Reform (2) © Allen C. Goodman, 1999

Single insurer v. multiple insurer Can we save money? Certainly may save in administrative costs, if we standardize forms. Single insurer may reduce administrative costs, but … It may also reduce variety. Is variety a good thing? Are we really going to save money if we have the government (or a government chartered organization) provide all of the health insurance?

Does reform make us less competitive? It depends? … on what our markets look like. Monopoly Demand MR MC P Q P0P0 Q0Q0 Q1Q1 P1P1 MC’ Who Pays?

Does reform make us less competitive? It depends? … on what our markets look like. Competitive D=MR MC P Q P0P0 Q0Q0 Q1Q1 P1P1 MC’ Who Pays?

Managed Care and Cost Containment How do we pool small firms to take advantage of managed care? Price Quantity Demand Ins. Premium PfPf As long as HMO premium is lower than P f, MC organizations have no incentive to reduce costs any lower. What if employers don’t push managed care other than hope that it is cheaper than FFS? C4 C3 C2 C1