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A Comparison of Health Care Payment Systems

June 19, 2015 0 Comment

A Comparison of Health Care Payment Systems

September 8, 2012





Health care workers are compensated for their services through various means. The commonly used methods for calculating the expected amounts are fee for service (FFS) and capitation. Any of the system which is adopted strives to provide the best health care services to members of the public.

Fee for service program is a traditional method of payment. The amount paid to a patient is determined by the nature of services being rendered to the individual. In cases where more services are rendered to a patient, they end up paying extra costs. The compensation for the services may be done by the individual, insurance company or a government program. This program dictates for a specific amount to be paid for services rendered as opposed to retainer, a salary or any other contractual agreements. This program provides patients with complete care which is advantageous to their wellbeing. Also, the physicians benefit for they have the clinical autonomy to charge their services without any restrictions (Williams 2008).

Fee for service is mainly used for physician remunerations after offering a service to a patient. However, it is accused of giving the physician an incentive for him or her to provide minimum care to an affected patient. Provision of poor services will allow the professional to see more patients within a short span of time. The more the patients, the higher the expected pay from rendering the services. The services can be expensive for patients to pay for since the physician has the autonomy to charge any costs. Through this program, the administration is extremely complex and inflexible. Therefore, it is difficult to adapt to changes in the working environment.

In capitation, a specific amount is paid to health workers periodically regardless of the quantity of services they have rendered to the patients. Each professional is paid a fixed amount for every patient they have served. In this, they do not consider the number of services you have provided or nature delivered. A fixed amount of compensation may also be provided depending on the time span that one has delivered the services like a year or a month (Shi, 2010)

The amount to be paid to the health provider depends on sex, age and even the area of residence of the patient. In this program, the compensation is usually calculated in advance which may depend on population and regardless of the health condition of the patient. This program removes the incentive of treating more patients as in the case of fee for service program. This program enhances better service provision to patients as the profit motive from medical practitioners is almost eliminated. Profit making motive is no longer the driving factor but a better service provision to patients (Williams, 2008).  At the same time, this may encourage the health providers to include healthy people into their patient files who do not need any care. This will help in boosting the level of gains even though it is against the law. The health providers will be compensated the same amount for patients who need either minimum or maximum care. Neglect is evident to those who need maximum care and majorly focus on those who need minimum care to increase the number of patients one is attending.  Both scenarios of capitation and fee for the service offer different cash flows to the economy. Capitation offers a fixed amount of compensation based on the number of members and regardless of the number of visits while fee for service is different since the amount is based on the number of visits (Wurman, 2004).

The US health care system is considered the best health care service providers in the world due to the availability of improved technologies and facilities. The system has both private and public insurers to cater for the poor and low income earners. The main way of private insurers is through employer sponsored insurance covers provided privately.

Public health insurance can be provided through Medicaid or Medicare. Medicare is a program that caters for individuals with ages above 65 and the disabled. It is usually administered by the government through revenues collected. On the other hand, Medicaid caters for the low income earners and the disabled. It is financed through revenues collected as taxes from the US citizens. Private health insurance is through employer sponsored insurance and the private non group insurance. Employers provide insurance covers to their workers as part of benefits package through the employer sponsored insurance covers. The private non group insurance covers those either retired or self-employed (Williams, 2008).

The financing of the health care system centers between collecting money from members of public for health care (money going in) and provision of the service to its members (money going out). In the US, the two responsibilities are done by private insurance companies and the government without the exception of individuals and businesses. Individuals and businesses finance the health care system through payment of taxes, premiums and direct out of pocket payments. They both pay taxes levied by the government and payroll taxes for financing Medicare. Premiums can be paid either to employer based insurance or directly to private insurers. A patient can also pay directly to a service provider for a service he or she has been served.

The US government finances the health care system through Medicaid, Medicare, public employees’ premiums and tax subsidy. The government uses taxes levied to compensate health care providers for services they have provided to its citizen through the Medicaid and Medicare programs. Public employees’ premiums are used to cater for federal employees and any other public servants serving within the government. Tax subsidy is a case where the health care benefits are tax free and the health care benefits are included as part of cost for doing business.

Private insurers also serve a critical role in the financing of for services provided to patients by the medical practitioners. They take premiums from individuals and later help clear any bills which arise from service provision. Private insurers may also accept premiums from businesses and government.

For the provision of their services, health providers get compensated in terms of payments. Payments can be done directly by the affected individual, insurance covers either private or public and even the government. The US government should mainly strive to ensure smooth service provision and a clean payment mechanism. The government should ensure quality service provision at the correct price. Therefore, the government’s role is to mainly facilitate the entire process is smooth and efficient. The flow of finances from the individual is made smooth through the intermediation of government, private insurers and public health insurers.



Raffel, M.W. (2011). U. S. Healthcare System (6th ed.). Delmar Publications.

Shi, L. & Singh, D. (2010). Essentials of the U.S. health care system (2nd ed.). Sudbury, MA:
Jones and Bartlett Publishing.

Williams, S. & Torrens, P. (2008). Introduction to health services (7th ed.). Albany, NY: Delmar

Wurman, R. S. (2004). Understanding Healthcare. Top publishers.

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