ECON 170 Midterm 2 Flashcards
What program is no longer being marketed for changing prices or demands for individuals?
Medicare
For short or long periods of time Medicare can be ____ (over or underfunded)
Underfunded
In a competitive market that causes changes in prices and reactivity for Medicare the _________ gets lost
Price stabilizing mechanism
What are the parts of health insurance?
Insurance product, prepaid health benefit, promise of insurability in the future, and negotiated rates and access
What is the purpose of an insurance product?
Prevents people from being afraid to seek care because of financially catastrophic outcomes due a lack of health insurance
Price wise: what does the insurance product equal to financially?
The expected payout of insurance (medical care) costs
What is a prepaid health benefit?
Payments that are made by individuals and businesses to their insurers in advance for insurance services or coverage
What predisposes us to wanting a prepaid health benefit?
Tax subsidy
What has become less relevant in the presence of the ACA and why?
The promise of insurability in the future because the ACA says that if you want health insurance you can gain access to it and can no longer be permanently uninsured
What healthcare plan has a lifetime limit on benefits?
Medicare
What are deductibles?
Amount you spend at negotiated rate for services covered by your health insurance
What is a copay?
A fixed amount out of pocket payment you pay for a covered health care service after you’ve paid your deductible
What is co-insurance?
An insured individual’s share of the costs of a covered expense.
If you have a “30% coinsurance” policy, it means that, when you have a medical bill, you are responsible for 30% of it.
What do copays and co-insurance have in common?
They are both types of cost-sharing
If your coinsurance is 20% and the total cost of a service is $100, how much would pay vs your employer?
You: $20
Employer:$80
What is the difference between copays and co-insurance?
Copays are fixed amounts typically used for more routine services, while coinsurance varies and is more commonly used for larger, more expensive services such as surgery or hospitalization.
Out of pocket sharing maximums are built into the _____________
ACA
What does out of pocket sharing maximums mean?
If you spent a certain amount on IRS covered items then insurance can’t charge you more than that
What is balance billing?
A provider bills you for the difference between the provider’s charge and the allowed amount. It happens when someone seeks care at an in-network facility or provider but receives services that are out of network without prior knowledge or consent.
If the charge is 200, negotaiated rate is 100, co insurance is 20% (applied to 100), how much do I pay, how much does insurance pay and what is the balance bill?
Me: 20
Insurance:80
Balance bill:100
Why is balance billing prohibited?
Medicare providers (like doctors and hospitals) cannot bill dual eligible beneficiaries for Medicare cost sharing. This means dual eligible beneficiaries cannot be charged for co-pays, co-insurance, or deductibles.
What is balance billing also known as?
Surprise medical billing
What is the cost of health insurance dependent on?
Who’s covered: age, gender health
What’s covered: benefits, cost sharing/deductible, terms, pre-existing conditions
Insurer profits: administration
Subsidies: premium, reinsurance
Underlying health care costs, inflation
What is moral hazard when it comes to health insurance?
When one party is full insured and cannot be accurately monitored by an insurance company with limited information, its behavior may change after the insurance has been purchased
Moral hazard is a _______________________
Distortion of demand and supply side interventions
What is demand side insurance?
Demand for goods and services drives economic growth
What is supply side insurance?
People can prevent you from gaining access to a good (limiting number of physicians you can see), so they’re not even going to offer it to you. They can simply say no.
How to reduce moral hazard?
Limit the insurance coverage to less than 100%, high deductibles because it makes consumer feel like they’re spending their own money instead of insurance’s money, reduce co-insurance on vaccinations and preventative benefits
What is an unfavorable behavior that moral hazard encourages?
Overutilization
Explain the RAND health insurance experiment
Randomized patients with different copay charges in HMOs and PPOs to see how they act differently (testing moral hazard)
Findings of the RAND experiment
inpatient and outpatient are complimentary not substitutes, inappropriate use of low value healthcare remains constant, reduced spending resulted entirely from less use of care (the costs of care were not affected), cost sharing reduced the use of effective and less effective services about equally
In the RAND experiment what faced the harshest effects?
Mental healthcare service use because they are very dependent on copays
How is health insurance different than other forms of insurance?
Expected pay out DOES NOT EQUAL value
Many Americans get their health insurance through their employers, not on their own. As a result, a lot of people don’t really know how much they’re paying for it, and thus, don’t know how much their health care really costs.
Explain the importance of value in health insurance.
Value takes explicit account of risk aversion. In current situation healthy person may logically choose to NOT buy health insurance in individual market because the cost FAR exceeds the expected payout
In presence of great risk aversion (and reasonable understanding that even very healthy have health risks), adverse selection might be decreased
What is the impact of tax exemption on distortion of the market?
Poor tax design creates inefficiency and unfairness but it is possible to correct the flaws. It is bad because the government is subsidizing health insurance when purchased by your employer. This encourages you to get a policy that encourages you to overconsume health care because there are low deductibles which is good short term, but adds up over time.
Define medical loss ratio (80/20 rule)
Requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.
What does the government do when health insurance is purchased by your employer?
Subsidizes it
How does the government determine how much their subsidy is?
Subsidy = marginal tax rate * cost of insurance
What is the relationship between marginal tax rates and employers with high benefits?
Higher marginal tax rates and/or higher employer provide benefit yield higher gov (federal, primarily) subsidy
What was the problem with government subsidies?
Because of the equation (Subsidy = marginal tax rate * cost of insurance) it applied more to richer people than poorer people because they had higher tax rates exacerbating inequality
On the supply side with provider monopoly power what is higher than in the perfectly competitive market?
Fees
What two consumer directed health plans usually come in partnership?
High deductible health insurance product (HDHP) and the healthcare savings account (HSA)
Characteristics of high deductible health insurance product (HDHP)
Often includes a higher degree of information for clinicians and beneficiaries to make informed decisions, and may include variable copays based on need, efficiency of provider and quality of provider
What is value based care?
A term that Medicare, doctors and other health care professionals sometimes use to describe health care that is designed to focus on quality of care, provider performance and the patient experience. The “value” in value-based care refers to what an individual values most.
What is fee for service care?
Providers are reimbursed based on the quantity of services delivered that emphasizes service volume
What is a key component of value based care?
Putting greater emphasis on integrated care, meaning health care providers work together to address a person’s physical, mental, behavioral and social needs. In this way, providers treat an individual as a whole person, rather than focusing on a specific health issue or disease.
HDHP (high deductible health plans) are also known as ___________
Consumer directed health plans
What is a flexible spending account (FSA)?
Special account you put money into that you use to pay for certain out-of-pocket health care costs.
You don’t pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
What can your FSA be used to pay for?
Deductibles and copays but not insurance premiums
What does your HSA (health savings account) allow you to do?
Set aside money on a pre-tax basis to pay some health expenses if you have a high-deductible
Key difference between HSA and HRA
HSA funded by both employee and employer while only the employer funds an HRA. You can pull money from your HSA to pay for medical costs, HRAs require you to pay upfront and then get reimbursed.
FSA characteristics
DO NOT carry over each year but still owned by employer, not intended for retirement savings, less popular now that HSAs are more broadly available
For most people health care spending is not tax deductible unless _________
Your employer is buying it for you
Downside of FSA
If you don’t use it you lose it
What is the FSA a part of and how does it work?
ERISA plan (pre-empts state law) and money is moved from your salary into your employers benefit account and its no longer yours. You have to use it in the year you allocate it so if you quit, are fired, or don’t spend it you lose the money.
Characteristics of HSA
Rolls over, owned by you, can grow tax free, can be invested in assets, inheritable
Characteristics of HRA
Rolls over BUT not owned by you
HDHP will not provide ______ until the deductible is satisfied
Benefits for any year
Who are HDHPs good for?
Young people because more healthcare expenses are paid by the individual and young people don’t go to the doctor or hospital as often
HSAs can be used for anything the IRS says is _____
Tax deductible
Ownership status and roll over status of FSA, HRA, AND HSA
FSA: owned employer and doesn’t roll over
HRA: owned by employer and rolls over
HSA: owned by you and does roll over
What do FSA, HSA, and HRA have in common?
All 3 are efforts to avoid taxation of health insurance and captures subsidy without having to buy a high moral hazard plan.
Why is Medicare important?
It is a trillion dollar program in terms of overall spending every year that sets precedent for all healthcare policy
What is Medicare’s benefit package patterned after?
Private insurance products
What are the parts of medicare and their real names?
Part A - hospital insurance
Part B - supplemental medical insurance
Part D - prescription drug benefit
The federal government doesn’t negotiate the budget of parts ____ and ___ but they do have control over the change in legislation which impacts the cost of the medicare program.
B and D
What insurance program has no riskof not being funded but high risk of being underfunded?
Medicare
The median medicare beneficiary has a yearly income of about ____
26-27k
What does Part A include?
Hospital insurance program - hospice care, inpatient hospital services, skilled nursing facility care (after a 3 day hospital stay)
Part b is known as
Outpatient medicine/reimbursement/supplemental medical insurance
Part D is known as
Drug benefit program/prescription drug plan
Part A if fully funded by ______
Taxes and trust funds
The payroll tax that funds Part A is ____ percent
2.9%
Does Part A have a financial limit?
No
Explain how Part A was modified by ACA for income
Those who make high income (200k/250k) now you pay 3.8% (up from 2.9%) on earned income (trust fund) and 3.8% (up from 0%) tax on unearned income that goes straight to the federal treasury
Why does so much money go straight to the federal treasury?
Because it is a risk free asset so the money is guaranteed to gain interest with no risk
Is Part A indexed?
No
What does it mean for something to be indexed?
Adjusted for inflation
Are there limits on what Medicare pays for?
None other than what is approvedby the IRA. There are no restrictions on spending from current income and trust fund.
What could impact spending in Part A (not the budget just how the money they are guaranteed is distributed)?
Changes in medical practicesand political opposition
What are the benefits and administrative costs in Part A paid from?
A trust fund financed by payroll taxes
Risk of Medicare Part A
Nothing in statute that says how this will be financed if they run out of money
If you are ___ or older and eligible for any type of social security benefit you are automatically entitled for ______
Medicare Part A
Part A has a ________ deductible
Benefit period
Cons of benefit period in part a deductible & example
Deducitble is 1600 (per benefit period - defined as 60 continuous days without part a service after discharge) - Example: I go to hospital and sick and leave and come back after 60 days with heart disease bc of first illness and now i have to pay again.
Co-pay does not kick in until day 61 and then has to be paid for up to 30 more hospital days
More than 90 day hospital stay , co pay rises to 800 per day for a lifetime reserve of 60 more days when you assume all fiscal responsibility.
It quickly bankrupts people who are in desperate need of long term care
When economy grows faster Medicare_____. Why?
Costs less becayse as economy grows faster, healthcare spending increases disproportionately (luxury good) and moves more and more people into a higher tax bracket faster. The revenue generated outpaces the spending of the program caused Medicare to cost less.
Medicare ______ if inflation is higher. Why?
Lasts longer because it drives more people into a high tax bracket faster
Medicare does better if ______ is higher. Why?
Real interest rate because medicare trust fund is invested in treasury securities and if those securities are earning higher interest rate then they’ll last longer
More immigration is _______ for medicare trust fund. Why?
Good because immigrants often pay taxes without benefits, ad many are white collar workers that can add more to that income pool
What does part b (supplemental medical insurance) include?
Physician services, home healthcare, durable medical equipment, outpatient medical services, ambulance, vaccines etc
Problem with part b financing (logical explanation)
Got devalued bc it did not keep up with inflation so in 2003 they started to index it
Problem with part b financing (real explanation)
When you write the statute and don’t index it, representatives lack the courage to do fiscally responsible things and waste all the money
Premiums in part b
Until 1976 premium rate was set to cover 50% of prpogram costs. Since that time and until 1983 premium rate has been allowed to increase at SS benefits (inflation) which is substantially lower than healthcare spending. Premium shouldnt go up faster than social security payments go up → decreased premiums. At certain point they just held it where it was
1983- healthcare costs rising much faster than inflation so premiums covered only 25%
1984- congress tried to fix and tried to decrease the trend
Medicare for median beneficiary is __% paid by beneficiary and __% paid for by fed gov or tax payers
25, 75
Part b funding
No trust fund, comes out of a general fund, mandatory appropriation, without federal law they cant reduce the federal budget for it, enormously consequential to the cost of our federal budget
Part d (standard drug benefit) characteristics
It is a competitively bid product with some government reinsurance because they are competing with drug products to meet certain standards
Medicare doesn’t do as much for part d as other parts because ____
It is driven by privately managed firms who compete with each other every year
Closing the donut hole decreases ______
Moral hazard
What did the inflation reduction act do to part d?
Eliminated the 5% copay for catastrophic coverage, add a 2k cap on out of pocket drug spending, and limits monthly cost sharing on insulin to 35%
Steps towards sustainability: parts a, b, and d
More controls and tracking, raise age of entitlement (brings its own issues)
Almost ___ people enrolled in medicare advantage plans are in HMOs because they’re cheaper even though they are much harder to understand
2/3
Medicare vs medicare advantage
Medicare Advantage plans cover all the same services under Original Medicare Part A and Part B, but often include prescription drug coverage and extra benefits (Part D).
Characteristics of Medicare advantage
Attracts healthier people, anyone who they take on gets risk adjusted, goal is to find the healthiest people then convince medicare that they are sicker than average
Why doesn’t everyone switch to medicare advantage?
Some people like seeing own doctors who don’t take it, some ppl like to live in two or 3 states during the year but its a local plan, some ppl just figured out that their retiree health benefit covered health very well, some ppl don’t value gym membership and dental care and everything else that comes with it
Donut hole
Medicare Part D coverage pays for prescription drug costs for older adults who are enrolled in Medicare. The Medicare donut hole represents a coverage gap or temporary limit on what the plan covers for prescriptions. The gap begins after you and your drug plan have spent a certain amount for covered medications.
What happens if you enter the donut hole?
If you and your drug plan reach the spending threshold and enter into the donut hole coverage gap, you’ll pay no more than 25% of the cost for any covered brand-name prescription drugs. Medicare pays 75% of the cost of generic drugs while you’re in the donut hole, and you’ll pay the other 25%. With all Medicare Part D plans, the donut hole closes once you reach $8,000 in out-of-pocket costs for covered drugs in 2024.
Impact of inflation reduction act on donut hole
Require the federal government to negotiate prices for certain prescription drugs covered under Medicare Part B and Part D, cap out-of-pocket expenses for individuals who receive Medicare Part D, and expand eligibility for full benefits under Medicare Part D’s Low-Income Subsidy Program
“Ryan” Plan
A fixed voucher program that adjusts upward by a set amount that would dramatically help the federal budgetary issue but shifts future health costs onto beneficiaries.
Next steps of ryan plan
Was adopted by oregon senator to make more politically neutral. Says part a is underfunded, part b is funded with treasury dollars so its deficit spending. Every time you cut budget for either they lobby congress and then budget blows up and cycle continues again - politically very challenging to adapt
Problem with ryan plan vouchers
Devalue over time bc they’re not indexed which would leave poorer beneficiaries with no healthcare
Pros of voucher marketplace
If you created a voucher marketplace you might see real innovation and novel companies rising up where they meet the needs of senior citizens, disabled people, and end of the line patients in a way that gov run directives might not do
Ryan plan criticism
Could lead to underfunding of future healthcare costs, which would bring back pre-1966 challenges
Medicare Advantage plan examples
HMO, PPO, private fee for service plans
Wyden and Wilensky solution to Ryan Plan problems
Tie voucher/premium support to a more reliable benchmark cost of healthcare insurance, and if fee for service medicare is offered as a competitive alternative theres no reason liberals should be against it
The more medicare advantage participants you have the more _________ you are over time
Profitable
Goal of Medicare advantage
Overpay for medicare advantage then get money up then slowly roll back on the payments - problem is fixing the horror of cherrypicking (choosing healthier or more adherent patients and referring more time-consuming ones to specialists) and up-coding (healthcare provider submits codes for more serious and more expensive diagnoses or procedures than the provider actually diagnosed or performed
SO IMPORTANT
Medicare and medicaid are so different
Medicaid characteristics
States did not have to do - they chose it bc its financially very helpful to the states to have it , Possible to be dirt poor and not be covered due to state regulations
Basic nature of medicaid
State management, funded jointly by state and federal gov, part of safety net
Why did a lot of states (specifically in the south) not adopt Medicaid?
Bc Fed gov always does bait and switch - Pays for 90% of cost for new beneficiaries (logically sounds like really good deal) but some ppla re smart enough to know that they’re gonna reverse that and we’re gonna be on the hook for those dollars
57% of medicaid is paid for by _________
Federal government - federal medical assistance percentage
Two biggest expenses for states
Healthcare and education
What state doesn’t have a balanced budget?
Vermont
Impact of the FMAP
Working at Congress and economy fails → states will have budget deficits, or raise taxes (restrain future spending and worsen cycle of financial stress), cut spending on education and healthcare
How to stop? Change FMAP by 6.2% → if states accept the money they cant cut medicaid
Medicaid role in our healthcare system
Health insurance coverage, assistance to medicaid beneficiaries, long term care assistance, support for healthcare system and safety net, state capacity for health coverage
When pandemic ended states disenrolled people who were no longer qualified
What is cited as the most significant reason that we desire prepaid health benefits?
Tax subsidy
What is the best estimate of foregone revenue resulting from the tax subsidy on
employer-provided health benefits?
240 billion
T OR F : Medicare Part A’s tax and trust fund is included in appropriations bills every year.
False. Medicare is self-funded through the payroll tax that goes into a dedicated trust fund. Parts
A, B, and D are not included in annual appropriations and are not subject to lack of funding on
account of the political process, unlike such programs as PEPFAR.
T OR F: The medical cost ratio means that administrative costs can account for up to 50% of spending
by health insurance companies.
False. ACA caps medical cost ratios to 80% (for smaller group policies) and 85%(for larger groups).
Why is engaging in the political process important for affecting healthcare policy?
Healthcare programs are funded by
politicians via. the legislative processes. If you don’t engage in the political process to express
your preferences about healthcare policy, you are ignoring opportunities to pull decision-making
levers that ultimately affect your healthcare.
Why is income used to determine federal subsidies for Medicare, as opposed to wealth?
Wealth is hard to measure and easy to obfuscate. People can inflate and deflate wealth relatively easily. Income, on the other hand, is easier to know and accessible through the IRS. Ultimately, it’s too difficult to measure an individual’s worth, but we can discern their income. This is why we use retirement income, and not passive income or
assets, to apply the Medicare payroll tax rate for an individual.
Explain why value-based insurance design (VBID) is the “pot of gold at the end of the rainbow” in terms of health insurance schemes. Identify one limitation of VBID as it stands now and explain why that is the case.
VBID centers around the notion that we can use “moral hazard” principles to increase uptake of high-value healthcare. The idea of VBID is that health insurers can structure cost-sharing and other health plan design elements to urge beneficiaries to use the services that can benefit them most, not just the services that are available/covered. This is how VBID addresses negative moral hazard. To make healthcare more sustainable and efficient, people should be pursuing interventions that provide them the most value in terms of health outcomes. While VBID is often cited as the ideal health insurance scheme, it can only be applied narrowly at this time. It requires a shift from uniform supplemental benefits to variable supplemental benefits. In other words, what makes VBID so promising, that it responds to patient heterogeneity, can also make it difficult to administer. Measuring, aggregating, and understanding individual patient needs to bake them into a health insurance scheme requires mechanisms to collect this data.
Drawbacks for medicare for all
- Unrealistic and hard to access
- Gov entities set prices and the market changes prices based on demand which impacts human behavior
- Because it is all public funding it can be underfunded
Define moral hazard
Lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance.
Both moral hazard and adverse selection involve individuals who are engaging in risky behavior and making the ___________ higher
Pool of insurance costs
Supply side interventions to reduce moral hazard and adverse selection are:
Limiting what the insurance can be used for and screening patients or people purchasing healthcare to see their health history
Demand side interventions to reduce moral hazard and adverse selection
Making the insurance plans less attractive to people who want it and making co-pays and deductibles higher to make people contemplate whether or not healthcare is worth it
Define cost-shifting
Shifting and redistributing the financial burden of healthcare costs from one group of payers to another
What is the goal of cost-sharing?
To make up for shortfalls in revenue and maintain financial sustainability
How do HDHPs exacerbate inequality?
Shift the cost of care to plan holders which can lead to reduced utilization of care because its so expensive to use your resources
What the impact of ACA on Medicare spending?
The amount of spending went down
What did the Ryan plan propose?
Capped medicare costs saying that above a certain threshold the federal government would no longer be paying because of rising healthcare costs
What did the Ryan plan bring rise to?
Ethical concerns because it would ensure that an already marginalized group has limited access to healthcare
Purpose of the medical loss ratio
Restrain premium growth by limiting the profits and administrative costs of health insurers.
Mandy Cohen lecture
Enabled north carolina to become an expansion state by investing in innovative care delivery systems and social determinants of health
What is the way Mandy Cohen says we should address healthcare?
Through political proceess
What is referred to as the “gold standard”?
Value based care
Why is VBID referred to as the gold standard?
It increases utility and improves health outcomes
For large firms ___ of workers are on HDHPs
25%
What behavior do FSAs enable?
Moral hazard because of the use it or lose it
How to make Medicare cheaper?
Increase revenue, cut costs, cut people off at certain age, raise eligibility age, create incentive for people to stay on employer health insurance longer
What part of Medicare do most beneficiaries not use because of the expenses?
Part A because of the high deductibles
Part _____ of Medicare is available to all part a enrollees and is used by the majority of beneficiaries each year.
B
Inflation reduction act impacts
Reduced burden of part d on beneficiaries: eliminated 5% cost sharing for catastrophic coverage, limits insulin cost sharing to $35, added 2k cap on out of pocket drug spending
How is medicare advantage cheaper than traditional medicare?
Smaller deductibles and copays
Medicare Modernization Act increased premiums in part ___
b
ACA increased premiums in part __
d
MMA impact on deductibles in part b
Forever-adjusted deductibles to be adjusted by medical inflation instead of statute each year
Part c and d funding
From private companies that gov contracts with
