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8/3/2019 Health Economics- Lecture Ch23
http://slidepdf.com/reader/full/health-economics-lecture-ch23 1/21
Healthcare Reform
Dr. Katherine Sauer
Metropolitan State College of Denver
Health Economics
8/3/2019 Health Economics- Lecture Ch23
http://slidepdf.com/reader/full/health-economics-lecture-ch23 2/21
I. Goals of Reform
II. InsuranceIII. Competitive Strategies
IV. Consumer-Driven Health Care
V. Other Market-Based Reforms
8/3/2019 Health Economics- Lecture Ch23
http://slidepdf.com/reader/full/health-economics-lecture-ch23 3/21
I. Goals of Reform
Healthcare reform usually focuses on 2 main factors:
coverage
cost containment
Other important considerations:
choice for patients and providers
ease in administration
8/3/2019 Health Economics- Lecture Ch23
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A. Basic Questions about Healthcare Reform
1. extent of service coverage
2. extent of cost-sharing for covered services
3. cost of reform itself and how it will be funded
4. whether to base on existing framework (government
programs and private employment-based insurance) or new framework
8/3/2019 Health Economics- Lecture Ch23
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B. The Cost of Universal Coverage
From society¶s point of view, the incremental cost of
national health insurance (NHI) in the United States is
the extra total expenditure on health care that would beincurred if we switched to NHI.
8/3/2019 Health Economics- Lecture Ch23
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The incremental costs stem from several sources:
1. extend coverage to the (approx. 46 million) uninsured
2. if NHI
plan provides greater typical coverage than people already choose to buy, then insured people face
higher costs
3. any tax-supported system of financing care potentiallyentails a deadweight loss to society
8/3/2019 Health Economics- Lecture Ch23
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II. Insurance
A. Employer vs Individual Mandates
Under the employer mandate, the employer must procure
health insurance for its employees and their dependents.
Under the individual mandate, all residents are obligated
to purchase health insurance for themselves and their
families.
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Economists would argue that in either case, the individualwill pay the majority of the cost of a mandate.
Employer mandates will ultimately be shifted
backwards to individual workers.
Individual mandates are clearly seen as falling
to individuals and their families.
8/3/2019 Health Economics- Lecture Ch23
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In redesigning a health system, a good argument can be
made for revising or replacing the prevailing system of
employer-provided insurance.
Health insurance would no longer be dependent on
employment status and coverage would be portable.
8/3/2019 Health Economics- Lecture Ch23
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B. Single Payer vs Multiple Insurers
In principle, a single payer system could reduce costs by
- economies of scale in administration
- greater pooling of insured
However, the same administrative options are already
available to the private sector.
- if further economies were possible, it is likely that
surviving private firms would be those who havealready merged
8/3/2019 Health Economics- Lecture Ch23
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A single-payer system may also reduce costs by
eliminating the multiple forms and policy rules of
multiple insurance providers.
ex: a nursing home must use a different set of
forms and follow different policy rules for eachinsurance provider
A single-payer system (run by the government) may fail
to reduce costs because it lacks- profit incentive
- market competition
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A potential benefit of the single-payer system lies withthe possibility of common coverage.
- simplified
The tradeoff is the current variety of policies.- tailor policies to individual¶s preferences for
cost and coverage
8/3/2019 Health Economics- Lecture Ch23
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III. Competitive Strategies
The battle is over the superiority of :
increased government involvement through both
expanded regulation and additional government programs to provide or finance health care
Or
an increased emphasis on market mechanisms and
market forces with corresponding decreases in theuse of regulatory instruments.
8/3/2019 Health Economics- Lecture Ch23
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Proponents of further regulation tend to argue that
- information imperfections
- flawed agency relationships
- other distortionscannot be readily corrected by attempts to promote partial
forms of competition.
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A competitive health care policy is one that relies
primarily on financial incentives rather than controls toachieve goals.
Those supporting this approach believe that market
participants respond to changes in prices in a predictableand substantial way.
Supporters of competitive approaches also argue that
imperfections in their strategies are still preferable to thedistortions caused by imperfect regulation.
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IV. Consumer Driven Health Plans
The dominant competitive strategy has been the
promotion of delivery systems that can provide an
alternative to traditional fee-for-service.
The cornerstone of this strategy has been the promotion
of managed care organizations.
8/3/2019 Health Economics- Lecture Ch23
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A. Consumer-Driven Health Plans
In most cases, a CDHP features:
1. a high-deductible health plan
2. Health SavingAccount (HSA) or Health Reimbursement
A
rrangement (HR A
)
The motive for the CDHP:
- create highly informed consumers
- give consumers incentives and tools to takecharge of health care decisions
8/3/2019 Health Economics- Lecture Ch23
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B. Evidence
Feldman and colleagues (2007)
do not find significant savings for those enrolled in
CDHPs
Dixon et al. (2008)
found that enrollees in the high-deductible CDHP were
more likely to cut back on utilization
8/3/2019 Health Economics- Lecture Ch23
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C. Drawbacks
Healthier individuals are more likely to be attracted to
high deductible health plans, leaving sicker higher cost
populations to be insured by other plans.
Patients may have incentive to scrimp on preventive
care.
HSAs are more difficult to administer.
8/3/2019 Health Economics- Lecture Ch23
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A small proportion of individuals with serious chronic and
acute conditions account for a large share of annual health
care spending.
These patients will have exceeded their maximum out-of-
pocket requirements and may not have a strong incentive to
economize on their use of health care.
8/3/2019 Health Economics- Lecture Ch23
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V. Other Market-Based Reforms
Two other reforms are important to proponents of market-
based solutions:
1. deal with the tax subsidy of employer-provided
insurance
2. elimination of many mandated benefits
- increase the availability of lower-priced insurance
policies
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