chap10 social insurance ii health care(西方财政学-厦门大学,曾建华)

1,Chapter 10 Social Insurance II: Health Care,Public Economics,2,Whats Special About Health Care?,Health care costs are large and growing fastNumber of reasons why First Welfare Theorem may be violatedPoor information (physician induced demand)Adverse selection and moral hazardDisease externalities,3,Whats Special About Health Care?,In the context of health care, moral hazard can be analyzed in a conventional supply-and-demand framework.Health insurance changes the price of health care, and creates deadweight loss.,Figure 10.1,5,Whats Special About Health Care?,Without insurance, consume M0 of health care services.Insurance in this example lowers the price of services to 20% of actual price. With insurance, consume M1 of health care services.Deadweight loss equals abh.,6,Whats Special About Health Care?,Assumed that demand for health care downward sloping (e.g., health care use is elastic with respect to the price).Assumed coinsurance rate of 20% - the amount the insured person pays out of pocket.Social experiments find that the elasticity of demand for health care is -0.20.,7,The U.S. Health Care Market,Patchwork of public and private insurance.13.2% of GDPSpending on hospitals is 32% of costsSpending on physician services is 22%,8,The U.S. Health Care Market: Private Insurance,Virtually all (93%) of private insurance for the non-elderly is provided through the employer.By-product of wage & price controls during World War IITax provisions subsidize employer contributionsGroup market is less expensive than individual market,9,The U.S. Health Care Market: Private Insurance,Link to employment potentially leads to “job lock”When you leave your job, you also lose your health insuranceMay be difficult to get new insurance if you have a “pre-existing” conditionKennedy-Kassenbaum Act mandated that employers must include a new employee who previously had health insurance, even if they have pre-existing condition.,10,The U.S. Health Care Market: Private Insurance,Group marketPossible that workers within a firm are fairly heterogeneous, so adverse selection is less of a concernOn the other hand, employees not randomly assignedAn employer may shift-compensation toward wages, or shift employees onto spouses plan by offering a less generous package of benefits.More problematic at smaller firms.,11,The U.S. Health Care Market: Private Insurance,Cost-based reimbursement / Fee-for-serviceInsurance policies that provide payments to health care providers based on actual costs of treating patientLittle incentive to economize on methods for delivering health care since fully reimbursed,12,The U.S. Health Care Market: Private Insurance,Managed CareFocus on supply-side (health care provider-side) of market rather than on the demand size.Often patients face very little cost sharing (prices close to zero)Quantity constraints (such as seeing a “gatekeeper” primary care physician before seeing a specialist).Capitation based reimbursement providers received fixed, lump sum per patient, regardless of actual utilization.,13,The U.S. Health Care Market: Private Insurance,Managed Care, continuedHealth Maintenance Organizations (HMOs) a group of physicians work only for a particular plan and patients can only see doctors within that planPreferred Provider Organizations (PPOs) a group of physicians accept lower fees for access to patient network; patients can go out of the network at greater cost.,14,The Role of Government,MedicareImplicit subsidy for employer health insuranceMedicaid,15,The Role of Government: Medicare,Enacted in 1965, provides health insurance coverage to virtually all elderly individuals and some disabled.$254 billion in 2002Adverse selection problems likely to be largest for the elderly,16,The Role of Government: Medicare,Approximately 40 million enrolleesNot means-testedProgram divided into three parts:Part A: Hospital insurance (HI)Part B: Supplementary medical insurance (SMI) optional, but 99% of elderly take it upPart C: Medicare+Choice optional, a managed care arrangement where elderly get certain additional benefits like prescription drug coverage and have restricted choice of providers,17,The Role of Government: Medicare,Medicare does not cover:Long-term institutional services like nursing homesPrescription drugs, though new legislation was passed in 2003 that will phase-in coverageMedicare beneficiaries spent $87 billion on outpatient prescription drugs in 2002,18,The Role of Government: Medicare,Medicare financing paid for by payroll tax on current workersUncapped, totals 2.9% split evenly between employer and employee,19,The Role of Government: Medicare,Medicare financing paid for by payroll tax on current workersUncapped, totals 2.9% split evenly between employer and employeeMedicare outlays have grown dramatically over time raises concerns about its solvency,Table 10.1,21,The Role of Government: Controlling the costs of Medicare,Increasing burden on current beneficiariesPrice controlsComplicated to administerMay lead to access problemsAfter Medicare reduced reimbursement by 5.4% in 2002, a substantial number of medical practices stopped taking Medicare patients,22,The Role of Government: Controlling the costs of Medicare,Managed careOnly 15% of Medicare elderly choose managed care arrangementsA number of HMOs have backed out of providing serviceHospice and home health careEnd-of-life expenditures are 27% of Medicare costs. May be less expensive to provide home health care rather than expensive in-patient proceduresHas not slowed the growth in Medicare costs,23,The Role of Government: Controlling the costs of Medicare,Medical Savings Accounts (MSAs)Consumers have very weak incentives to control costs, the moral hazard issueMSAs are in effect a catastrophic insurance policy provides payments for very expensive illnesses, but not the day-to-day health care needsMoney in MSAs that is not used can be used for non-medical purposesLeads to adverse selection, where the low-risks opt into MSAs.,24,The Role of Government:Implicit Subsidy for Health Insurance,Employer contributions for health care plans are not subject to taxationIf employer increases wages by $2000, employee only keeps (1-t)x$2000, where t=marginal tax rateIf employer provides health insurance worth $2000, tax bill does not increaseProvides incentive to substitute away from wages and towards fringe benefits like health insurance.,25,The Role of Government:Implicit Subsidy for Health Insurance,Because of subsidy:More firms provide employer-provided health insuranceFirms provide more generous health insurance,26,The Twin Issues: Access and Cost,Access to health care83% of non-elderly have some form of health care17% of non-elderly (41 million people) are uninsuredUninsured are diverse groupMost are employedLess than half are poorAbsence of health insurance different from absence of health care,27,The Twin Issues: Access and Cost,CostsTable 10.2 shows the rapid growth in health care over timeTable 10.3 and Figure 10.2 show that the U.S. has much higher levels of health care expenditure than other developed countries, but the rate of growth is not out of line,Table 10.2,Table 10.3,Figure 10.2,31,The Twin Issues: Access and Cost,Why are costs growing?The “Graying” of America older populations require more health careIncome growth health care is a normal goodThird party payments insurance coverage may have changedImprovements in quality treatments are very different (better & more expensive) than in previous decade,32,New Directions for Governments Role in Health Care,Individual mandatesStates force their residents to purchase automobile insurance, so why not health insurance?Heritage Foundations plan would have an individual mandate, replace the implicit tax subsidy to employer-provided health insurance with vouchers, and keep Medicare and Medicaid intact.,33,New Directions for Governments Role in Health Care,Individual mandatesAnalogy with automobile insurance is tenuous.Automobile accidents clearly cause fiscal externalities damages to other vehicles, passengers, and property. The consequences of getting sick are largely internalized.States remove the highest risks (e.g. those who have drunk driving convictions and those under age 16, etc.) from the insurance pool by restricting their ability to drive. The high health risks are not removed in any way.,34,New Directions for Governments Role in Health Care,Individual mandatesEnforcement of mandate is unclearWhat happens if someone did not purchase insurance?If someone chooses not to drive or own an automobile, there is no mandate that they buy insurance.,35,New Directions for Governments Role in Health Care,Single PayerOne provider of health insurance, funded by tax collections.Eliminates adverse selection problem, and is used in many developed countries.Analog in U.S. would be to exte