CHAPTER 10
Government and The
Market for Health Care
Uses of Health Care Funds in the U.S.(2007)
Source: Centers for Medicare and Medicaid Services [2008c].
Sources of Health Care Funds in the U.S. (2007)
Source: Centers for Medicare and Medicaid Services [2008c].
Private Health Insurance
 The Implicit Subsidy for Employer-Provided Insurance
 World War II era price controls
 Federal tax subsidy
The Advantages of Employer-Provided Health Insurance
 Increase the risk pool
 Reduce adverse selection
 Lower administrative costs
Employer-Provided Health Insurance and Job Lock
 Job lock
 Health Insurance Policy Portability and Accountability Act of
1996 (Kennedy-Kassenbaum Act)
Cost Control and Private Insurance
 Cost-based reimbursement (refund or recompence)
(fee-for-service)
 Managed care
 Capitation-based reimbursement (specialized)
 Health Maintenance Organizations (HMOs)
 Preferred Provider Organizations (PPOs)
 Point-of-service (POS)
Medicare Expenditures (1966-2007)
Expenditures on
Real as a
Medicare
Share of GDP
expenditures
Expenditures
on
Medicare
as a
on Medicare
Share of GDP
Source: Centers for Medicare and Medicaid Services [2008c].
Real
expenditures
on Medicare
How Medicare Works
 Benefits
 Part A – Hospital insurance (HI)
 Part B – Supplementary medical insurance (SMI)
 Financing
 Payroll tax funds HI
 General revenues fund SMI
Prescription Drug Benefit
 Part C – Medicare Advantage
 Part D – Prescription Drug Benefit
 Monthly premium
 Low deductible
 Donut hole
 Generous coverage for high costs
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
Medicare: Impacts on Spending and Health
 Expenditures on health care for the elderly
 Health outcomes
Medicaid: Overview
 Medicaid
 State Children’s Health Insurance Program
Medicaid Expenditures (1966-2007)
Source: Centers for Medicare and Medicaid Services [2008c].
Financing and Administration
 Joint Federal-State financing
 State administration
Benefits
 States obligated to offer minimum package of benefits
 States may offer more generous benefits
 State administrative flexibility
Medicaid: Impacts on Health
 Take-up rate
 Crowding out
 Empirical evidence: Are Medicaid expansions effective?
Crowding out and taking up
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
Health Care Reform
 Individual mandates
 The Massachusetts Plan
 Health savings accounts
 Catastrophic insurance policy
 Single payer
 International experiences
 Canada
 United Kingdom
Health Care Costs and Health Outcomes:
U.S., Canada, United Kingdom
Final Thoughts
 Security vs. efficiency
 No free lunch
 Connection between health care expenditures and health
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