Financial Basics Discussion Paper


Health finance refers to the business aspect of medical care that involves economic exchanges. In this case, the medical facility offers care in exchange for financial resources. For that matter, it follows the economic principles of ‘investment’, and ‘effort and reward’. For investments, growth is expected. For effort by personnel, rewards are expected in terms of salaries, wages and earnings. Within the understanding of health finance is the concept of health care reimbursement. The concept involves health care providers being paid by government or insurance payers for medical services they provide. After providing medical services, the provider files for reimbursement for the service with the relevant payer. The implication is that the patient is not involved in any direct financial transaction. Rather, the provider is perceived to have paid for the medical service when offering care to the patient and would then await reimbursement for the service (perceived as money spent) at a later date. By accepting the payer for medical services, the health care provider is accepting the payer’s reimbursement schedule to imply that the patient is not expected to pay for the services unless informed before the service is provided (Torrey, 2018). In this respect, reimbursement programs are entities that negotiate payment amounts and schedules on behalf of patients. The present paper discusses Medicaid, Medicare and Managed Care as the more common reimbursement programs. Financial Basics Discussion Paper



Medicaid in a medical reimbursement program that covers more than 72 million US citizens. In fact, it is the largest health insurance provider in the country. Created in 1965 through the Social Security Amendments, the program offers medical coverage to low-income persons who would otherwise be unable to pay for health care without assistance. As such, the government offers them assistance to pay for basic health care needs. The program is jointly managed by the state and federal governments (Feke, 2016a).

Eligibility standards for the program is determined through the federal poverty levels that are set by the Department of Health and Human Services every year. This implies that not all persons with low income are eligible for recruitment into the program and they must additional eligibility requirements set by the state and federal governments that fund the program. Overall, the program identifies six groups of people who are eligible for consideration. The first group children less than six years of age and whose family income is less than 134% of the federal poverty level. The second group is children who are between six and eighteen years of age and whose family income does not exceed 100% of the federal poverty level. The third group is elderly persons whose income does not exceed 75% of the federal poverty level. The fourth group is family that have dependents and whose income does not exceed 68% of the federal poverty level. The fifth group is persons with disabilities who receive social security insurance and whose income does not exceed 75% of the federal poverty level. The final group is pregnant women whose income does not exceed 133% of the federal poverty level. Although the federal government is involved in setting the eligibility standards, each state government has the capacity to expand the eligibility standards such as including more people by increasing the income threshold (Feke, 2016a).


It is important to note that Medicaid does not cover all health care services. Rather, it covers selected services that are considered mandatory. These services include services offered in rural and community health facilities, nursing facility services for persons older than 20 years of age, and medical services offered by nurse practitioners, nurse midwives and physicians. Other services include early and periodic screening, diagnosis and treatment for persons less than 21 years of age, family planning services, home health care services, laboratory services, and medical transportation. Other than the state mandated coverage, state governments would typically expand coverage to include vision care, telemedicine, rehabilitation, prosthetics, psychiatry, hospice care, durable medical equipment, dental care, and case management (Feke, 2016a).

It is important to note that although Medicaid is regulated by the Centers for Medicare and Medicaid Services, it is run by the state government and offers care to all age groups to include long-term care. In contrast, Medicare is run by the federal government, offers care to persons with disabilities and elderly persons, and is limited to short-term care (Feke, 2016a). As a result, Medicaid is a state government run insurance program that caters to the needs of low income persons who would otherwise go without care.


Medicare is a federal government program that allows persons with disabilities and elderly persons to receive medical care. More than 56 million US citizens are enrolled in the program. First introduced in 1965 by President Lyndon Johnson, the program was initially presented in two parts to cover basic health care and outpatient services. Over time, the program has expanded to include more services although the coverage is restricted to the short-term (Feke, 2016b). Financial Basics Discussion Paper

Currently, the program is presented in five plans. The first plan covers hospital stays offered in the in-patient setting to include stays in rehabilitation facilities, skilled nursing care facilities, hospice facilities, and home health care services. The second plan covers medical services offered in the out-patient setting to include visits to radiology, laboratory and clinician facilities. It also covers wellness visits, vaccination, some medication, laboratory tests, imaging studies, durable medical equipment, diabetic supplies, preventive screening, ambulance rides, and doctor’s visits. The third plan is Medicare Advantage. It was included as an amendment in 1997 and is offered by private insurers who have contractual agreements with the federal government to offer such services. Eligible individuals are either covered by the Original Medical plan that encompasses plans one and two, or Medicare Advantage that encompasses the third plan. Unlike Original Medicare, Medicare Advantage covers additional medical services although beneficiaries are expected to make additional payments to enjoy these additional advantages. In fact, 18 million people are enrolled in the Medicare Advantage program. The fourth plan covers prescription medication. It was signed into law by President George W. Bush in 2003 and came into effect in 2006. It is similarly run by private insurers who are in contractual agreement with the federal government and is considered an additional service for which beneficiaries pay more. Besides the four plans, Medicare also includes Medigap as a supplement plan that helps in paying down overseas coverage, copayment, coinsurance, and deductible costs. It is similarly managed by private insurers (Feke, 2016b). In this respect, Medicare offers health insurance coverage for persons with disabilities and elderly persons through plans overseen by the federal government.

Managed Care

Managed Care is a health insurance program that is managed by third-parties but regulated by the federal government. The program identified the gap in Medicare and Medicaid services and presents a strategy for addressing this gap. To be more precise, Medicaid and Medicare are restricted in terms of the persons and medical services they can cover. Those not covered by Medicaid and Medicare are offered a health insurance option through Managed Care that operates using a profit oriented model whereby paying a higher premium offers insurance coverage for more expensive medical care services (Deal, Shiono & Behrman, 2014). The federal government applies control over Managed Care through proactive legislation that ensure there is some form of fairness between what customers pay and the coverage they receive so that no single party is exploited. In fact, the law has provisions in which health insurers are compelled to offer affordable care so that every citizen is offered an opportunity to receive basic care (Medicaid, 2014). In this respect, Managed Care addresses the gaps in Medicare and Medicaid within the frameworks offered by federal oversight. Financial Basics Discussion Paper


One must accept that health finance describes the business aspect of health care, particularly the need for economic exchange. In addition, one must acknowledge that insurance coverage ensures that care is more affordable through payer programs and reimbursement plans. Firstly, Medicaid is a state government run insurance program that caters to the needs of low income persons who would otherwise go without care. Secondly, Medicare is presented as a program that offers health insurance coverage for persons with disabilities and elderly persons through plans overseen by the federal government. Finally, Managed Care that is overseen by third-party insurers that are regulated by the federal government. As such, Medicaid, Medicare and Managed Care are three reimbursement programs.


Deal, L., Shiono, P. & Behrman, R. (2014). Trends in the managed care market. Retrieved from

Feke, T. (2016a). An overview of Medicaid eligibility and benefits. Retrieved from

Feke, T. (2016b). An overview of Medicare eligibility and benefits. Retrieved from

Medicaid (2014). Managed care. Retrieved from

Torrey, T. (2018). Reimbursement in a healthcare context. Retrieved from Financial Basics Discussion Paper

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