The Economics of Health Care Reform

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The Economics of Health
Care Reform
Allen C. Goodman
Wayne State University
Presented to Adult Learning Institute
October 25, 2011
http://www.econ.wayne.edu/agoodman
Facts
• In 2009, the United States spent almost
$2.5 trillion dollars on health care.
• This accounted for 17.3% of GDP.
• Over 50 million U.S. residents were
uninsured.
Compare us to Other Countries
Canada
Expenditures as % of GDP
France
18.0
16.0
Germany
Italy
Japan
Netherlands
14.0
Percentage
12.0
Spain
Sweden
Switzerland
10.0
8.0
United Kingdom
United States
6.0
4.0
2.0
0.0
1960
1965
1970
1975
1980
1985
Year
1990
1995
2000
2005
2010
Compare Us to Other Countries
Australia
Life Exp at Birth, Females
Life Exp at Birth, Males
Deaths/1000 live births
2007
2007
2006
83.7
79.0
4.7
Mexico
Life Exp at Birth, Females
Life Exp at Birth, Males
Deaths/1000 live births
2007
2007
2006
77.4
72.6
16.2
Canada
83.0
78.3
5.0
Sweden
83.0
78.9
2.8
Germany
82.7
77.4
3.8
Switzerla
nd
84.4
79.5
4.4
Israel
82.4
78.7
4.0
Turkey
75.6
71.1
22.3
Japan
86.0
79.2
2.6
United
Kingdom
81.8
77.6
5.0
Korea
82.7
76.1
4.1
United
States
80.4
75.3
6.7
Inference
• We spend a lot
• By many measures, we’re not spending
very effectively.
• Can we reform our health care system?
• What do we want, and what would it cost?
Goals of Reform
Four elements:
– A health “safety net” for all residents,
irrespective of age, health status, or
employment status
– Mechanisms that promote cost containment
– Choice for patients and providers
– Ease in administration
Questions
•
•
•
•
Who do you cover?
How do you provide access?
How much does it cost?
How do you pay for it?
Who do you cover?
• Everyone?
• Do you “not cover” illegal immigrants?
• Remember, at any moment of time in the
United States, there are millions of foreign
students, visitors, and temporary workers.
How do you provide access?
• Employer mandate?
– Does employer pay it?
– Most feel that the workers pay for it in the
form of lower wages.
• Individual mandate?
– Require individuals to buy insurance.
– They may buy it from employers.
– This is no more coercion than paying taxes.
What does it cost?
• Uninsured does not mean “no care.”
– Uninsured currently get
– Hadley and colleagues (2008), estimated that
uninsured Americans consumed $86 billion
worth of health care in 2008.
• Full year coverage to all uninsured?
– Incremental cost of providing full-year
coverage for all uninsured would amount to
$123 billion, so spending of those currently
uninsured would rise from $86 to $209 billion.
What does it cost?
• Full year coverage to all uninsured?
– We’re three years past the Hadley estimates,
so let’s guess incremental cost at $164 billion,
taking total cost to about $250 billion.
– If we divide $164 billion by 310 million people,
you get about $529 per person.
– Can we pay it? Yes! There’s a difference
between “can’t pay” and “won’t pay.”
Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Require most U.S. citizens and legal residents to
have health insurance, the individual mandate.
Families without coverage will face penalties up
to $2,085 per year or 2.5% of household
income.
• Penalize employers with 50 or more full-time
employees that do not offer coverage a fee of
$2,000 per full-time employee. Small
businesses that provide health insurance for
their employees will be eligible for tax credits.
(Effective January 1, 2014).
Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Expand Medicaid to all non-Medicare eligible
individuals under age 65 (children, pregnant
women, parents, and adults without dependent
children) with incomes up to 133% of the federal
poverty level FPL.
• Establish state-based health insurance
exchanges, where individuals and small
businesses can compare policies and buy
coverage, administered by a governmental
agency, or a non-profit entity.
Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Eliminate underwriting policies that enable
insurers to deny individuals insurance or charge
them higher premiums based on pre-existing
conditions.
• Establish a uniform set of benefits, called
Essential Health Benefits, with 10 major areas of
coverage including prescription drugs and
preventive services. All qualified health plans,
except employer-sponsored plans and certain
individual policies, will be required to offer at
least the Essential Health Benefits. (Effective
January 1, 2014)
Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Eliminate cost-sharing for Medicare covered
preventive services recommended by the U.S.
Preventive Services Task Force, and waive the
Medicare deductible for colorectal cancer
screening tests. (Effective January 1, 2011)
Attaining goals. Coverage?
• Creating a safety net – CBO estimates that
approximately 32 million people would gain
coverage by 2019, leaving about 23 million
uncovered.
• Net changes would be increases of 16 million
through Medicaid and CHIP, and 24 million
through the exchanges, with small decreases of
those in employer and nongroup insurance.
• This would leave about 23 million nonelderly
residents uninsured (about one-third of whom
would be unauthorized immigrants).
Attaining goals. Cost containment?
More diffuse
– Reducing consumer demand through the socalled “Cadillac” insurance tax;
– Running pilot programs to test various
approaches to revamping provider-payment
incentives and organizational structure;
– Investing hundreds of millions of dollars in new
comparative-effectiveness research; and
– Launching pilot programs to assess
reorganizations of the medical malpractice
process.
Attaining goals. Choice for
patients and providers?
• In bypassing either single-payer programs or
explicit mandated providers, PPACA will
preserve both patient and provider choice.
• The insured would appear to have no less
choice in insurance coverage, and payment
provisions would seem to remain the same as
previously.
Attaining goals. Ease in
Administration?
• The largest increases in the numbers insured
would come through Medicaid/CHIP (an
additional 16 million) and the new insurance
exchanges (24 million more).
• Medicaid/CHIP is a well-established program,
with state-level relationships already in place.
• States have not yet established the exchanges,
however, and some considerable administrative
costs will most likely accompany their creation
and operation.
In Conclusion – Can We Do It?
• Other countries do.
• Resources are available.
• Costs are within reason … if we choose to
pay them.
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