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109 Cards in this Set
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- Back
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1998 - 2003 what was the most heated public policy debates |
the addition of perscription drug benefits to the medicare program original medicare program covered hospitals and doctors but excluded drugs -drugs were more commonly used to treat common elderly diseases like diabetes, ulcers etc by 1990 |
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pros and cons of adding perscription drug coverage to medicare |
Advocates: not having drug coverage was an unnecessary and unfair hole in the supposed universal coverage provided to our nation's elderly and disabled opponents: it was unwarranted expansion of the government's role in the provision of health insurance |
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Cost of the medicare drug expansion |
$40 billion per year |
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Who is public health spending targeted towards? |
Medicare program targets the elderly and disabled Medicaid program targets low-income families, including low-income elderly and disabled who do not qualify for medicare represent the most rapidly growing expenditure item for federal and state governments rising from 10% of gov expenditure in 1960 to 20@ today |
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medicare definition |
federal program funded by a payroll tax, that provides health insurance to all elderly over age 65 and disabled persons under age 65 |
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medicaid definition |
federal and state program funded by general tax revenues, that provides health care for poor families, elderly and disabled |
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How medicaid works |
program that is federally mandated but administered by the states financed through shared basis between states and federal out of general revenues rate at which federal government shares in medicaid spending is an inverse function of state income in high income states like MA, feds pay half of program but in low income states like MI, feds pay over 3/4 |
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Who is eligible for medicaid |
1960s Medicaid was part of the state cash welfare program for single mothers 1980s medicaid seperated and extended benefits to low income children in 2 parent households raised income eligibility thresholds for children and pregnant women |
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Children's Health Insurance Program (CHIP) |
program introduced in 1997 to expand eligibility of children for public health insurance beyond the existing limits of the Medicaid program, generally up to 200% of the poverty line $4b per year for states to expand health insurance coverage byond Medicaid levels federal government pays a higher share of each state's CHIP costs than Medicaid all individuals 18 years or younger are eligible for CHIP or Medicaid up to 100% of the poverty line children under age 6 and pregnant women are covered up to 133% of the poverty line |
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What health services does medicaid cover |
- federal medicaid rules require states to cover major services like physician and hospital care. states are NOT required to cover perscription drugs or dental care all states cover perscription drugs and optomitrist services. all but 1 covers dental medicaid is the best insurance money can buy, little or no copya traditionally for traditional recipients |
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How do providers get paid? |
variability across the states in provider reimbursements most states, medicaid reimburses physicians at a lower level than does the private sector - some physicians are unwilling to serve individuals may have trouble availing themselves of the service because physicians don't wnat them as patients |
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medicaid is growing |
18% growth per year since 1990 goal: provide health insurance coverage to low-income populations who cannot afford private coverage |
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how does medicaid affect health? step 1 |
step 1: translate the eligibility change into a change in actual coverage by the Medicaid program "take-up" channel: eligibility changes make people who were previously uninsured eligible for coverage and only some of the newly eligible will enroll "crowd-out" channel: eligibility causes some people with private insurance to discontinue their private insurance and enroll in public insurance substitution of social insurance for self-insurance |
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step 2: how does medicaid affect health ? |
translate increases in Medicaid coverage into actual increases in utilization of care unclear whether covering more people with Medicaid will greatly increase utilization if the supply of providers willing to see Medicaid enrolees is fixed, increasing demand for care will nto increase the total amount of care provided |
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step 3: how does medicaid affect health |
translate the increase in utilization of care into improved health. Not clear how important increased medical care will be for health improvements RAND Health Insurance Experiment says "varying generosity of health insurance does not improve health outcomes" |
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step 4: how does medicaid affect health: |
determine the cost effectiveness of medicaid expansion value of medicaid induced health improvements must be weighed against costs |
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Take-Up |
1982 12% of people 18 yrs and younger were eligible for Medicaid 2000 46% were eligible (parallel rise for pregnant women) few of the newly eligible enrolled: 1/4 enrollment rate lack of information about eligibility for the program stigma for taking a public handout 2/3rds of those eligible already had private health insurance coverage - why leave for a public program you could be disqualified for if income rises |
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crowd-out |
some individuals might leave private insurance for public because Medicaid is more generous and its free many employer plans dont include "optional" benefits liek dental and vision most employers charge families $200 per month and Medicaid is free higher co-pays in private insurance some crowd-out, private insurance declines 20-50% of public insurance increase |
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health care utilization and health |
Medicaid substantially reduces number of uninsured utilization of health care services and health care outcomes improved when Medicaid expanded preventative care rose by 50% (pre-natal and children) reductions in infant and child mortality -infant decline 8.5% findings DONT contridict RAND study because HIE made no one ininsured, all individuals were fully insured for expenditures above $1000 moving individuals from bieng uninsured to having soem insurnace has positive health outcomes once someone is insured, varying the amount of insurance coverage does not cause positive health correlations |
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cost effectiveness |
expanding public insurance does improve health but it costs $1 million per infant life saved through expasions $1M is lower than seatbelt regulations or value of a life investing in low-income health care may be a cost-effective means of improving health in teh United states |
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how medicare works |
largest public health insurance program administered at the federal level any US citizen who has worked and paid payroll taxes and their spouses (or purchase Medicare at full cost) government reimburses providers for their costs patients pay coinsurance |
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medicare Part A |
covers inpatient hospital costs and some costs of long-term care (elderly care in home or nursing home), financed from a payroll tax on employers and employees from the Medicare Hospital Insurance Trust Fund |
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Medicare Part B |
covers physician expenditures, outpatient hospital expenditures, and other services 25% financed by enrollee premiums, which are deducted from Social Security payments 75% financed from general government revenues |
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Medicare has high patient costs |
relative to private insurance and medicaid, high co-pays and deductibles and lean benefits package Part A - $876 deductible for first 60 days in hospital Part B - $100 deductible and 20% coinsurance rate (if you have $10000 in physician bills ,you must pay $2000 in coinsurance) greatly lowers consumption smoothing value of medicare -risk of high medical expenditures does not cover dental and vision |
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medicare debate |
broad concensus that all elderly and disabled should ve covered and that it has been beneficial for health debate on controlling rapidly rising costs $64 million in 1966 - $32 billion in 1980 |
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prospective payment system |
Medicare's system for reimbursing hospitals based on nationally standardized payments for specific diagnoses - based on expected costs not services delivered (controlling overuse of medical care) 1. diagnoes grouped into "diagnosis related groups DRGs 2. government reimbursed hosptials a fixed amount based on DRG of patient admission 3. fixed amount of reimbursement deterined by national standard for costs of treating that DRG |
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empirical evidence on the move to the PPS |
reduction in treatment intensity of elderly average length of hospital stay fell 9.7 days to 8.4 days 15% drop in admissions to intensive care units no evidence of an adverse impact on patient outcomes - mortality rates were the same before and after the policy "flat of the curve" model - as long as individuals are insured, treating them less intensively leads ot little decline in health reduction in rate of growth of hospital costs |
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problems with PPS |
"DRG creep" - choice of a diagnosis is something the hospital has some control over when patients are admitted hospitals could change DRG group to one where they would get reimbursed higher = large increase in severity of admission diagnoses for elderly based on actual treatment of patient not just diagnoses - by performing a certain procedure, a provider can move the patient's case to a higher DRG and rasie reimbursement level aplies only to one part of medical system - enormous shift of patients from acute-care hospitals to exempt rehabilitation instutitions |
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difficulty of partial reform |
if policy makers don't address systemwide incentives for overtreatment due to retrospective reimbursement, partial solutions are takig one problem and putting it elsewhere 1997, federal gov mandated that prospective reimbursement system be applied to other sectors- slow process retrospective reimbursement systems do not provide sufficient incentives to control medical costs purely prospective systems might lead providers to cut care too much ot make money |
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medicare managed care |
managed care plans cost less per enrolee, so gov could save by shifting care here 1985 federal government allowed meicare enrolees a choice of Medicare HMOs (covered out of pocked cost of medicare so enrolees were less exposed to program's copayments and deductibles HMOs restricted choice of provider/other rationing devides Medicare reimbursed HMOs only 95% of average medical costs of enrollees positive selection into HMOs (only healthiest people enroll) - so government loosing money on HMO option HMOs chosen by 30 of individuals who cost $1000 per year, by 15 of individuals who cost $2000 per year, and by none of individuals who cost $3000 per year set of individuals on HMO cost $1333 while set remaining on Medicare cost $2118 |
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in response to HMO problems |
government lowered payments to HMO, now HMO enrollment is 11% recent legislation has tried to increase Medicare HMO enrollment by raising HMO reimbursement as reimbursement increases, government will lose money on medicare HMOs |
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should medicare move to a full choice premium support? |
currently, gov must estimate how much to reimburse managed care plans (coudl be too high or too low) "a system of full choice among health care plans for Medicare enrolees, whereby they recieve a voucher for a certain amount that they can apply to a range of health insurance options, either paying or receiving the difference between plan premiums and the voucher amount if they chose an option that costs less than their voucher amount, they keep the difference introduce competition into medicare and allow governmetn to easily set a reimbursement level - at the cost of redistributing from the sickest enrolees to the healthiest |
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premium support advantages |
allows individuals to choose the health plan that best matches their taste
promotes efficiency in medical care delivery by allowing individuals to shop across plans (HMOs and medicare will have to produce as efficiently as possible to attract enrollees) solves problem of "appropriate" reimbursement levels for managed care plans by letting the market work - government would announce it would reimburse the median-cost plan in the area plans would compete to have low costs in order to attract enrolees |
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premium support disadvantage |
adverse selection: if the government simply reimburses a flat amount and makes individuals pay on the margin for mroe expensive plans (or allows them to pocket savings on less expensive plans) we run into the same problem of healthy idnividuals choosing less expensive plans, and raising costs even further for sicker individuals who prefer more generous plans very large rebates for the healthy and very large costs for ht esick income distribution issue - tradeoffs between benefits of competition and costs of redistribution from sick to healthy |
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gaps in medical coverage: whether and how to increase gaps in the medicare benefits package |
medicare is less generous because it has high copyaments and deductibles and it leaves some medical goods and services uncovered - low income elderly individuals are entitled to more generous coverage, including prescription drugs under medicaid program - 1/3 of all retirees over 65 are covered by retiree health insurance from former employers - many retirees are not covered by medicaid or their own retiree health insurance buy individual "medi-gap" policies from insurance companies |
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problem with the 3 means of filling the gap |
negative financial externality on medicare program -patient coinsurance for medical care costs reduces total amount of medical care used by Medicare enrollees when other forms of insurance cover medicare's deductibles and coinsurance, the maount of medical care used increases those holding supplementary insurance raise medicare costs without bearing the costs of doing so if my medi-gap policy covers the $20 doctor co-pay, I will go to the dcotor and medicare will bear a financial burden |
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Medicare prescription drug debate |
-perscription drugs are very important for elderly care. -democrats suggested adding a drug benefit to the medicare program with government negotiating directly with drug companies to ensure lower drug prices -republicans suggested government subsidize private insurers to offer prescription drug coverage to the elderly through HMOs or stand alone prescription drug only plans -private insurers are afraid to offer drug-only benefits to the edlerly for fear of adverse selection -gov could agree to pay drug bill exceeding $5000 per year |
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advantages of medicare drugs |
federal gov would represent an enormous buying pool for prescription drugs - it could minize administrative costs and negotiate for low prices |
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disadvantages of medicare drugs |
federal gov could become too heavy-handed and lower prices so much that new drug development becomes unprofitable and pharmaceutical innovation is reduced private insurers may not be fully competitive in some parts of the country - monopoly profits of private insurers |
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December 2003 President Bush drug bill |
none of first $250 in drug costs each year 75% of costs for the next $2250 of drug spending (up to $2500 total) 0% of costs for next $3600 95% of costs above $5100 |
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optimal insurance arrangement |
little coverage of initial spending to avoid moral hazard with insurance coverage rising as spending rises to ensure consumption smoothing |
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long term care |
health care delivered to the disabled and elderly for their long term rather than acute needs either in an institutional setting or homes |
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institutional care |
nursinghomes. reimbursement of the costs of such institutions accounts for 75% of long term health costs medicaid is primary insurer of nursing home costs medicare only pays for first 100 days |
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home health care |
nurses and aids are provided in home. 25% of long term care costs medicare is the primary insurance payer for home health care (30% of costs through plan A) |
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financing long term care |
nursing home costs are mostly financed by private payers and medicaid when savings are dwindled below a threshold level individuals qualify for state programs that pay for nursing homes under medicaid - you have to use up all personal savings before you can be insured against nursing home costs medicaid poses a tax on assets |
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problems with medicaid long term care financing |
1) those who wish to leave money behind when they die have no protection against losing their entire estate to nursing home costs 2) individuals have an incentive to cheat by hiding their wealth in forms that canot be found or accessed by medicaid authorities 3) system crowds out savings for old age - you only qualify for medicaid once you have spent your wealth |
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private long term care insurance market could in principle solve this problem |
market remains small, only pays for 10% of patients nursing home costs -adverse selection based on private information about likely risk of nursing home stays -many proposals for medicare part C that would finance nursing home out of higher payroll taxes -cost would be increased by moral hazard (increased and longer term use of nursing homes) |
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national health insurance |
a system whereby the government provides insurance to all its citizens, as in Canada, without the involvement of a private insurance industry -imposes prospective reimbursement on the health care system as a whole -gov network of providers in each region and pays thenetwork a fixed amount to provide all medical costs for every person in region |
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advantages of national health insurance |
-fully solves the problem of the uninsured -reduces administrative costs inherent to the US medical system - national government provided insurance has potential to control costs sucessfully because cost controls are comprehensive -solve the inequities and inefficiencies arising from patchwork of health insurance coverage (job lock where individuals stay in jobs they would otherwise avoid because of insurance) |
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disadvantages of national health insurance |
require massive new government expenditures because the government would now be paying teh insurance costs of every citizen -large part offset by reduced spending on existing public insrnace for non-elderly -would require new public sector revenues |
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rise in total social costs of health care matters because |
may be a deadweight loss arising from need to increase government revenues to pay for these expenditures (does not arise from private spending) moving from private financing of health insurance through employer expenditures to public financing is like moving from a hiden tax to an explicit tax |
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other disadvantages of national health insurance |
nationwide budgeting as a means of controlling healthcare costs is a blunt instrument that may not allow doctors to use a technology that is worth the high cost -national health insurance faces political hurdles that are likely insurmountable in the short term. ($800 billion revenues per year) and most Americans working for large firms are content with their health care - |
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other health care reforms |
concentrate on purely private-sector solutions to the healthcare problem -does not recognize fundamental market failures that make the private sector unable to resolve the problems with our health care system |
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MA experiment with incremental universalims |
"incremental universalims" left those who were satisfied with their insurance alone but filled holes in existing system of private and public coverage to move towards universal ccoverage |
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what made "incremental universalism" work for MA |
1) relatively low uninsurance rate of about 9% of non-elderly. fewer subsidies would be required to move to universal coverage 2) large federal transfer to the state at stake. 3) MA already had a ready-made funding sounrce in place -uncompensated care pool. |
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three legged stool |
1) insurance market regulations, which outlawed pre-existing condition exclusions and differnetial insurance prices based on health status -insurers had to rasie prices dramatically because of adverse selection. it became expensive to purcchase non-group insurance 2) individual mandate or requiremnt that all residents purchase health insurance. MA could ensure broad participation in insurance pools, allowing insurers to price fairly. Residents for whome coverage was affordable had to pay of face a high tax penalty 3) subsidies to mae insurance affordable. At the time of implementation, a family health plan in MA costs more than 50% of income level for individuals (commonwealth care) provided free insurance coverage for residents below 150% of the poverty line and heavily subsidized coverage for those up to 300% of poverty line |
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affordable care act idea |
harder on the federal level because more of the population was uninsured. costs of reform was higher -national population is poorer on average, more sizable subsidies were needed -politicians on a national level were determined to not only with insurance coverage but also underlying rise in health care costs |
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fundamental reforms brought to US healthcare system from the ACA |
1) three legged stool approach. community rating regulations are imposed on teh nation ending the ability of insurers nationwide to exclude pre-existing conditions or to price according to health status 2) imposes indivdual mandate on all elgal residents to purchase insurance (exlusion for the poor and $695 penalty |
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ACA is more ambitious than MA reform |
1) financing: legislation includes a areity of mechanisms to finance the $1 trillion in projected new spending on public insurance and tax credits over next decade. (spending cuts aka reductions to overpyaments to Medicare advantage insurers) -increased revenue from "free-rider charge" on employers with more than 50 workers whose employees use tax credits rather than obtaining insurance from employer -excise taxes on the sectors that benefit most from 32 million newly insured customers -increase in the Medicare payroll tax for the wealthiest Americans -Cadillac tax is an excise tax of 40% levied on highest-cost health insurance plans 2) effort to control costs |
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in the US, we have focused on quality-improving technological changes in teh delivery of health care |
1984-1991, average cost of treating heart attacks rose by 4%, but prices paid for each type of heart attack fell -shift from cheaper, less-intensive treatments to more expensive, intensive treatments -dramatic improvement in health outcomes of heart attack patients and life expectancy of heart attack patients rose by 13% |
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average value of medical technological advance v. marginal value of given additonal procedure |
average technological advances in medicine have been enormously beneficial -on the margin, there area many cases of inappropriate and ineffective use of medical care |
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30% of medical spending is spent on people that are terminal in 6 months |
-only a small share of this spending is for those we know are at the end of life -comparing non-elderly patients found that seniors on Medicare spend lower |
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the ACA had a hard time finding a guaranteed way to control healthcare spending |
-legislation takes five different tacks to move forward on cost control 1) cap on tax exclusion to employer-provided insurance for the highest-cost health insurance plans -congress turned to "cadillac tax" instead 2) introduction of competitive health insurance exchanges for the purchase of non-group and small group insurance coverage (ACA empowers states with the ability to set up exchanges that mimic the sucessful MA connector) 3) introduction of the Independent Payment advisory board designed to depoliticize the setting of payment rates for providers under the medicare program and to try and control overall growth rate of program 4) massive new investment in "comparative effectiveness research - ACA sets up patient centered outcomes research institute and invests $3 billion in research desinged to understand how health care can be delivered more cost effectively 5) ACA promotes a number of pilot programs of alternative structures for organizing and reimbursing providers that deliver care |
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none of the innovations is a guarantee to slow rate of growth of health care costs |
reforms are best viewed as an indital step towards a longer run plan for cost control |
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how has the CBO (congressional budget office) projected impacts of ACA reform? |
1) employer sponsored insurance in the US will fall modestly - ACA fixes and subsidizes the non-group insurance market which will make non-empooyer insurance more attractive -these subsidies target only low-income workers and large firms face penalities if employes use tax credits 2) premiums will rise in the non-group market as individuals in that market purchase more generous insurance policies 3) spending cuts and revenue increases in ACA will offset new spending under ACA so law will reduce deficit by $100 billion over first decade and $1 trillion next 4) little long term savings from cost control innovations - does raise overall health care spending in the US |
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improvement in quality of health care has led to more of the GDP |
4% of GDP in 1950 was health care and in 2010 it was 17.9% by 2075 healthcare will consume 38% of the GDP -rise in health care costs has led to more advanced health care options imroving care and saving lives - knee surgery advances |
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we do not have a perfect health care system |
1) enormous disparities in medical outcomes. .6% infant mortality but 1.3% black infant mortality 2) US is only major industralized nation that does not endeavor to provide universal access to health care for its citizens (49 million Americans without insurance) 3) growth in health spending is projected to account for most of the long-run fiscal problems faced by teh US gov because of the aging of the population and rapid rise in care cost |
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where do our health dollar spending go? |
-30% is spent on hsoptial care -1/5 physician care -1/10 prescription drug spending -1/10 elder care in nursing homes |
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basics of health insurance |
-individuals or firms pay monthly premiums to insurance companies -insurance companies pay providers for medial goods and services used by individual -patient pays provider for part of the costs of medical goods |
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deductible |
individuals face the full cost of their care but only up to some limit. $100 deductible means you pay first $100 of any medical cost for the year and insurance company pays all or some after |
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copayment |
individuals maek soem fixed payment when they get a medical good or service $10 copay at doctor or for new prescription |
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coinsurance |
patient pays a percentage of each medical bill rather than a flat dollar amount |
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nongroup insurance market |
market through which individuals or families buy insurance directly rather than through a group, such as the workplace |
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some employees don't take employer insurance |
there is usually a premium 2011- typical employer sponsored insurance plan cost $5073 for singles and $14309 for families |
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risk pool |
group of individuals who enroll in an insurance plan |
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why employers provide private insurance: risk pooling |
when insurers sell insurance plan to a group, they don't cre about the medical experiences of any one member of the group -goal of insurers is to create large insurance pools with a predictable distribution of medical risk -it can charge a premium that covers all claim costs |
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two features that increase the predictability of medical risk distribution for insurance risk pools |
1) absence of adverse selection. 2) statistical law of large numbers states that as the size of the pool grows, the odds that the insurer will be unable to predict the average health outcome of the pool falls -employers of large firms constitute a risk pool that has a good chance of meeting those conditions -firms provide an attractive risk pooling mechanism for insurers (no reason to epect employees are grouping based on health status |
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another reason insurers prefer large groups |
administrative costs of insurance are fixed at a certain level no matter the size of the pool larger the pool, more widely per-capita administrative costs can be spread -insurers more hesitant to insure small firms because they can't predict with certainity the insurance costs that their premiums must cover |
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tax subsidy to employer provided health insurance |
under US tax law, employee compensation in teh form of wages is subject to taxation but in the form of health insurance expenditures it is not -Jim and Peter's wage is $30,000 and they have a flat tax rate of 33% Jim buys his own insurance for $4000 and after tax income is $16000 (20000 - 4000) Peter takes health insurance and hsi earnings fall to 25000, so he keeps 16666 after taxes -peter benefited from teh tax advantage -subsidey to employees for insurance purchased in employment settings |
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alternate option: nongroup insurance |
of 68 million idnividuals not covered by employer insurance, 28% use the nongroup health insurance market -not a well functioning market beause potential for adverse selection and high administrative cost per enrollee -insurers set up barriers to access for those in poor health "preexisting conditions exclusions" (if you've had cancer before, your insurance will not pay for a relapse) -insurers can charge the sick multiples of hte healthy -these people don't have real insurance because they're not protected |
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medicare |
provides health insurance for all people over 65 yrs and disabled persons under 65 yrs -financed by payroll tax of 1.45% -every citizen who worked for 10 years eligible at 65 -cannot access before 65 -available to those receiving disability |
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medicaid |
provides health care for the poor. federal and state governments share in teh financing of this program which is padi for out of general tax revenues -those who qualify for cash welfare (single moms and kids) -most low income kids -most lwo income reggers -low income elderly and disabled -2/3rds of the costs of this program are for the elderly and disabled |
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TRICARE |
-administrered by the Department of Defense for military retirees and families of active duty , retired or deceased service members |
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CHAMPVA |
-civilian health and medical program for the deaprtment of veteran affairs -health care benefits program for disabled dependents of veterans and certain survivors of vterans |
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the uninsured |
49.1 million uninsured -lower incomes below $30,000, but some uninsured are families with incomes above $75000 -2/3rds of uninsured came from families where one or more were full term workers but not offered employer health insurance -15% children |
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why are they unsuired |
-even risk averse individuals may be unwilling to purchase insurance if its not availble at an actuarially fair price -adverse selection in the health insurance market : health insurers operate with less than full information, so lack of info raises costs by some share of administrative costs of private insurance is ade up of costs devoted to screening potential applicatnts and through standard lemons-pricing effects of individuals who chose to insur -individuals may be rationally forgoing insurance because the odds of illness are low and if they become ill they can receive care for free form medical providers (any hospital that accepts medicare reimbursements must treat those in an ER who are unable to pay) -individuals may be uninsured b/c they can't afford health insurance - individuals are makign mistakes and not appropriately valuing insurance coverage |
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uncompensated care |
costs of delivering health care for which providers are not reimbursed |
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why care about the uninsured? |
1) physical externalities associated with communicable diseases (less likely to get vaccines and care for communicable diseases) 2) significant financial externality imposed by uninsured on insured through uncompensated care -cost-shifting is when cost of uninsured not paying their bills is passed on to other usrs of medical system through high medical prices -they raise medical costs for others and odnt bear the full medical costs for themselves 3) care is not delivered appropriately to the uninsured, jeopardizing their health and raising costs of uncompensated care paid by the insured -they use the ER for primary care -efficiency of medical system would improve 4) paternalism and equity motivations for caring about the uninsured -individuals may irrationally underinsure themselves because they do not appreciate risks they face and governments may view them as irrational 5) becoming uninsured is a concern for millions of individuals who have insurance -afraid to search for new jobs b/c health insurance (job lock) - unwilling to change or move to a better job -health insurance availability may inhibit productivity increasing job switches |
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how generous should insurance be to patients? |
optimal generosity will be determined by trading off consumption smoothing benefits and moral hazard costs of insurance -generosity reflects share of medical spending that will be reimbursed by the health insurer 1) generosity to patients: will share of the bill for medical services shoudl be shared by insurer and what share by patient through deductibles, copayments and coinsurance 2) generosity to providers: how should insurers reimburse providers for the services they deliver |
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first dollar coverage |
reimbursing providers fully with no cost to the patient themselves |
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consumption smoothing benefits of health insurance for patients |
risk averse individuals will value health insurance as a means of smoothing their consumption with respect to cost of medical events -insurance more valuable for extensive and unprediceible medical costs -first dollar coverage does nto provide much more consumption smoothing thanhealth insurance that makes patients pay the minor costs of medical care and insurance only pays higher costs of catostrophic care |
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why is first dollar coverage of minor and predictable medical events small |
1) risk averse individuals gain little utility for insuring a small risk : disutility from payign insurance premiums. Sam's utility does not meausrably increase if he buys insurance -consumption smoothing gains from insuring small risks is small b/c extremely little diminishing marginal utility for small changes in consumption 2) consumption-smoothing benefits of first-dollar coverage are small when medical spending is small and predictable is that individuals are much more able to self-insure such spending than to self-insure large and unpredicbatlb medical events |
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moral hazard costs of health insurance for patients |
offsetting consummption-smoothing benefits of health insurance to individuasl is the risk of moral hazard -Marty's only costs are for the copayments of his care if his copay is $10, private marginal costs are largely below social marginal costs -moral hazard of not charging Marty full cost of care leads to a DWL |
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the "flat of the curve" |
inefficient overuse of medical care has led some to claim we practice "flat of the curve" medecine -horizontal access represents level of medical spending and vertaical axis measures marginal health benefit from next dollar of medical spending -initially health spending is very productive in terms of improving health status, because there are a series of very cost effective medical interventions (vaccines for elderly) -productivity dwindles as spending rises. -people should stop getting medical care when teh additional health benefit is smaller than the additional medical cost |
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McAllen Texas -2nd most expensive healthcare market in the country |
-medicare program spent twice the national average and $3000 more than the entire per capita income of its residents -critically ill receive 50% more specialists visits in McAllen -higher utilization of heatlh services was not associated with better health outcomes -higher spending in one area v. another may be due to differences across areas in patient sickness -no evidence that the more expensive areas deliver higher quality medical care |
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how elastic is the demand for medical care? RAND health insurance experiment |
-extent to which moral hazard causes the actual quantity of health care consumed to exceed the socially optimal quantity depends on both copayment amount and elasticity of demand for medical care -many years ago, policymakers assumed zero elasticity - individuals went to doctor when sick and didn't if they weren't -Rand Health INdurance Experiment: limitation individuals assigned less-generous plans had to pay more 1) medical care demand is price sensitive: individuals who were in the free care plan used about one third more care than those paying 95% of their costs 2) implied elasticity across entire study was .2 meaning 10% rise in teh price of medical care to individuals led them to use 2% less care 3) those who used more health care due to lower price did not see significant improvement in heatlh 3) those chronically ill who didn't have sufficient income to easily cover copayments, had deterioration in health. those who have treatable but chronic illnesses may be made worse off by copayments |
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optimal health insurance |
policy is one in which individuals bear a large share of medical costs within some affordable range and are only fully insuree when costs become unaffordable -first dollar coverage has substantial moral hazard cost beause it encourages individuals to overuse the medical system, demanding care for which the social costs exceed social benefits -major risk insurance plan - individuals would make a 50% copayment on all services until they spent 10% of income on medical care, beyond which no more copayments |
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why is insurance so generous in united states |
insurance coverage distribution in US is described where horizontal axis population of US arrayed from least generous insurance to most generous and vertical axis is generosity of heatlh insurance - line jumps to reasonably high generosity insurance e |
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three possible reasons for the jump. why aren't more individuasl requesting lower generosity insurance that would cover only catostrophic risks? |
1) tax subsidy- health insurance expenditures by employers are tax subsidized -effect of increasing consumption of health insurance realative to other goods by loewring relative price of health insurance -estimate does not imply that removing tax subsidy today would necessarily be a good health policy -compromise policy: cap the tax subsidy. ending tax subsidy would be accomplished by taxing workers on all employer contributions to health insurance as if these were earnings to the workers -continue to exempt taxation employer health insurance to a certain level -retain high tax subsidy to employers for basic insurance spending -subsidization to excessively generous coverage would end |
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health savings accounts |
-removing tax subsidy is politically difficult because it would be attacked as a large tax increase on workers. "carrot approach" : extend additioanl tax subsidies to individuals who choose more efficiently designed health care plans -HSA is part of medicare prescription drug legislation : individuasl prepay the deductible amount into a savings account then draw down that account as they spend the deductibel. -amount put into HSA is not taxed so that spending on insurance and spending on deductibles are treated the same for tax purposes -HSA provides a large tax subsidy to those whose plans have a high deductible, hopefully encouraging increased use of such insurance arrangements |
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disadvantages of HSA |
1) tax break is expensive in terms of forgone tax revenue 2) tax benefits are targeted to higher income individuals who can afford large deductibles 3) flat deductibel alone is not right structure for encouraging proper sue of medical care - too much out of pocket for the poor 4) hSA represent wrong direction for tax policy b/c thye try to offset distortions of existing tax subsidy with a new tax subsidy |
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access motive |
traditional analysis overstates costs of moral hazard , which is why insurance may e generous -individuals can now afford better treatments -moral hazard is the difference between what health care you buy with $1 million of insurance or with $1 million of cash -if you would always buy the same expensive treatment, insurance has allowed you to transfer sufficient resources for the situation -some DWL associated with increased expenditures is not pure moral hazard but an income effect -we overstate DWL |
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psychological motiviations |
may be motivations for hoding insurance beyond expected utility model -you may know that w/o insurance you will spend all of your moeny today and save nothign for future medical expenditures -individuasl simply dont' like associating financial transactions with medical care -would rather pay higher insurance up front |
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how generous should insurance be to medical providers? |
-insurers have traditionally reimbursed medical provdiers according to reported costs through retrospective reimbursement b/c insurers reimburse for costs occured -removes incentive for providers to treat patients cost-effectively (doctors now only care about providing the best care to patients) -social costs of procedures may exceed private costs -overuse problem can be exacerbated if providers care about their incomes as well |
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managed care |
implemented supply-side controls on delivery of medical care |
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preferred provider organizations |
its difficult to shop for a medical provider -lack or price shopping in medical care leads to few competitive pressures on providers' pricing decisions thus providers have no incentives to lower medical care costs -PPO gained populatiry as a means of solving the problems. middlemen that shop across providers on behalf of the insured striking deals that can lower the cost of care -PPO tell hospitals if htey want firm buisness, they have to cut prices by 20% -hosptials that agree are now part of the restricted PPO network -employer tells employees they can only use hospitals in PPO network -lower prices and more efficient delivery of medical care |
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health maintenance organizations |
restrict enrolee choice of medical providers but integrate insurance and delivery of medical care -classic staff model: HMOs hire their owy physicians and may have their own hospitals. prividers are on a salary independent of the amount of care they deliver -removes income incentive for delivery of excess care -counteract moral haard through prospective reimbursement : pay providers based on what treating patients shoudl cost, not what provider spends -completely reverses financial incentives of physicians - less care delivered the more money she makes and physicians can poket a larger share of payments -some accept flat payment to primary care providers with disincentives to use speciality care or hospital visits -maybe they reduce compensation every time primary physician recommends a specialists |
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spending impacts of managed care |
HMOs spend much less per enrollee than traditional retrospective reimbursement plans -managed care plans attract healthiest enrollees -selection of lowest-cost indivduals into HMOs means there is not simple comparision between HMO and traditional insurance -RAND study found cost of medical care for HMO enrollees was only 72% of cost for traditional enrollees |
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quality impacts of managed care |
prospective reimbursement under HMOs might lead to underprovision of care -do they underprovide or simply serve correct dose? -equal number of studies found HMOs deliver care that is better, worse or same as traditional health insruance -no concensus -they do provide singificantly fewer of those services or have measureable adverse effects on health outcomes -has not had sever negative effect on patient care |
