1. Health System Reform © Allen C. Goodman, 2015

2. Goals A health “safety net” for all residents, irrespective of age, health status, or employment status Mechanisms that promote cost containment Choice for patients and providers Ease in administration

3. Resource Costs B +ΔH A -ΔG-ΔG Health Goods Non-Health Goods Efficient Care H0H0 G0G0 B Inefficient Care Figure 23-1 – The Resource Costs of Health Reform. H1H1 P B'' P' P'' G1G1 Assume society determines to provide a safety net for all residents, increasing the amount of health goods provided from H 0 to H 1. Economic cost of providing ΔH = H 1 – H 0 of health is the amount of G given up, or ΔG = G 0 – G 1. If we could control costs, or provide health more efficiently, society might plausibly reach a point like B or even B , on the efficient part of the frontier.

4. One of the underlying goals of reform would move to more efficient production of health from health care. A related issue is whether there will be cost-sharing for covered services and If so, what type of cost- sharing arrangement will occur. B +ΔH A -ΔG-ΔG Health Goods Non-Health Goods Efficient Care H0H0 G0G0 B Inefficient Care Figure 23-1 – The Resource Costs of Health Reform. H1H1 P B'' P' P'' G1G1

5. Costs of Incremental Care The truly incremental costs stem from several sources. –First, the major reason for switching to a NHI plan is to extend coverage to the 50 million uninsured. It should be understood that the uninsured already consume health care. –Zero insurance does not necessarily mean zero care.

6. Hadley et al (2008) Used data from the 2002–2004 Medical Expenditure Panel Surveys (MEPS), a nationally representative survey of the civilian, noninstitutionalized population. Estimated that uninsured Americans consumed $86 billion worth of health care in 2008. This total consisted of $30 billion in out-of-pocket costs and $56 billion in uncompensated care. Governments picked up about $43 billion of the latter.

7. Hadley – 2 The authors then projected that the incremental cost of providing full-year coverage for all uninsured would amount to $123 billion, so that total spending of those currently uninsured would rise from $86 to $209 billion. This incremental cost represented 5.1% of total health care spending in the United States and slightly less than 1% of its GDP. The authors base their estimates on the utilization patterns of lower-income and lower-middle income individuals. More or less generous plans as well as higher or lower payment rates to providers would raise or lower estimated costs accordingly.

8. Hadley – 3 Insured population will cost more to the extent that an NHI plan provides greater typical coverage than people already choose to buy or have provided to them by other sources. Also, any tax-supported system of financing care potentially entails a deadweight loss to society, as taxpayers respond to the changed incentives. The deadweight losses that accompany tax increases mean that some efficiency loss will result, caused by the disincentives to work and invest. This is true even if the program is of the employer- mandated type, because a law forcing employers to incur expense is really a tax.

9. Now? If you push up numbers by about 22% (4% per year), since 2008 you get: –86 * 1.25  104.6 –123 * 1.15  149.6 Health expenditures (2013) about $2.919 Trillion. This incremental cost represented 8.7% of total health care spending in the United States and about 1.5 % of its GDP.

10. ? Employer Mandate - Who pays? We have demand … … and supply. They lead to a labor market equilibrium. What happens if we provide $z per hour of insurance, that is worth $z to workers? Who pays? What happens if insurance costs rise? Wage, W Labor Mkt D S W* L* D S z z

11. Benefits Is there no welfare loss? We have demand … … and supply. They lead to a labor market equilibrium. What happens if we provide $z per hour of insurance, that is worth $0 to workers? Who pays? What happens if insurance costs rise? Wage, W Labor Mkt D S W* L* D z L** W** DW Loss

12. Competitiveness?

13. Depends on Elasticity In previous diagram, who pays, depends on how elastic the demand is. In past, demand for cars, for example, was relatively inelastic. As US car-makers got more competition, what happened?

14. Evaluation of PPACA – Safety Net CBO noted that approximately 32 million people would gain coverage by 2019. Predicted increases of 16 million through Medicaid and CHIP, and 24 million through the exchanges, with small decreases of those in employer and nongroup insurance. This would leave about 23 million non-elderly residents uninsured (about one-third of whom would be unauthorized immigrants).

15. Evaluation of PPACA – Costs? Reducing consumer demand through the so-called “Cadillac” insurance tax; Cutting provider payments by appointing a depoliticized board to make up-or-down recommendations to Congress on changes to Medicare’s provider payments; Running pilot programs to test various approaches to revamping provider-payment incentives and organizational structure; Investing hundreds of millions of dollars in new comparative-effectiveness research; and Launching pilot programs to assess the impact of various re-organizations of the medical malpractice process.

16. Essential Health Benefits (EHB) EHB must include items and services within at least the following 10 categories: 1.Ambulatory patient services 2.Emergency services 3.Hospitalization 4.Maternity and newborn care 5.Mental health and substance use disorder services, including behavioral health treatment

17. Essential Health Benefits (EHB) EHB must include items and services within at least the following 10 categories: 6.Prescription drugs 7.Rehabilitative and habilitative services and devices 8.Laboratory services 9.Preventive and wellness services and chronic disease management 10.Pediatric services, including oral and vision care Habilitative services are really just making sure that a child can thrive in the world that they’re living in, so, for example, hearing aids are a habilitative service. So is speech therapy.

19. Thus Far …

20. Some Big Changes

22. Incremental Costs? No credible estimates one way or another. Everyone has an agenda.