Abstract
The payer mix in healthcare financing currently comprises of three broad groups that include private insurance, government payers, and private payers. Private insurance covers 61% of the US population and contributes 49% in revenues. Government payers cover 31% of the population and contribute 55% of the revenues while the private payers account for 5% of population and contribute 6% of the revenues. The Affordable Care Act seeks to increase the insurance coverage in the United States. It would increase the contributions from government payer and reduce the default risk associated the private payers. This would also ensure that all the citizens have access to standard healthcare. To capture this information in the budgeting process, the players in the healthcare industry must consider using patient data in the planning and budgeting process. This would ensure that the hospitals match the number of patients with the revenues and the expenses hence resulting in a balanced budget.
Healthcare finance has increasingly become an area of interest for researcher. Over the last five years, hospitals and other healthcare institutions have had to struggle with various issues related to healthcare financing with the budgeting concerns topping the list. The sudden changes in healthcare financing and budgeting resulted from the passing into law and the implementation of the Affordable Care Act that seeks to ensure that all citizens in the United States have access to standard healthcare and that they are not turned away by hospitals just because they lack the money to finance healthcare services. While intentions behind and objectives of Affordable Care Act mean well, there has been issues with the manner in which healthcare institutions receive their revenues and push the budgeting agenda meaning that they are finding it harder to budget for the revenues and even match those revenues to expenses. This short research paper seeks to shed more light into the issues of healthcare financing and planning of revenues in the United States. The information provided herein contains national statistics hence the consideration that the findings of this paper can be applied generally to majority of healthcare institutions in the United States.
The payer mix marks the beginning of the understanding of hospital finance. Typically, statistics indicate that most of the hospital bills are not paid directly by the patient but rather, the bills are paid by entities that provide healthcare insurance and these are referred to as the payers. The payer mix can then be broken down into three groups that include private payers, government payers, and self pay. The private payers include the private insurance providers. Individuals and companies in the United States take health insurance covers with private companies and in the event of an out-patient or in-patient need for healthcare, the private insurance company handle the bills depending on the terms of the contract. Statistics indicate that private payers cover about 64% of the population in the United States; hence, making them the largest group in the payer mix (Hartman, Martin, Benson, Catlin & National Health Expenditure Accounts Team, 2013). The private payers can further be categorized into the employer-based health insurers and the direct-purchase health insurers for self-employed persons. Statistics also indicate that the private payers contribute 49% to the national healthcare revenues (Hartman, Martin, Benson, Catlin & National Health Expenditure Accounts Team, 2013).
The second major group in the payer mix includes the government payers. The government papers cover at least 31% of the population in the United States. For this population, the government payers contribute up to 55% of the healthcare revenues across many hospitals in the United States (Hartman, Martin, Benson, Catlin & National Health Expenditure Accounts Team, 2013). This makes the government payers the single largest contributor to the healthcare budget kitty in the United States. The available government payer options include Medicare and Medicaid. Medicare was established in 1965 and covers the patients above 65 years and in some cases, patients below 65 years. One the other hand there is Medicaid that covers eligible low income and medically vulnerable citizens in the United States. The funds provided by the two government payers are more or less static. As a consequence, the healthcare sector players are faced with minimal flexibility in attempting to plan for the government payer revenues.
The last group is the self-pay group. This is a small group if Americans that are not insured either under the government programs or under the private insurance plans. The statistics indicate that the population under this plan is about 5% of the population in the US and it also contributes about 6% of the hospital revenues (Hartman, Martin, Benson, Catlin & National Health Expenditure Accounts Team, 2013). Notably, the small portion of the revenue contributions may appear negligible. However, considering the large population in the United States, this population and their contributions has significant impacts on healthcare financing. This is so because the population in this category comprises of those people that do not qualify for the government programs and cannot afford the private insurance. Consequently, default rates are high among this population and there are many occasions during which this population gets care but they are unable to pay for the care provided. The dynamics in the three groups therefore provide the main reason why the consideration of the revenue collection planning and budgetary process is important in the United States.
Looking to the three main components of the hospital bills payer mix, it is important to look into some of the factors affecting the various components of the payer mix. One of the major concerns has been about the claims process. This involves both the government payer options and the private insurance options. According to analysis, the matching principle becomes difficult when dealing with the two payers mentioned in this paragraph. For the government payer options, the amounts offered by the government are static and do not incorporate information inflation among other factors affecting the healthcare sector. Notably, the large contribution of the government payer (Medicaid and Medicare) revenues and their static nature means that little fluctuations in the market cost of care such as drugs exposes the hospitals to surges in cost without the ability to control the revenues or adjust them to the prices. Additionally, the government payer revenues are received by the hospitals only during specific times of the year, which again means that the hospitals cannot match the revenues to expenses in the planning and budgetary process.
Focusing on the private insurance, the business aspects dictate that the claims settlement process is at times lengthy and tedious. This means that the hospitals at times receive the payments after long delays. In some cases, denial of coverage after the hospitals have already accepted payment by insurance means that the cases of default are high. Consequently, some hospitals are forced to follow up with the clients who may not pay and as a result, there are numerous unprecedented or unexpected bad debts. In other instances, the private insurance payments are affected by out-of-network payments (Pitts, Carrier, Rich & Kellermann, 2010). This is where a patient visits a doctor outside the required network. This results in considerably higher costs and the insurance company may refuse to pay part or the entire amount. The collectability of the revenues from out-of-network payments is also heavily affected with the chances of default rising in tandem (Wilson & Cutler, 2014).
The other major factor relates to the out-of-pocket payments especially by the private payers or the self-pay patients. On many occasions, patients without government coverage or the private insurance coverage are poor people without the ability to meet the insurance cover costs and in line with that, the out-of-pocket payers pose an increased threat of uncollectible revenues. With new regulations and legislation coming in under the Affordable Care Act, the hospitals are not allowed to deny care to patients who walk in just because they do not have the money to pay for healthcare services. Such factors increasingly lead to the possibility of default among the self-pay patients and this puts to risk the revenue collection abilities of hospitals in the United States. Consequently, this makes it difficult for the hospitals budget and even project revenues (Sommers & Epstein, 2010).
The Affordable Care Act has brought differences in health care budgeting owing to the fact that it seeks to extend the government coverage to that population of the United States that is currently not covered by the program. The implications of this are that the healthcare providers are likely to experience lower cases of default in payments especially because payments from the federal government payer are more predictable and reliable. The healthcare will also be able to plan for revenues with more certainty considering that the government payments are more static or fixed in nature. Thirdly, the hospitals and other healthcare providers are more likely to receive more disbursements from the government payers considering the fact that the government payers will phase out majority of the out-of-pocket payments that are faced with higher risk of default. Most probably, the revenue collections from the private insurance companies will not change (Edwards, Abrams, Baron, Berenson, Rich, Rosenthal, & Landon, 2014).
In concluding, available evidence indicates that the payer mix in the healthcare sector poses major budgeting and planning problems in healthcare financing. Notably, one of the reasons for this is that the current payer mix has several grey areas especially in relation to the private payers. However, strategizing to keep a balanced budget for all 12 months in a year using a flexible budget rather than a static budget through the determination of the expected number of patients or the level of activity would help in maintaining a balanced budget. This means that the hospitals Stanford Medical Center would be able to project expected revenues and expenses more clearly by adjusting these items to the expected levels of activity or number of patients in the various care centers in the hospital throughout the year. The rationale in using this approach to budgeting is that the hospital can use historical data to determine and project the expected numbers of patients in every month. The same data would be used in approximating the expenses and the revenues hence more ease in the conduct of budgeting activities. The projections must include the implications of the Affordable Care Act as discussed herein.
References
Edwards, S. T., Abrams, M. K., Baron, R. J., Berenson, R. A., Rich, E. C., Rosenthal, G. E., & Landon, B. E. (2014). Structuring payment to medical homes after the Affordable Care Act. Journal of general internal medicine,29(10), 1410-1413.
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Pitts, S. R., Carrier, E. R., Rich, E. C., & Kellermann, A. L. (2010). Where Americans get acute care: increasingly, it’s not at their doctor’s office.Health affairs, 29(9), 1620-1629.
Sommers, B. D., & Epstein, A. M. (2010). Medicaid expansion—the soft underbelly of health care reform?. New England Journal of Medicine, 363(22), 2085-2087.
Wilson, M., & Cutler, D. (2014). Emergency department profits are likely to continue as the Affordable Care Act expands coverage. Health Affairs, 33(5), 792-799.
