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]. 10-2

Sources of Health Care Funds in the U.S. (2010) 10-3 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 10-4

The Advantages of Employer-Provided Health Insurance Increase the risk pool Reduce adverse selection Lower administrative costs 10-5

Employer-Provided Health Insurance and Job Lock Job lock Health Insurance Policy Portability and Accountability Act of 1996 (Kennedy- Kassenbaum Act) 10-6

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) 10-7

Medicare Expenditures ( ) Expenditures on Medicare as a Share of GDP Real expenditures on Medicare Source: Centers for Medicare and Medicaid Services [2012c]. 10-8

How Medicare Works Benefits – Part A – Hospital insurance (HI) – Part B – Supplementary Medical Insurance (SMI) Financing – Payroll tax funds HI – General revenues fund SMI 10-9

Prescription Drug Benefit Part C – Medicare Advantage Part D – Prescription Drug Benefit – Monthly premium – Low deductible – Donut hole – Generous coverage for high costs 10-10

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 10-11

Medicare: Impacts on Spending and Health Expenditures on health care for the elderly Health outcomes 10-12

Medicaid: Overview Medicaid State Children’s Health Insurance Program 10-13

Medicaid Expenditures ( ) Source: Centers for Medicare and Medicaid Services [2012c]

Financing and Administration Joint Federal-State financing State administration 10-15

Benefits States obligated to offer minimum package of benefits States may offer more generous benefits State administrative flexibility 10-16

Medicaid: Impacts on Health Take-up rate Crowding out Empirical evidence: Are Medicaid expansions effective? Crowding out and taking up 10-17

Does Public Insurance Crowd Out Private Insurance? Health insurance Quantity of all other goods AA A F F F B BB M M M 000 Amount of publicly provided insurance CCC E 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

Health Care Reform Individual mandates – The Massachusetts Plan Health savings accounts – Catastrophic insurance policy Single payer – International experiences Canada United Kingdom 10-19

Health Care Costs and Health Outcomes: U.S., Canada, United Kingdom 10-20

Final Thoughts Security vs. efficiency No free lunch Connection between health care expenditures and health 10-21