Ch 7 Health policy Introduction Externalities Those benefits or costs that a third party bears despite not being involved in the transaction o Positive Externalities in health care Citizens who care for themselves and maintain their health generate positive externalities for other citizens through cheaper insurance and health care costs o Negative Externalities in health care Citizens who don t care for themselves or elect not to purchase health insurance but then expect taxpayers to cover their medical bills when they need care generate negative externalities in the form of higher taxes and higher insurance premiums Adverse selection in health care Those who are most in need of insurance purchase it the set of insured individuals is not representative of society as a whole and is less healthy o Effect Healthy people with insurance pay more for it than if all people were insured Moral hazard A choice for which you do not pay the full cost o Very sick people do not pay the full cost for surgery it is transferred to more healthy people with insurance Health Policy Risk Pools Adverse Selection and Moral Hazard The price one pays for health insurance is based on one s risk profile and risk pool o Risk profile A general assessment of how much an individual will spend on health care in a given period of time A type of risk profile is an experience rating A function of age gender and health o Risk pool The set of individuals covered by insurance More healthy individuals covered lower cost A way to affect risk pool Base an individual s risk profile on expected costs over their life opposed to a year Community rating Have price based on expected health costs of where they live o Some argue that health costs shouldn t be a function of an individual s expected health expenditures in a given year Moral hazard When one does not pay the full cost of one s actions more risky behavior may result Ex Smoking Reduce with taxes Ex Taxes on cigarettes o American public supports subsidized insurance for individuals in poor health from accidents or chronic conditions through no fault of their own Adverse selection problem must be addressed Moral Hazard Health insurance leads people to behave more risky Leads health service providers to provide more services than are needed in order to boost billings Uncompensated care Care that is given to people who do not pay No incentive to seek less expensive treatments in the face of generous health Asymmetric information Between insurer and individual and between o Paid for by taxpayers insurance doctor and individual Policy Solutions Deductible Have users pay a fixed percentage of the services they receive o Moral hazard still exists past this Copayments Small amounts 5 25 that are expected to make people realize that they are receiving services o Evidence shows this leads to reduced use of services and lessened o Rand Health Insurance Experiment Service use decreased as out of spending pocket spending increased Adverse effects on poor o Ex ante evaluations Evaluations of potential enrollees health and behavior Cannot judge family history Can judge current behavior ex Smoking o Ex post observations Better predictors Health Outcomes in the US and the World US spends a larger portion of its income on health than any other country in the world but still has higher adverse birth outcomes infant mortality age expectancy injuries etc than many other countries o This may be do to higher prices and readily available technology Health care consumes over 17 of US GDP American Health Policy and US National health Care Programs Price controls during WII so employers gave people benefits including health care Insurance officially created after WWII as an employment supported program that was paid for as a portion of benefits for veterans Path dependence System s initial developments have established the path to health policy development Patient Protection and Affordable Care Act of 2010 Require persons to purchase health insurance or pay a tax to support their care if uninsured o Lessen free riding President Lyndon Johnson created Medicaid and Medicare o Medicare Seniors o Medicaid poor President Clinton o Passed the Health Insurance Portability and Accountability Act Enabled the continuity of health insurance coverage for persons who lose their jobs and promoting the creation of medical savings accounts o Established the State Children s Health Insurance Program Established care for low income children whose families earned too much to gain Medicaid eligibility George W Bush o Created Medicare drug benefit Obamacare Patient Protection and Affordable Care Act ACA in 2010 o Republicans claimed violated Constitution because it required citizens to pay a tax if they chose not to receive health care Supreme court case National Federation of Independent Businesses vs Sibelius ruled that the US was within its rights to require the purchase of health insurance on the grounds that it was a tax and is within the grounds of the Constitution Though the court ruled the national government could not rule the states to expand their Medicaid programs o Language in the 2010 act stated that only state governments could establish health exchanges which are the mechanism the national government uses to provide subsidies that make health insurance affordable to over 6 million Obamacare enrollees Supreme court case King vs Burwell case hinged on the claim that the language in the ACA stated that only state governments could establish health exchanges which are the mechanism the national government uses to provide subsidies that makes Obamacare affordable to over 6 million enrollees When designed states could establish exchanges or default to exchanges used by national government 34 states o King argued national government designed exchanges were not eligible for subsidies Supreme Court ruled exchanges established by the states and the national government are elgible for subsidies o Public Opinion Favors what the ACA provides but not its name US Health National Government Health Care Programs Medicare o Who qualifies 65 and over persons under 65 with specific disabilities any age with end stage renal disease o Federally funded citizen s earnings are charged Medicare taxes each year o Entitlement that is NOT means tested o Split into four parts Medicare Part A Provides hospital insurance inpatient hospitalization skilled nursing facilities hospice care and home health care Free for people who
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