Slide 1CHAPTER OUTLINEThe MoneyGovernment Health ProgramsWhere the Private Money Comes FromWhere the Money GoesInsurance CoverageInsurance TypesWhy People Buy InsuranceVocabulary of InsuranceTypes of Insurance PlansControlling ExpensesAdvantages and Disadvantages of Insurance TypesPublic Insurance: MedicarePublic Insurance: MedicaidThe UninsuredAffordable Care Act (Provisions to Expand Coverage)Why Health Care is not “Just Another Good”Why Medicaid Raises All Health Care PricesWhy Co-Payments Increase PricesModeling Third-Party PaymentMoral Hazard with Health InsurancePre-Existing ConditionsAdverse SelectionMandationChanges to the Health Insurance IndustryChanges to the Health Insurance IndustryAre These All Good For Everyone?What Insurance Companies Can Still DoOrgan and Blood DonationThe Rest of the WorldInternational Health Care Finance ArrangementsCountry ComparisonsCountry Comparisons (cont.)Advantages and Disadvantages of Single-Payer Systems23-1©2015 McGraw-Hill Education. All Rights Reserved ©2015 McGraw-Hill Education. All Rights Reserved Chapter 23Health Care23-2©2015 McGraw-Hill Education. All Rights Reserved CHAPTER OUTLINE•Where The Money Goes And Where It Comes From•Insurance In The United States•Economic Models of Health Care•Comparing The United States with the Rest of the World23-3©2015 McGraw-Hill Education. All Rights Reserved The Money•16% of GDP spent on health care (2.7 trillion of 15.1 trillion)• 52% spent by governments (Medicare, Medicaid etc.)23-4©2015 McGraw-Hill Education. All Rights Reserved Government Health Programs•Medicare public insurance in the U.S. which covers those over age 65 •$554 billion•Medicaid public insurance in the U.S. which covers the poor•$408 billion23-5©2015 McGraw-Hill Education. All Rights Reserved Where the Private Money Comes From•Private Insurance•$896 billion•Out-of-Pocket Patient Expenses•$308 billion23-6©2015 McGraw-Hill Education. All Rights Reserved Where the Money Goes•Hospitals•$851 billion•Doctors•$541 billion•Prescription Drugs•$263 billion•Research•$50 billion23-7©2015 McGraw-Hill Education. All Rights Reserved Insurance Coverage•76% covered all year•8% covered part of the year•16% without any insurance all year23-8©2015 McGraw-Hill Education. All Rights Reserved Insurance Types•Private Group Insurance•170 million•Private Individual Insurance•30 million•Medicare•48 million•Medicaid•51 million23-9©2015 McGraw-Hill Education. All Rights Reserved Why People Buy Insurance•People who believe that their insurance premiums will be less than their expected health care expenditures will buy insurance.•People who are risk averse (they would rather pay more than their predicted expenditures to limit their risk of large expenses) will buy insurance.•A person who is risk neutral (they would not pay more than their predicted expenditure to eliminate uncertainty) would not buy insurance.23-10©2015 McGraw-Hill Education. All Rights Reserved Vocabulary of Insurance•Deductible the amount of health spending a year that you have to pay before the insurance company pays anything•Co-payment either a set amount or the percentage of the bill after the deductible has been taken out that you have to pay•Maximum out-of-pocket the most that a person or family will have to pay over a year for all covered health expenses23-11©2015 McGraw-Hill Education. All Rights Reserved Types of Insurance Plans•Fee-for-service•Health Maintenance Organization (HMO)•Preferred Provider Organization (PPO)•Mini-Meds: Low Premium insurance with a low annual maximum23-12©2015 McGraw-Hill Education. All Rights Reserved Controlling Expenses•HMO’s and PPO’s use Primary Care Physicians (PCP’s) or Gatekeepers who are physicians charged with making the initial diagnosis and making referrals23-13©2015 McGraw-Hill Education. All Rights Reserved Advantages and Disadvantages of Insurance TypesInsurance TypeAdvantage DisadvantageFee-for-Service1) Maximum physician choice2) Little insurance company meddling in doctors’ decisionsHighest premiums, deductibles, and co-payment rates because of little control over expensive and unnecessary proceduresHMO Maximum control over expensive and unnecessary procedures so premiums, deductibles and co-payment rates are low.1) Minimal physician choice2) Significant meddling in physician decisions, especially when differing procedures have significant cost differencesPPO 1) Some physician choice2) moderate premiums, deductibles and co-payment rates3) some control over expensive procedures4) minor meddling in physician decisions23-14©2015 McGraw-Hill Education. All Rights Reserved Public Insurance: Medicare•Those over 65 are eligible•Part A•Covers expenses incurred in hospitals•Compulsory •Financed with premiums and 1.45% payroll tax on employers and employees•Part B•Covers doctor visits•Voluntary•Financed with premiums and general tax revenue23-15©2015 McGraw-Hill Education. All Rights Reserved Public Insurance: Medicaid•Covers the poor •eligibility standards vary from state to state•No premiums are required•Some states have very small co-payments23-16©2015 McGraw-Hill Education. All Rights Reserved The Uninsured•21 million of 51 million go without insurance all year•18 million are between age 18 and 34•12 million are under 1823-17©2015 McGraw-Hill Education. All Rights Reserved Affordable Care Act(Provisions to Expand Coverage)•Large employer mandate•Employers (of more than 50 full time workers-30hrs/wk or more) must provide insurance or pay a $2,000 fine per employee>30 or $3,000 fine per subsidy recipient.•Medicaid Expansion to include everyone in a household with income under 133% of poverty (It was previous just children.) Not every state participates.•Subsidized individual insurance on the exchanges23-18©2015 McGraw-Hill Education. All Rights Reserved Why Health Care is not “Just Another Good”•Rapid increases in quality (which get confused as price increases)•Treatments developed in the 1990s for AIDS are expensive but this is a quality increase, not a price increase•Consumers have less knowledge about what they are buying than they typically do when buying goods.23-19©2015 McGraw-Hill Education. All Rights Reserved Why Medicaid Raises All Health Care PricesP*QpoorQnonpoorDpoor+nonpoorDpoor+nonpoorP*QpoorQnonpoorPQ/tSDpoorDnonpoorWithout