The role of government in health careLast lectureTodayWhy should gov’t provide health care?Adverse selectionMoral hazardPaternalismIncome too low for some peopleWhat does the government do?MedicareDifferent aspects of MedicarePart APart BPart DCost control measures for MedicareSlide 16Slide 17Slide 18Slide 19Medicaid eligibilityFinancing and benefitsSlide 22Medicaid stigma; crowding outAre Medicaid expansions effective?Health care reformSlide 26Nationalized health careIs there a solution?Slide 29Slide 30SummaryThe role of government in health careToday: Reasons for having government-provided health care; Medicare; Medicaid; Reform effortsLast lectureWe saw that health care costs (as a percentage of GDP) have rapidly increased over the last 50 yearsHealth care insuranceAdvantages and disadvantagesTodayGovernment-provided health careWhy should government provide health care?ProgramsMedicareMedicaidThe government’s role in health care reformWhy should gov’t provide health care?Adverse selectionMoral hazardPaternalismIncome too low for some peopleAdverse selectionRecall adverse selection problem (see example to the right)The government could force everyone into the same health care planPro: Adverse selection problems go awayCon: Low-risk people subsidize high-risk peopleExample: 6 people at a firmSpending if sick: $10,0003 people have a high risk of getting sick10% each3 people have a low risk of getting sick5% eachWith no employer contribution, some at low risk do not buy insuranceMoral hazardSome activities are more likely to occur to an insured personSmokingBad eating habitsBungee jumpingMountain climbingSkydivingThese activities lead to inefficient outcomesThe government can intervene to try to discourage these things from occurringAnti-smoking campaignsCommercials promoting good eating habitsProhibiting certain very dangerous activitiesWithholding care due to dangerous activitiesPaternalismA paternalist would argue that some people “don’t get it right” when it comes to health insuranceThese people would say that everyone should be forced to have a minimum level of health careMuch of the 2008 presidential debate involves paternalistic argumentsIncome too low for some peopleSome people do not make enough money to afford health careProblem made worse by increasing health care cost (see “Downward spiral” at right)Young adults and noncitizens make up a substantial fraction of the uninsured in the USDownward spiralHealth care costs go upMore people are unable to afford health insuranceThese people must use the Emergency room, driving up premiums for those insuredWhen premiums go up due to increased numbers in the Emergency room, the cycle repeatsWhat does the government do?The government provides over 45% of health care funds in the United StatesTwo main programs of government-provided health careMedicarePeople 65 and olderDisabled peopleMedicaidPoor peopleSee also Figure 10.2, p. 207MedicareEnacted in 1965Second largest domestic spending programFunded by a 2.9 percent tax on earnings of current workersTax split evenly between employers and employeesProvides health insurance to seniors and the disabled, primarily through the private sectorSeniors must have worked and paid payroll taxes for at least 10 yearsAbout 35 million seniors enrolledSee also Figure 10.3, p. 212Different aspects of MedicareParts A and B of Medicare are the largest componentsPart A: Hospital insurancePart B: Supplementary medical insuranceNew Medicare component: Part DPrescription drug benefitPart AHospital insuranceStructure for 2008Monthly premium $423 per monthCovered for people that have 10 years of contributions into FICA taxes Must also enroll in Part B if enrolled in Part A (typically)States may be able to help low-income enrolleesVarious benefits covering BloodHome health servicesHospice careHospital staysSkilled nursing facility care(Source: http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf)Part BSupplementary medical insuranceSometimes optional, depending on whether or not you receive Social Security benefitsEnrollment is automatic if you receive Social Security benefitsStructure for 2008All but high income people pay $96.40 per monthBenefitsMedically-necessary servicesPreventive servicesCoinsurance and deductibles may apply, depending on the benefitPart DPrescription drug benefitBenefits began in 2006Different plans offeredSome numbers for the plan in 2006Expected premium: $386 per yearLow-income earners can qualify for lower premiumsBenefit structure$250 deductibleBeneficiary pays 25% of cost for next $2,000Beneficiary pays 100% of cost for next $2,850 (“donut hole”)Beneficiary pays at most $5 or 5% thereafter per prescriptionCost control measures for MedicareBefore 1983, Medicare reimbursement was retrospective for Part ACompensation is made after services are completedLittle incentive to economize on costsSince 1983, this changed to a prospective payment system (PPS)Compensation level is set before services start500 diagnosis related groups exist for the prospective payment systemThis gives incentives to economize on costsCost control measures for MedicareRecall DWL that occurs when MB is lowPPS appears to have decreased DWLAverage stay for Medicare patients in short-stay hospitals decreased from 10.5 days in 1981 to 8.5 days in 1985The decrease in stay appears to have no effect on health outcomesCost control measures for MedicareTo keep costs down for Part B, a resource-based relative value scale system is usedFees are set per service providedDoes not necessarily keep down number of servicesIf fees are set too low, many medical practices will not accept Medicare patientsMedicare patients would then get low-quality careCost control measures for MedicareManaged-care optionsSince 1985, Medicare beneficiaries could enroll in HMOsOriginally, the HMO received 95% of the average amount that the average patient would requireProblem: Adverse selection… Healthier patients enrolled in HMOs  The government was overpaying the HMOCost control measures for MedicareSolution to adverse selection problem: Risk-adjusted