The Anatomy of Health Insurance David Cutler Richard Zeckhauser

Five Lessons on Health Insurance Risk spreading v.s. incentives Integration of insurance and provision Competition and consumer identity Information and long-term insurance Health insurance and health

Why Health Insurance? Medical expenditure is extreme volatile  1% use 25% exp  5% use 50% exp  20% use 75% exp Difficult to self-insured because some people are sicker than others Health insurance is relatively new (at the end of 19th century) since treatment was not very effective before

健康保險歷史回顧

我國社會醫療保險計畫之演進  1950 勞工保險開辦  1958 公務人員保險開辦  1985 農民保險開辦  1990 低收入戶保險開辦  1995 全民健康保險開辦

Taiwan’s NHI HISTORICAL DATES 1950Labor insurance – LI 勞保 1957LI - inpatient benefits 勞保住院支付 1958Governmental employee insurance – GEI 公保 1970LI - outpatient benefits 勞保門診支付擴大 1979LI - five employees and more 勞保參加單位擴大 1982GEI – dependents 公保眷屬加保 1985Farmers’ health insurance - FHI 農保 1990Health insurance for low income families 低收入健康保險 1995 National health insurance – NHI 全民健康保險

Withdraw from UN US De-Recognition Democratic Progressive Party Full Congress Election President Election Taiwan’s NHI THE BIRTH OF TAIWAN’s NHI NHI Law

OBJECTIVES OF TAIWAN’S NHI Equal access to adequate health care Control health care costs at a reasonable level Promote the efficient use of health care resources

全民健保組織架構

全民健康保險基本架構 保險對象 醫事服務機構 中央健康保險局 繳保險費 部分負擔 醫療服務 核付費用 申請醫療費用 發健保卡

全民健保制度設計 公辦公營 單一保險人 全民納保 勞工雇主政府三方付費 部分負擔 法定給付範圍 --- 正面表列與負面表列 財務平衡機制 --- 量出為入、量入為出、法定調節

各年齡層醫療費用分布 89 年 7 月至 90 年 6 月

八十八年醫療費用保險對象使用情形 8% 完全未使用， 49% 使用 5,000 元以下 低使用者 vs 高使用者

保險的作用 1 個癌症病患 6 個健康的人 1 個洗腎病患 40 個健康的人 1 個血友病患 67 個健康的人

A Basic Economic Model l Health as a consumer durable good:  Utility = U (X, Health) l X represents “other goods and services” l H is a stock -- every action will affect health l On its own or combined with other goods and services, the stock of H generates a flow of services that yield satisfaction=utility

HEALTH OVER THE LIFE CYCLE TIME HEALTH BIRTH H min Appendicitis Auto Crash Cancer (radiation therapy) Cancer complications

A Basic Economic Model (cont.) Health=H(Profile, Medical Care, Lifestyle, Socioeconomic Status, Environment) l If an individual has a heart attack, then overall health decreases, regardless of the amount of medical care consumed  The total product curve for medical care shifts down l As a person ages, both health and the marginal product of medical care are likely to fall  The total product curve shifts down and flattens out

Insurance with Fixed Spending One person:  U(x, h)  U’>0, U’’<0 One illness  sick with probability p  fixed treatment cost: m  H(h, m)=H(1, m)=H(0,0) Two states  Sick (s): U(y-m, H(1,m))  Health (m): U(y, H(0,0))

Without insurance

With insurance Fair insurance: π= pm

Comparing With and Without Insurance Taking Taylor’s expansion, we have

The insurance plan specifies the amount of money transferred to the bad state

Problem with Fixed Spending Complete information  All the sicknesses known  All the treatment known  No wasted resources in the policy The insurance specifies the amount of money being transferred during the sickness (contingency plan) The policy completely insures the health, but s it possible to insure someone’s health?

Moral Hazard  Def : moral hazard refers the likely malfeasance of an individual making purchases that are partly or fully paid for by others.  Moral hazard conflicts with risk-spreading Buy more than should if paid the full price. ‚ Moral hazard is a substitution effect, not income effect.

Insurance policy

First Best (s is observed)

Second Best (s is not observed)

Adverse Selection

Begin with an example Two types:  High (H), 50%  Low (L), 50% Three insurances  Generous (G)  Moderate (M)  Basic (B)

Efficient outcome  H type chooses G plan  L type chooses M plan  An separating equilibrium Once a separating equilibrium occurs, H type has incentives to join M plan  Not efficient 

Cross Subsidy  Suppose we tax $1.25 for M plan to subsidy G plan  H is better  L is better too