Step 2 CK · Ethics, Biostatistics & Patient Safety

Healthcare Systems & Economics

Name: Healthcare Systems & Economics
Creator: Veli Bakalov, MD

Who pays, how they pay, and the law that guarantees an ER exam

Ethics, Biostatistics & Patient Safety·Health Systems·6 min read·9 high-yield points·Reviewed by Veli Bakalov, MD @HemeOncBuddy

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Medicare is federal and uniform nationwide: age ≥65, ESRD (dialysis or transplant), ALS, or 24 months of Social Security disability; eligibility is never income-based.
Medicare parts: A = inpatient hospital, limited SNF, hospice, home health (premium-free with 40 work quarters); B = outpatient, physician, preventive, DME; C = Medicare Advantage (private A + B, usually D); D = drugs.
Medicare does not cover long-term custodial nursing home care; Medicaid (joint federal-state, income-based, state-set eligibility) is the largest payer for long-term care and covers a large share of US births.
CHIP (federal-state) covers children in families earning too much for Medicaid; dual-eligibles have Medicare plus Medicaid, which can pay their premiums and copays.
ACA: exchanges with income-based subsidies, Medicaid expansion, no denials for pre-existing conditions, dependents covered to age 26, essential health benefits and preventive services.
HMO = in-network only + PCP gatekeeper, cheapest, often capitated; PPO = out-of-network allowed, no referral, most expensive; EPO = in-network, no referral; POS = referral plus some out-of-network; HDHP pairs with an HSA.
Copay = fixed dollar amount per service; coinsurance = percentage of the cost; deductible = paid before coverage starts; out-of-pocket maximum caps annual spending.
Fee-for-service rewards volume (overuse); capitation (fixed per member per month) rewards limiting services (underuse); pay-for-performance, ACOs, and bundled payments reward value.
EMTALA (1986): any Medicare-accepting hospital with an ED must screen and stabilize emergencies and active labor regardless of payment, insurance, or immigration status, before any payment talk or transfer.

Public coverage: Medicare, Medicaid, and CHIP

Medicare. A federal program, federally funded and uniform nationwide, for people aged 65 and older, people with end-stage renal disease (dialysis or transplant), people with ALS, and people disabled for 24 months on Social Security. Eligibility rests on age or disability, not income.

≥65 yage-based Medicare eligibility

24 monthson Social Security disability before Medicare starts (ALS and ESRD qualify on their own)

40 quartersof work make Part A premium-free

The four parts of Medicare

Part	Memory hook	Covers	Key points
A	Admission	Inpatient hospital, limited skilled nursing, hospice, home health	Premium-free for most; skilled nursing is short-term only
B	Bills	Outpatient care, physician visits, preventive services, durable medical equipment (DME)	Monthly premium; after the deductible the patient generally owes 20% coinsurance
C	Choice	Medicare Advantage: private plans that bundle A and B, usually with D	Often run as HMO- or PPO-style networks
D	Drugs	Outpatient prescription drugs	Sold through private plans; a low-income subsidy helps with costs

Example: an inpatient admission is Part A, the office follow-up is Part B, and a new inhaler is Part D (or bundled into a Part C Advantage plan).

Medicare does not pay for long-term custodial nursing home care. Its skilled nursing benefit follows a qualifying inpatient stay of at least 3 days (observation days do not count toward the 3) and lasts at most 100 days per benefit period; long-term care is paid out of pocket or, once assets are spent down, by Medicaid.

Hospice under Part A requires a certified life expectancy of 6 months or less and a choice of comfort-focused care over curative treatment of the terminal illness.

Medicaid. Jointly funded by the federal and state governments and means-tested for low-income individuals. States set eligibility within federal rules, so coverage varies from state to state. Medicaid is the largest payer for long-term and nursing home care and covers a large share of US births.

Dual-eligibles have both Medicare and Medicaid. Medicare pays first; Medicaid, the payer of last resort, can cover Medicare premiums, copays, and long-term care for an older patient who cannot afford them.

CHIP. The Children's Health Insurance Program covers children in families who earn too much to qualify for Medicaid but cannot afford private insurance. Like Medicaid, it is jointly funded by federal and state governments.

Medicare = age or disability (federal). Medicaid = income (state plus federal). Mixing them up is the classic trap.

The ACA, private plan types, and cost-sharing

Affordable Care Act. Created insurance exchanges (marketplaces) with income-based subsidies, expanded Medicaid (optional for each state after a 2012 Supreme Court ruling), banned denial of coverage for pre-existing conditions, let dependents stay on a parent's plan until age 26, and required plans to cover essential health benefits and recommended preventive services.

Managed care and other plan types

Plan	Network	PCP referral needed?	Cost and flexibility
HMO	In-network only (emergencies excepted)	Yes: PCP gatekeeper	Least expensive, least flexible; often capitated
EPO	In-network only	No	Usually cheaper than a PPO; free movement within the network
POS	In-network, with some out-of-network coverage	Yes, like an HMO	Hybrid of HMO and PPO
PPO	Out-of-network allowed at higher cost	No	Most flexible and most expensive

High-deductible health plan (HDHP). Lower premiums in exchange for a high deductible, paired with a tax-advantaged Health Savings Account (HSA). HSA money belongs to the individual and rolls over from year to year.

Cost-sharing vocabulary.

Premium: the fixed monthly cost of having the plan, whether or not care is used.
Deductible: what the patient pays each year before insurance starts paying.
Copay: a fixed dollar amount per service (for example, a flat fee per office visit).
Coinsurance: a percentage of the cost (for example, 20% of each bill after the deductible).
Out-of-pocket maximum: the cap on a patient's annual spending, after which the plan pays in full.

A copay is a flat fee; coinsurance is a percentage. This is the most commonly tested cost-sharing distinction.

How providers are paid

Fee-for-service pays per service rendered, rewarding volume and risking overuse. Capitation pays a fixed amount per enrolled patient per month regardless of services used, shifting financial risk to the provider; it rewards limiting utilization and risks underuse.

Payment models and their incentives

Model	How payment works	Incentive	Risk
Fee-for-service	Per service rendered	More volume	Overuse
Capitation	Fixed per member per month	Fewer services	Underuse
Bundled payment	One lump sum for an entire episode of care	Efficiency and coordination within the episode	Avoiding complex, costly patients
Pay-for-performance	Bonuses or penalties tied to quality metrics	Meeting the measured targets	Neglecting what is not measured
ACO	Shared savings for coordinated care of a population	Lower total cost at good quality	Stinting on care, so savings are shared only if quality targets are met

Value-based care ties payment to quality and outcomes rather than volume: pay-for-performance, Accountable Care Organizations (ACOs), and bundled payments (for example, one sum for a joint replacement and its recovery). Medicare also pays hospitals a fixed amount per admission by diagnosis-related group (DRG), which rewards efficient, shorter stays.

EMTALA: screen and stabilize, always

The law (1986). Any hospital with an emergency department that accepts Medicare must provide a medical screening exam to anyone who presents, and must stabilize emergency conditions or active labor, regardless of ability to pay, insurance, or immigration status. EMTALA bans patient dumping and the premature transfer of unstable patients.

ScreenA medical screening exam determines whether an emergency condition exists; registration and insurance questions must not delay it.
StabilizeTreat within the hospital's capability until the condition is stable; in active labor, stabilization means delivery.
Transfer only appropriatelyAn unstable patient moves only if the patient asks after being informed of the risks, or a physician certifies that benefits outweigh risks, and the receiving hospital has accepted.

EMTALA obligations, in order

EMTALA obligations must be met before asking about payment or transferring an unstable patient. An uninsured or undocumented patient with chest pain gets the same screening and stabilization as anyone else.

Prevention and access to care

PrimaryPrevents disease before it starts: vaccines, seatbelts, smoking cessation.
SecondaryDetects disease early in asymptomatic people: Pap smear, mammography, blood pressure screening.
TertiaryReduces complications and disability of established disease: cardiac rehabilitation, diabetic foot care.

Levels of prevention

Screening an asymptomatic person is secondary prevention; rehabilitation after a myocardial infarction is tertiary. Quaternary prevention (sparing patients overmedicalization and unnecessary intervention) is sometimes added as a fourth level.

Access gaps and social determinants. Health disparities are differences in outcomes across race, income, and geography. They are driven by social determinants of health such as income, education, housing, and access to care. The uninsured and the underinsured (covered, but with cost-sharing they cannot afford) delay care and rely more heavily on emergency departments.