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CHAPTER
10
Government and the Market for
Health Care
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
Uses of Health Care Funds in the U.S.
(2007)
Source: Centers for Medicare and Medicaid Services [2008c].
10-2
Sources of Health Care Funds in the U.S.
(2007)
Source: Centers for Medicare and Medicaid Services [2008c].
10-3
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 (KennedyKassenbaum 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
(1966-2007)
Expenditures on
Real as a
Medicare
Share of GDP
expenditures
Expenditures
on
Medicare
as a
on Medicare
Share of GDP
Real
expenditures
on Medicare
Source: Centers for Medicare and Medicaid Services [2008c].
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
(1966-2007)
Source: Centers for Medicare and Medicaid Services [2008c].
10-14
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
Quantity of all other goods
Quantity of all other goods
Quantity of all other goods
Does Public Insurance Crowd Out Private
Insurance?
F
A
F
A
B
C
0
A
B
B
M
Amount of publicly
provided insurance
Health insurance
F
C
0
M
Amount of publicly
provided insurance
C
Health insurance 0
M
Amount of publicly
provided insurance
Health insurance
10-18
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