US Healthcare System

The US healthcare system is uniquely fragmented compared to other developed nations, with multiple payer types, complex regulatory requirements, and a mix of public and private insurance. Understanding this landscape is essential for any US healthcare-related task.

Payer Types

Healthcare in the US operates on a multi-payer model. The "payer" is whoever pays for healthcare services—usually not the patient directly.

Medicare is federal health insurance for people 65 and older, and certain younger people with disabilities or end-stage renal disease. Administered by CMS with uniform national standards, enrollment exceeds 65 million. Medicare has four parts: Part A (hospital insurance) covers inpatient stays, skilled nursing, hospice, and some home health—most pay no premium due to payroll tax contributions. Part B (medical insurance) covers physician services, outpatient care, preventive services, and equipment—requires monthly premium. Part C (Medicare Advantage) is an alternative offered by private insurers that must cover everything Original Medicare covers but often adds dental, vision, and fitness benefits—about half of beneficiaries now choose MA. Part D provides prescription drug coverage through private plans.

Medicaid is a joint federal-state program for low-income individuals. Unlike Medicare's national uniformity, Medicaid varies significantly by state in eligibility, benefits, and reimbursement rates. Covering about 85 million people, Medicaid is the largest payer for long-term care and childbirth.

Dual eligibles have both Medicare and Medicaid—about 12 million Americans. Medicare pays first as primary payer; Medicaid covers remaining costs.

Commercial/private insurance from employers or individual markets represents the largest share of hospital revenue (~70%). Uninsured and self-pay patients pay out of pocket. Workers' compensation covers work-related injuries with state-specific rules. TRICARE covers military; VA provides direct care to veterans.

HIPAA Fundamentals

The Health Insurance Portability and Accountability Act establishes national standards for protecting health information.

Protected Health Information (PHI) is individually identifiable health information held or transmitted by covered entities or business associates—in any form (electronic, paper, verbal). PHI includes demographics, medical history, test results, and insurance information.

Covered entities include healthcare providers transmitting electronically, health plans, and clearinghouses. Business associates are vendors handling PHI (billing companies, EHR vendors, consultants)—they must sign Business Associate Agreements and are directly liable.

Key rules: The Privacy Rule governs PHI use/disclosure—generally permitted for treatment, payment, and operations without authorization. The Security Rule requires safeguards for electronic PHI. The Breach Notification Rule requires notification within 60 days of discovering breaches.

Violations carry civil penalties ($100-$50,000+ per violation) and criminal penalties (up to $250,000 and imprisonment).

Medical Coding Systems

ICD-10-CM codes describe diagnoses (3-7 characters, 70,000+ codes). ICD-10-PCS codes describe inpatient procedures (7 characters, facility billing only). CPT codes describe procedures and services for physician/outpatient billing—E/M codes for visits are critical. HCPCS Level II covers equipment, supplies, and ambulance services. DRGs determine fixed Medicare inpatient payments based on diagnosis and procedures.

The revenue cycle flows: Documentation → Coding → Claim submission → Adjudication → Payment → Denial management.

Provider Identification

NPI (National Provider Identifier) is a unique 10-digit identifier required for all covered providers. Type 1 identifies individuals; Type 2 identifies organizations. Credentialing verifies qualifications (60-180 days). Privileging authorizes specific services at facilities.

Quality Measurement

HEDIS measures quality across 90+ metrics for 235+ million enrollees. CMS Star Ratings rate Medicare plans 1-5, affecting bonuses. Value-based care ties reimbursement to outcomes through pay-for-performance, bundled payments, ACOs, and capitation.

Key Numbers

Medicare eligibility: 65 years. Medicaid limits: ~138% FPL in expansion states. HIPAA breach notification: 60 days. Credentialing: 60-180 days. Payer mix: ~70% commercial, ~16% Medicare, ~15% Medicaid.

Common Misconceptions

"Medicare covers everything"—significant gaps exist (no routine dental/vision/hearing, 20% Part B coinsurance, no OOP cap in Original Medicare). "HIPAA prevents all sharing"—sharing for treatment, payment, and operations is permitted. "Observation equals admission"—observation is outpatient status affecting Medicare SNF coverage.