1. Health Economics & Policy 3 rd Edition James W. Henderson Chapter 6 The Market for Health Insurance

2. The Historical Setting

3. Types of insurance l Social insurance l Indemnity insurance

4. Types of Health Insurance Coverage l Hospitalization l Physicians’ services l Major medical l Dental l Disability income protection l Long-term care

5. The Theory of Private Insurance Demand l Important concepts –Probability –Risk –Expected value l Total utility of income l Expected utility of income l Why people choose to insure

6. The Choice of Insurance

7. Health Insurance and Market Failure l Income tax treatment –The economics of a subsidy l Information problems –Moral hazard –Adverse selection –Free riders

8. Adverse Selection l Too many high risk users contaminate the risk pool l Driving premiums up l Creating incentives for low risk users –Cream skimming –Choosing not to buy insurance

9. Moral Hazard l Industry definition l Economics definition –A la carte weekly luncheon –All-you-can-eat buffet

10. The Economics of Moral Hazard

11. The Impact of Adverse Selection on Risk Pooling

12. Insurers’ Response to Market Failure l Deductibles l Coinsurance l Capitation l Practice guidelines

13. Health Insurance in the U.S. l Community rating l Experience rating l Cream skimming l Self-insurance

14. Medical Care for the Uninsured l How many are uninsured? l Who are the uninsured? l Why are they uninsured?

15. Individuals Without Health Insurance, 2001 and 2002

16. Is Health Insurance Affordable?

17. l Premiums increase with age –Young single adults - $1,000-$1,200 –Older single adults - $3,300-$3,600 –Families l Younger ages - $2,300 l Near Medicare - $6,200 l Employer sponsored plans –Single coverage - $3,060 –Family coverage - $7,954

18. Can Uninsured Afford Insurance? l Define “affordability” –Normative: “ability to pay” – paying for insurance and having enough left to buy other essential items –Behavioral: “Others in similar circumstances are buying insurance” l Identify groups –Insured - Ininsured –Afforders – Nonafforders l Pauly and Bundorf (2000) – anywhere between 25% and 75% are uninsured afforders

19. Insurance and Health l Do the uninsured have access to medical care? l Do the uninsured receive quality care? l Do we have a two-tiered system of care?