Health Insurance Flashcards
potential motivations for studying health insurance
- Healthcare is a large and growing part of the economy
- People care about their health
- The U.S. healthcare system is different from other advanced countries
Comparing healthcare in the U.S. and other countries
Healthcare in the U.S. differs from healthcare in peer countries
U.S. health system generates bad outcomes relative to other countries
The fact that Americans have bad health despite the U.S. spending a lot doesn’t necessarily mean
the U.S. has a bad health system
- the across-country relationship may be confounded by third factors
Low baseline health in U.S. means
health system forced to spend a lot, but the spending won’t nec. result in good health outcomes
trends in US life expectancy
has been decreasing
Potential explanations as to why the US spends more on healthcare but seems to obtain worse outcomes
- Low baseline levels of health ⇒ health syst. has to combat health deficits
- There is a lot of waste in American healthcare
Waste in U.S. Healthcare
1/4th of us health spending ($872 billion is waste)
US has high administrative costs due to private insurance
US pays high prices for medical goods and services
US has many unnecessary or inefficiently delivered medical services
Health Insurance Structure
– A purchaser (patient) pays a monthly premium to an insurer
– The insurer pays for medical care for the purchaser (Insurers generally pay for only a portion of a patient’s medical care and patients are responsible for the rest)
Deductible
the amount that is paid before insurance kicks in
Copayment
a fixed amount that is paid when a patient uses care
Coinsurance
patient pays 20%; insurer pays 80%
Cost Sharing
when a patient is responsible for some of the cost of care
In the US, most insurance plans have
cost sharing
Private Employment-Based Health Insurance
Employer buys private insurance on behalf of its employees
reasons why employer-based insurance is common
- adverse selection
– If the employer enrolls all employees, can create a small-scale pooling eq. which is easy for insurers to predict their payouts - tax incentives
– employee compensation in the form of wages is taxed so its cheaper for employers to provide health insurance than to increase wages
Private non-group health insurance
Individuals buy insurance directly from insurance companies
– This group is small due to adverse selection
to deal with adverse selection, non-group insurers
- Offered limited forms of insurance → separating eq.
- Charged very high prices to high-risk people → perfect info. eq.
- Banned people with pre-exist. conditions (if can’t charge a high price)
⇒ Many people bought restrictive insurance or no insurance
ACA (Obamacare)
created a more functional non-group market, contributing to a decrease in the share of Americans who are uninsured
Public Health Insurance funding
Funded by taxes, not premiums, but generally does include cost-sharing (deductibles, copayments, etc)
Medicare
Insurance for Americans who are 65 or older
Medicaid
Insurance for poor Americans
Tricare/CHAMPVA
Insurance for members of military & their families
The share of people who are uninsured has
declined in recent years
Why are people uninsured?
- Some people may not be able to afford insurance
— poor people in states that rejected the Medicaid expansion - Some people don’t want to pay for insurance (rationally or irrationally)
Being uninsured doesn’t mean that a person completely lacks healthcare
– By law, the uninsured can get emergency care at hospitals
– But they don’t get long-term care or preventative medicine
Concerns related to people being uninsured
Equity: May not get adequate care
Efficiency:
– May not get treated for infectious disease (an externality)
– Tend to over-use the emergency room (highly expensive)
benefits of health insurance
Means that people can afford treatment
Makes people more likely to get preventative medicine
Offers peace of mind and mental health benefits
Patient-related moral hazard
Having health insurance may induce patients to over-use healthcare
– In healthcare, a patient faces only some of the cost of care
– Patient may use excessive care
Evidence for patient-related moral hazard
- A few studies have quantified the elasticity of demand for healthcare and found that demand for healthcare is elastic:
- But moral hazard is about using excessive care (not just more)
The drawback of patient cost sharing
Cost-sharing may cause patients to cut back on necessary care
High Cost Sharing
- lower usage of preventative medicine
- patients worse at following prescription drug regiments
which can worsen health outcomes & sometimes higher long-run costs
High-deductible health plans (HDHPs)
offer low premiums but high deductibles
– Since 2000, there has been a large ↑ in HDHPs
HDHPs Rationale
These plans result in lower usage of healthcare. This saves money for: the insurer, a person’s employer, & potentially for the health system overall
HDHPs Drawbacks
If they cause people to excessively cut back on care, they could lead to worse health outcomes and, possibly, higher long-run health spending
HDHPs with subsidies for preventative medicine
– decreases patient-related moral hazard while mitigating against bad health outcomes
– But plans are still in their infancy, so not yet clear how well they work
Issue with HDHPs
Put a lot of decision-making burden on patients
– The plans cover preventative medicine but for other care, kick in only after a person’s costs reach a threshold
– If a person has costs below the threshold, the person basically doesn’t have health insurance (for most types of care)
Provider-Related Moral Hazard
providers may have incentives to prescribe unneccessary or overly expensive care
Retrospective Reimbursement
A payment scheme where providers charge insurers after treating patients
Retrospective Reimbursement Incentive
Incentive for excessive care bc a provider’s income is proportional to the amount of care he provides
Managed care
Health insurance that imposes supply-side controls on the delivery of care
Preferred Provider Organization
A type of health insurance that tries to reduce prices via negotiation
– tries to price shop on behalf of patients
PPO Strategy
(1) Gets patients to agree to only use providers within a network
(2) Then uses its patients as a bargaining chip:
– Providers can only treat PPO’s patients if they join the network
– Can only join the network if they charge low enough prices
PPO Advantages
1) gain lower prices for patients
2) give providers an incentive to be economical
Staff Model HMO
A type of health insurance that directly hires healthcare providers
– Pays a fixed salary that is not related to the amount of care provided
⇒ No income-based incentive to deliver excessive care
Independent Practice Association
A twist on traditional health insurance
– Contracts with independent providers . . .
– but pays providers using prospective reimbursement
Prospective Reimbursement
The insurer pays the provider a fixed amount based on the expected cost of care for a patient
Prospective Reimbursement Incentive
Incentive to under-prescribe
– Profit is the difference between the fixed payment and the amount spent on treatment
⇒ can maximize profit by spending as little on treatment as possible
Structure of Medicaid
A federal program that is run by the states
– States must provide a minimum set of benefits
- funding comes from both state & federal governments
- primary beneficiaries are poor children and poor pregnant women
Medicaid Coverage
- technically very generous coverage
- limited cost sharing
- pays providers a fixed amount per service
- low reimbursements rates
Medicaid Size
- very large
- low costs per patient due to low reimbursement rates and many Medicaid beneficiaries are children who use limited care
Financial Benefits of Medicaid
increased consumption of non-medical goods
reduced medical debt
fewer bills sent to collection agencies
lower rate of bankruptcy
Finkelstein
Studied the Oregon Health Insurance Experiment
- found that Medicaid boosts mental health (lower stress over medical costs)
- suggestive evidence of improvements in physical health but the results weren’t statistically significant (sample size was too small)
Mortality Benefits of the Medicaid Expansion
Found that expansion caused 19200 fewer deaths in its first 4 years
- predicted that would have been 34,800 if all states had expanded
- the number of avoided deaths is expected to grow over time
Structure of Medicare
funded by (significant) patient cost-sharing and payroll tax
three parts
1) Part A: inpatient hospital costs and long-term care
2) Part B: physician expenditures, outpatient hospital expenses
3) Part D: spending on prescription drugs
Efforts to Control the Cost of Medicare
the Prospective Payment System (PPS): classified medical diagnoses into 467 Diagnosis Related Groups (DRGs)
PPS Loopholes
1) Providers gamed the system by giving patients overly severe diagnoses
2) Also, PPS reimbursed hospitals for each admission
but over time, most loopholes have closed
Single-Payer Health System Advantages
1) universal nature -> no one is uninsured
2) low administrative costs
3) sometimes better at controlling other healthcare costs
4) means health insurance is no longer tied to employment
Single-Payer Health System Diadvantages
1) may generate less medical innovation (but the government could fund research)
2) might mean people have less interest in working
3) switching systems would be highly disruptive
Goals of ACA
1) insure more people
2) reduce health spending
3) impose the least-possible disruption on the current system
ACA Three-Legged Stool
1) Community Rating
2) The Individual Mandate
3) Subsidies for buying insurance
Community Rating
A rule that applies to the non-group insurance market
– says insurers can’t charge different prices based on a person’s health
– adverse selection -> non-group market may unravel
Individual Mandate
A rule that says that all people are required to have insurance
– eliminates adverse selection in the non-group market
– but many poor or non-risk-adverse may not want to buy insurance
Subsidies for Buying Insurance
Make insurance cheap so that people are fine with having it
1) expand Medicaid
2) keep children on parents’ plans until they turn 26
3) give tax credits for insurance to people with income 133%-400% of FPL
ACA Strategies
- closed loopholes in Medicare’s system for reimbursing providers
- Promoted cost-effective treatment strategies
3.Created health insurance marketplaces
Effects of the ACA
- The number of uninsured have uninsured has fallen by 20 million, from 15% of the population to 9%
- healthcare costs have grown more slowly
Reasons why the is ACA Unpopular
- Complex policy design is poorly understood
- Non-group insurance plans are somewhat expensive
- Some people just want the single-payer system
Possible Reforms
- single-payer system but many political constraints
- improve the ACA - expand tax credits
- public offer - offer public insurance on the non-group market
- expand Medicaid
- lower the age requirement
