to cover most of the rest. Through this we see that Medicare funds are not adequate to cover Medicare costs in the hospital, and that the difference (e.g. the subsidization) is made up through private payments.

      This is evidenced in that there are not many (any?) Hospitals set up to provide only Medicare-reimbursed services and nothing else.

    • I’m going to suggest two items, but I don’t have a simple buzzword for them.

      The first is the increasing practice of large companies to self-insure, with what everyone calls their insurance company merely being a 3rd party plan administrator (maybe this could be the buzzword). This gives the 3rd party a completely different set of incentives over what they would have if they were on the hook for the risk.

      The other is just how fragmented the individual insurance market is, with (almost) everyone subjected to annual individual underwriting. I think most people assume with works similarly to the Homeowners or the Life insurance business. Not Even Close

    • I imagine a good deal of these will be folded into posts on other issues, but here are some possibilities:

      Demand inducement, consumer driven health plans, managed care, managed competition, “two and a half percent rule,” community rating, risk rating, guaranteed issue, reinsurance, “guaranteed renewability at class average rates” (I’d really like a post on this one), global budgeting.

    • I think there are some items: production of health, price discrimination, human capital and health capital, supplier-included demand(SID).

    • and primary health care

    • Definitely recommend more concepts on the provider side. The terms so far are insurance-heavy. That said, my experience is on the payer side, so I hope someone with more experience in a facility or medical office speaks up. Some thoughts:

      Self-funding (seconding the recommendation above)
      Actuarial death spiral (could include it within adverse selection)
      MLR and AER (most insurers actually used the terms MER or MCR. Sadly reform seems to have entrenched MLR)
      Gain sharing (nice recent results from BCBS MA on pilot)
      Medical home and/or care coordination
      RHIO and HIE (and how they are supposed to improve the quality/cost value proposition)

      • @Jonathan – What’s the RHIO? “RAND Health Insurance O…”

        @All – This isn’t a glossary, but a list of concepts. Some have different terms. Some cover more than one idea because they’re closely related. When I write about one, if you know it by another name, let me know and I’ll clarify. Just as an example, I haven’t put “provider induced demand” because I think it will fall under physician-patient information asymmetry.

    • @Austin — Apologies. I thought that was a term in the biz, but I might have made it up. (Fake it til ya make it, right?) Anyway, I just meant the general “rule” that health spending in the U.S. grows roughly 2.5 percent faster per year than real GDP.

    • How about “Quality-Adjusted Life Year?”

    • Marginal utility is a good concept to understand if you are going to define terms and discuss health care economics.


    • Comparative effectiveness

    • RHIO is regional health information organization and HIE is health information exchange.

    • How about “end of life care”…

      Don’t remember the exact number but a bunch of each Medicare dollar goes to end of life care. Having worked in a hospital for years, I can tell you that agressive, expensive, (and hopeless) care happens all the time. We put our 90 year/old mother on hospice in the nursing home to keep them from sending her back and forth to the hospital. Better for her, better for us, and actually better for the system.

      I was so angry over that “death panel” nonsense. Those discussions with your doctor and family need to happen. My mother hadn’t had that discussion with her doctor, but she had filled out an advance directive, So my brother and I made sure that it was honored.

    • I have a few that have driven me nuts over the past few years:
      * Coordination of care – beyond the single incident setting, it’s almost impossible to have a collection of doctors all share the same information. Info from specialists rarely if ever flows “back upstream” to one’s primary care doctor.
      * Related: centralized record keeping. I’ve looked into even such latest whiz-bang technologies as the Google medical records system, but all that does, as far as I can tell, is collect the very vague billing information passed from the provider to the insurer.
      * Recipient-dependent pricing: hospitals, physicians and other providers have sometimes radically different rates for identical services depending on who’s paying the bill. I recently had a 7 hour (time in to time out) outpatient procedure, and the facility fee to my insurer was $85,000. They were able to charge that only because they are out-of-network and my employer self-insures so, as an earlier commenter notes, they have no incentive to bargain. Had this been in-network, the facility fee would have been a small fraction of that. Needless to say, this also points up the lack of incentive on my part to price-shop ahead of time.

    • How about the word, ‘hospice’? I recognize the concept that putting a 90 year old woman on hospice can ‘keep them from sending her back and forth to the hospital.’ But, speaking as a physician who practiced nursing home medicine for years, there are a few patients on hospice whose dwindling lives can be made more comfortable in hospitals.

      I should add that I went to the hospital, served as the attending physician there for my nursing home patients so there was some certainty about the care that would be provided.

      Hospitals and hospice care aren’t…or shouldn’t be…mutually exclusive.

    • Austin,

      Might I suggest :
      Degree of control (of managed care organizations)
      Staff model HMO
      Adherence (to a doctor’s prescription)

    • Occupational licensure

      Professional liability

      “The uninsured”–meaning the population dynamics of that group…who’s in it for longer periods, who’s in it briefly, how people typically enter and exit.

      Health savings accounts

    • Actuarial value