Healthcare Flashcards
US system
private financing, private production, public safety net
market-based system
Medicaid
publicly run for low-income people
privately provided care
Affordable Care Act - Obamacare
extended coverage to all low-income individuals
everyone was required to obtain health insurance
insurance companies could no longer price discriminate
effect of ending individual mandate
- increase in cost of healthcare
- symmetric info
- higher premium - drives healthy customers out of the market - increasing risk-pool leading to higher insurance premiums
assumptions
insurance companies can’t differentiate btw good and bad health people (this is no longer true)
having health insurance is not mandatory
insurance companies not allowed to offer different types of contracts that would cause individuals to self-regulate
common assumptions
people know what they need
people have full info
people’s actions only affect themselves
full/perfect comp
healthcare reality (market failures)
need is unpredictable, random and complex
you can’t asses quality - you don’t know who the best doctor is
externalities e.g. diseases that can spread\unwillingness to deny care
barriers to entry - monopolistic power
issues brought on by asymmetric info
adverse selection (hidden attributes) moral hazard (hidden action) moral hazard - third party payment problem
adverse selection (hidden attributes)
- individuals know their health history and risks better than insurance companies - insurance companies can’t
- observe health and people know this
- “market for lemons”
- less healthy people more likely to buy insurance leads to missing market
dealing with adverse selection
social insurance - pool risks across all levels of health and pay one price
moral hazard (hidden action)
- individuals are able to impact their own health and can affect their probability of becoming ill
- insurance company can’t observe care that individual takes
- full insurance will lead to overconsumption bc no incentive to take care
moral hazard - third party payment problem
doctor knows more than insurance company
insurance company doesn’t know quantity of healthcare required
doctor may suggest more costly provisions to increase profitability - oversubscription
patient fully insured - zero private costs for doctor and patient - overproduction/overconsumption
compulsory partial insurance scheme
Germany
pricing so that on average, company breaks even
you can buy insurance beyond this - only rich can afford this
compulsory full insurance scheme
Canada
everyone insured through gov - paid through taxes - mainly private supply - independent doctors and non-profit hospitals bill medicare
why do market failures matter
gov wants to increase medical coverage for moral and productivity reasons
adverse selection/moral hazard creates inefficiencies, reduces quality and increases costs
frictions may arise with expansions of coverage
