GOVERNMENT AND THE MARKET FOR HEALTH CARE Chapter 10

Uses of Health Care Funds in the U.S. (2010) Source: Centers for Medicare and Medicaid Services [2012c].

Sources of Health Care Funds in the U.S. (2010) Source: Centers for Medicare and Medicaid Services [2012c].

Private Health Insurance The Implicit Subsidy for Employer-Provided Insurance World War II era price controls Federal tax subsidy

The Advantages of Employer-Provided Health Insurance Increase the risk pool Reduce adverse selection Lower administrative costs

Employer-Provided Health Insurance and Job Lock Health Insurance Policy Portability and Accountability Act of 1996 (Kennedy-Kassenbaum Act)

Cost Control and Private Insurance Cost-based reimbursement (fee-for-service) Managed care Capitation-based reimbursement Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) Point-of-service (POS)

Medicare Expenditures (1966-2010) Expenditures on Medicare as a Share of GDP Real expenditures on Medicare Source: Centers for Medicare and Medicaid Services [2012c].

How Medicare Works Benefits Financing Part A – Hospital insurance (HI) Part B – Supplementary Medical Insurance (SMI) Financing Payroll tax funds HI General revenues fund SMI

Prescription Drug Benefit Part C – Medicare Advantage Part D – Prescription Drug Benefit Monthly premium Low deductible Donut hole Generous coverage for high costs

Cost Control Under Medicare Medicare’s retrospective payment system Medicare’s prospective payment system Diagnosis related groups Resource-based relative value scale system Medicare Managed Care

Medicare: Impacts on Spending and Health Expenditures on health care for the elderly Health outcomes

Medicaid: Overview Medicaid State Children’s Health Insurance Program

Medicaid Expenditures (1966-2010) Source: Centers for Medicare and Medicaid Services [2012c].

Financing and Administration Joint Federal-State financing State administration

Benefits States obligated to offer minimum package of benefits States may offer more generous benefits State administrative flexibility

Medicaid: Impacts on Health Take-up rate Crowding out Empirical evidence: Are Medicaid expansions effective? Crowding out and taking up

Does Public Insurance Crowd Out Private Insurance? A. Person who places relatively high value on private insurance B. Person who places relatively low value on private insurance C. Person who is uninsured before public insurance Quantity of all other goods Quantity of all other goods Quantity of all other goods F F A F A A B B B E C C C M Health insurance M Health insurance M Health insurance Amount of publicly provided insurance Amount of publicly provided insurance Amount of publicly provided insurance

Health Care Reform Individual mandates Health savings accounts The Massachusetts Plan Health savings accounts Catastrophic insurance policy Single payer International experiences Canada United Kingdom

Health Care Costs and Health Outcomes: U.S., Canada, United Kingdom

Final Thoughts Security vs. efficiency No free lunch Connection between health care expenditures and health