HLTH 6510 Week 8 Health Care Payment Trace Example

Following One Payment: From a Worker's Paycheck Through a Self-Funded Plan to a Diabetes Visit and What the Patient Still Owed

Student Name

Walden University

HLTH 6510: Essentials of the U.S. Healthcare Delivery System and Population Health

Instructor Name

Month Day, Year

Following One Payment: From a Worker's Paycheck Through a Self-Funded Plan to a Diabetes Visit and What the Patient Still Owed

The Payment Traced

This paper follows one payment through the system: a primary care visit with a hemoglobin A1c test for a 52-year-old maintenance worker with diabetes, covered through his employer, the regional medical center in the course's composite region. It traces the money in one direction, from the household and employer that funded it, through the plan that pooled it, into the method by which the physician group and laboratory were paid and out to what the patient still owed. Dollar figures are illustrative but reflect the mechanisms described.

Origin: The Paycheck and the Employer

The medical center self-funds its employee health plan. Each pay period, the worker's share of the premium is deducted from his paycheck before taxes, and the medical center sets aside its own, larger contribution. Federal tax law excludes employer contributions to health coverage from employees' taxable income (26 U.S.C. § 106), and pre-tax payroll deductions extend that treatment to the employee's share in most employer plans. Economically, both shares are part of the worker's compensation: the employer's contribution is money that could otherwise have been paid as wages. The origin of the payment for this visit is therefore the worker's labor, routed through the employer and favored by the tax code (Shi & Singh, 2019).

Pooling: The Self-Funded Plan

Because the plan is self-funded, there is no insurer bearing risk. Contributions from all employees and the employer go into a plan fund, and the medical center pays claims from it, hiring a third-party administrator to process claims, maintain the provider network and negotiate rates. The medical center buys stop-loss coverage to protect itself against very large claims. The pool is the medical center's own workforce and their dependents, about 6,000 people, so the plan's costs rise and fall with the health of the hospital's own staff. The worker's visit is paid from contributions made by everyone in that pool, healthy and sick alike.

Payment Method: Fee Schedules Built on Relative Value

The administrator has negotiated a fee schedule with the physician group, setting allowed amounts at a percentage of Medicare's physician fee schedule. Medicare's schedule assigns each service a relative value based on the physician work, practice expense and malpractice cost it involves, a method rooted in research estimating physicians' work across services (Hsiao et al., 1988). For this visit, the allowed amount is $140 for a follow-up office visit billed at a moderate level and $40 for the A1c test, $180 in all. The physician group's billed charge was higher, $320, but the negotiated allowed amount is what counts. The laboratory, owned by the medical center itself, is paid under the same negotiated schedule.

What the Patient Owed

The plan has a $2,500 deductible, and the worker, in March, had not yet met it. So the plan paid nothing toward the visit, and the worker owed the full allowed amount of $180. The provider network discount still mattered: without it, he would have faced the $320 charge. Had he met his deductible, he would have paid 20% coinsurance, $36, and the plan would have paid $144. The plan's design, a high deductible to keep premiums lower, shifted the first dollars of care to the worker at the point of service. Because the plan is self-funded, the medical center chose that design itself, weighing lower contributions for all employees against higher costs for those who use care early in the year.

Where the Money Went

Table 1 summarizes the chain.

Table 1

One Diabetes Visit Traced From Origin to Patient Share (Illustrative)

The Same Visit Under Different Coverage

The same visit would have traveled a different path under other coverage. Had the worker been enrolled in the state Medicaid expansion program, the state would have paid a monthly capitation to a managed care plan, the plan would have paid the physician group from its own fee schedule and the worker would have owed a copayment of a few dollars at most. Had he been 65 and in traditional Medicare, the payment would have come from Medicare's trust funds and general revenue, the physician group would have been paid directly from the Medicare fee schedule and he would have owed 20% coinsurance after a modest annual deductible. Had he been uninsured, the physician group's sliding fee scale at the community health center might have reduced his bill, but the full charge could otherwise have applied.

The clinical service, a visit and a lab test, was identical in each case. What changed was who funded it, how it was pooled and what the patient owed, which is the point of tracing payments rather than describing programs.

What the Trace Shows

Traced end to end, the payment shows three things. The worker funded his care twice: once through compensation routed into the plan, and again at the point of service through the deductible. The plan's design, not the clinical value of the visit, decided how much he paid that day. And the physician group was paid per service, which rewards the visit and the test but not the follow-up calls, care coordination or communication with the endocrinologist that a patient with diabetes also needs. Week five showed that deductibles are one reason insured people skip care; this trace shows exactly how a deductible turns a covered visit into a $180 bill. For a worker whose diabetes needs four visits and several lab tests a year, those first-dollar costs arrive every spring.

References

Contributions by employer to accident and health plans, 26 U.S.C. § 106 (2023).

Hsiao, W. C., Braun, P., Yntema, D., & Becker, E. R. (1988). Estimating physicians' work for a resource-based relative-value scale. New England Journal of Medicine, 319(13), 835-841. https://doi.org/10.1056/NEJM198809293191305

Shi, L., & Singh, D. A. (2019). Delivering health care in America: A systems approach (7th ed.). Jones & Bartlett Learning.