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Part 6, Chapter 4: Manual Exhibit 6-4-A

Federal Disparity Index

The Federal Employees Health Plan Disparity Index (hereinafter ?FDI?) is an index comparing Indian Health Service (IHS) funding to the cost of providing medical insurance for American Indian/Alaska Native (AI/AN) users in a mainstream health insurance plan such as the Federal Employees Health Plan (FEHP).  The FDI starts with an average benchmark cost for enrollees in the FEHP.  Because some characteristics of the IHS AI/AN user population differ from the FEHP enrollees in ways that affect health care costs, industry standard actuarial methods statistically adjust FEHP costs for characteristics found in the AI/AN population.  These characteristics include demographic factors (age and sex), geographic variations in medical costs, the size/scale of IHS/Tribal health delivery sites, and the poor health status of the AI/AN population as a whole.

The FDI computation is accomplished in several steps:

  1. The benchmark FEHP per capita cost is adjusted for coverage differences (scope of FEHP benefits compared to IHS benefits), out-of-pocket costs, AI/AN demographic characteristics, less 25 percent for insurance coverage (Medicare, Medicaid, and private insurance) of AI/ANs.  This yields an adjusted net cost of $3,079 per AI/AN in 2006.
  2. Next, the average net cost is individualized to 250 IHS and Tribal sites factoring in variables that include size, remoteness, prevailing medical costs, and some variations in health status of AI/AN users.  These adjustments yield a unique site-specific cost forecast for each of the 250 IHS and Tribal sites.  Forecast site costs will exceed the $3,079 IHS average at some sites and fall below the average at other sites.
  3. Next, IHS funding at each site is adjusted to exclude spending on public health services that are not included in FEHP coverage.  Each site?s IHS funding is divided by the number of unduplicated users served at the site, which yields a site-specific IHS funding per capita (an average of $1,610 per AI/AN user in 2006).
  4. Finally, each site?s IHS funding per capita (step 3) is expressed as a percentage of the site?s forecast cost (step 2).  This ratio is known as the FDI percentage.  A ratio of 60 percent means a site?s funding is sufficient to cover only 60 percent of its users as compared to an FEHP type health insurance plan.  The lower the percentage, the greater the funding disparity compared to the FEHP benchmark.

Following guidelines specified in law, the IHS uses the FDI results to allocate Indian Health Care Improvement Fund (IHCIF) appropriations to IHS and Federally Recognized Tribal sites.  The IHCIF appropriations are intended to reduce the funding deficiencies at IHS and Tribal sites as measured by the FDI ratio.  The IHCIF formula is designed to reduce inequitable funding variations among IHS and Tribal sites by allocating more funds to sites with the lowest FDI ratio (greatest funding disparity).  Sites scoring above 60 percent receive no new IHCIF funds.

The FDI model accounts for important, but not all factors that affect the true costs of providing health care services to AI/ANs.  Its value lies in systematic comparisons using industry recognized cost forecasts.  The FDI is a statistical index that is valid for groups of AI/ANs served at the 250 IHS and Tribal sites.  The FDI is not a valid basis to forecast costs for individual patients.

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