Econ 5194 Health Economics Final Study Guide Lecture 14 Gruber 2008 Covering the uninsured in the US Although most industrialized nations guarantee universal healthcare in the US 47 million people are uninsured 18 of the nonelderly population One common argument is that healthcare is a merit good and the government should be more involved in ensuring healthcare On the other hand the US government is already heavily involved in healthcare markets The government currently accounts for half of all medical spending 200 billion per year on tax subsidies for employer sponsored insurance which may not be an optimal policy This paper summarizes research on the nature of the uninsured the arguments for and against policy intervention and the equity and efficiency consideration of such policies Main sources of insurance coverage in the US 80 of insurance is private insurance and of that 90 comes from firms Individual insurance market is pretty small Public insurance Medicare Medicaid tri care The uninsured Insurance is not actuarially fair High administrative costs cross subsidize large families Adverse selection costs insurance costs so price matter Insurance products are very coarse individual or family of any size small families Evidence suggests that 2 3 of increase in uninsurance in the past decade is due to rising umcompensated care is implicit insurance the ability to get free care at any emergency room decreases the need for insurance in theory Overinsurance full insurance is not optimal because of moral hazard Why should society care about the uninsured Externalities Communicable diseases though small fraction of total costs Labor market inefficiencies Financial externalities from uncompensated care and cross subsidization Reduces ability to search for jobs mismatch between workers and firms Job lock from health insurance reduces job mobility by about 25 Welfare implications are probably fairly small about 0 1 0 2 of GDP although this estimate is very imprecise Income redistribution uninsured are generally poor Paternalism Uninsured are 25 more likely to die Marginal health benefit from basic insurance is probably quite high Behavioral Responses to Policy Change Take up and crowd out Estimated take up expansion of new Medicaid benefits are around 10 Evidence on magnitude of crowd out varied a lot but Gruber and Simon estimate that more than half of new Medicaid enrollees dropped some private coverage Firm Reactions Firms respond to changes in tax rates which affect the value of the ESI tax benefit Also that a 10 increase in price decreases the probability that a firm pays for the total cost of insurance premium by about 1 7 3 8 Individual reactions Central question is What happens to take up when employers pass more of the cost along to workers Consensus answer is There s almost no effect Lecture 15 Supply side mechanisms to reducing excess medical spending Managed care controls focuses more on mechanisms that control supply Selective contracting insurance company negotiates best prices available with only some of the providers in the areas Often results in different negotiated prices with different providers in the same market Steering MCOs encourage enrollees to get care from selected providers in the MCO network If patient choose to go outside the network they have much less generous coverage or no coverage at all This also mean that MCOs can assure providers that they will receive a certain volume of patients especially valuable if it s a large insurance company with lots of customers Quality Assurance Monitor providers to assure that they follow clinical guidelines best practices manage chronic illnesses efficiently Utilization review Review how providers decide what amount type of medical care is necessary Types of managed care organizations and their features Managed care organizations are healthcare delivery systems that focus on trying to limit overuse of healthcare by focusing on clinical and fiscal accountability There s many differed kinds of MCO HMO PPO POS are all types of MCO Different types of plans are defined by the features that they use to control costs and or improve quality Health Maintenance Organizations HMO Several different types of HMO s mainly differ on how physicians are incentivized and organized as part of the HMO 1 Uses selective contracting to restrict provider networks usually narrow geographic networks with large penalties for receiving care outside the provider network 2 Uses primary care physicians as gatekeepers to determine when where medical 3 Imposes financial incentives on physicians to contain costs while managing the care is necessary quality of care Different types of HMO s mainly differentiated by the degree of control over physicians and patient referral options 1 Staff model HMO Physicians are generally employees of the HMO they usually receive a salary rather than earning compensation based on the number of tests procedures performed Staff HMO has high degree of control over MD practice patterns 2 Group model HMO HMO exclusively contracts with multi specialty group Often capitated per patient payment to group practice Group practice may then compensate MDs on salaried basis There is little patient choice of provider 3 Network IPA Model HMO HMO contracts with several single or multi specialty group practices or independent practice associations IPAs Closed panel or open panel Open panel allows for non group MDs to provide care Compensation via capitation or discounted FFS HMO retains less control over physicians but generally contract with numerous MD practices Preferred Provider Organization PPO A plan which offers coverage to participants through a network of selected health care providers such as hospitals and physicians Enrollees may go outside the network but they pay a greater percentage of the cost of coverage than within the network Unlink HMOs in which network is closed greater consumer choice Populat choice reflects consumer sentiment from the managed care backlash Point of Service POS plan Hybrid between HMO and PPO Health plan that allows members to choose to receive services from a participating or non participating network provider Usually a financial disincentive for going outside the network More of an insurance product than an organization POS plans can be offered by HMOs PPOs or self insured employers Gatekeeper system typically requires referrals unlike straight PPO More control over which MDs are consulted than