Transcript Economics 387 - Boston University

Economics 387
Lecture 16
Health System Reform
Tianxu Chen
Outline
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Goals of Reform
Ensuring Access to Care
Competitive Strategies
Health System Reform and International
Competitiveness
• Quality of Care
• The Patient Protection and Affordable Care
Act (PPACA) of 2010
• Conclusions
GOALS OF REFORM
• There is broad agreement that reform must
address four major issues:
– 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
Basic Issues in Reform
• One fundamental question is service coverage.
• A related issue is whether there will be cost-sharing
for covered services and, if so, the extent of it.
• A third major issue is the cost of reform and how it
will be funded.
• The most challenging issue is to determine whether
health reform will build largely on the existing
framework of government programs and private
employment-based insurance.
The Costs of Universal Coverage
• From society’s point of view, the
incremental cost of NHI in the United States
is the extra total expenditure on health care
that would be incurred if we switched to
national health insurance.
Incremental Costs
• The truly incremental costs stem from several
sources.
- First, the major reason for switching to a NHI plan is
to extend coverage to the 50 million uninsured.
- Second, the insured population will incur some
incremental cost to the extent that an NHI plan
provides greater typical coverage than people already
choose to buy or have provided to them by other
sources.
- Third, any tax-supported system of financing care
potentially entails a deadweight loss to society.
ENSURING ACCESS TO CARE
Employer Versus 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, either from
private insurance (individually purchased) or
through a group.
Employer Versus Individual
Mandates
• Economists would argue that in either case,
the individual will pay the majority of the
cost of a mandate. Employer mandates will
ultimately be shifted backwards to
individual workers. Individual mandates
are more clearly seen as falling to
individuals and their families.
Separation of Health Insurance
from Employment
• 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.
Single Payer Versus Multiple
Insurers
• In principle, costs can be reduced by consolidating
insurers if there are economies of scale in
administration or if gains can be made from
pooling those insured. However, the same
administrative technology is available to the
private sector, and if further economies were
possible, it is likely that surviving private firms
would be those who merged to take advantage of
the economies, provided the existing firms were
not earning monopoly profits.
Single Payer Versus Multiple
Insurers
• However, the single-payer system reduces
costs by eliminating the multiple forms and
policy rules that face hospitals, clinics, and
nursing homes.
• The operation of the government enterprise
also raises issues of incentives. Government
may fail to reduce costs because it usually
lacks the profit incentive and the discipline
of market competition.
Single Payer Versus Multiple
Insurers
• A potential benefit of the single-payer
system lies with the possibility of common
coverage.
• In contrast, the availability of many policies
from many companies offers variety,
tailoring policies to the individual
preferences for cost-sharing features and
coverage.
COMPETITIVE STRATEGIES
Overview
• 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 the use of regulatory instruments.
Overview
• Proponents of further regulation tend to
argue that information imperfections,
flawed agency relationships, and other
distortions cannot be readily corrected by
attempts to promote partial forms of
competition.
Overview
• A competitive health care policy is one that relies
primarily on financial incentives rather than controls
to achieve goals. Those supporting this approach
believe that market participants respond to changes
in prices in a predictable and substantial way.
Supporters of competitive approaches also argue that
even imperfections in their strategies are preferable
to the distortions caused by imperfect regulation.
Development of Alternative
Delivery Systems
• The dominant competitive strategy, which
evolved in the 1970s, 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 health maintenance organizations
(HMOs), preferred provider organizations
(PPOs), and other forms of managed care.
Consumer-Driven Health Plans
and Health Savings Accounts
• In most cases, a CDHP features a highdeductible health plan combined with an
Health Reimbursement Arrangement (HRA)
or Health Saving Account (HSA).
• The motive for the CDHP is the desire to
create highly informed consumers and to
give them the incentives and the tools so
that they take charge of their health care
decisions.
Evidence on CDHPs and HSAs
• 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.
Drawbacks to CDHPs and HSAs
• 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.
Drawbacks to CDHPs and HSAs
• 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.
Other Market Reforms
• Two other reforms are important to
proponents of market-based solutions:
- The first deals with the tax subsidy of
employer-provided insurance.
- A second important reform under the
competitive approach is the elimination of
many mandated benefits as a way of increasing
the availability of lower-priced insurance
policies.
Representation of the
Competitive Approach
• The two broad
strategies of the
competitive approach
are to reduce demand
from D1 to D2 and to
increase supply from
S1 to S2. Together
these can reduce usage
and expenditures.
Figure 23-2 The Intended
Effects of Competitive
Strategies on Demand and
Supply
Competitiveness
• Many business leaders believe that the United
States is at a competitive disadvantage compared
to countries with social insurance programs.
• Economists point out two features of employerbased universal health insurance that contradict
such claims:
- Health insurance is part of the total labor
compensation package, and
- the incidence of the implied tax falls primarily
on the worker.
QUALITY OF CARE
Major Quality Issues
• 1. Moral hazard and the overutilization
associated with insurance (a theme we have
stressed throughout the text).
• 2. Applications of cost-effectiveness
analyses to distinguish economically
efficient from inefficient procedures,
technology and levels of care.
• 3. The greater use of financial incentives.
THE PATIENT PROTECTION AND AFFORDABLE
CARE ACT (PPACA) OF 2010
Significant PPACA Provisions
• Require most U.S. citizens and legal residents to have
health insurance, the individual mandate.
• Penalize employers with 50 or more full-time
employees that do not offer coverage at a fee of $2,000
per full-time employee.
• 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
with a benchmark benefit package.
Significant PPACA Provisions
• Require most U.S. citizens and legal residents to have
health insurance, the individual mandate.
• Penalize employers with 50 or more full-time employees
that do not offer coverage at a fee of $2,000 per full-time
employee.
• 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 with a benchmark
benefit package.
Significant PPACA Provisions
• 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.
• Establish a uniform set of benefits, called Essential Health
Benefits, with 10 major areas of coverage including
prescription drugs and preventive services.
• 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.
How well does PPACA address
reform goals?
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Creating a safety net
Cost containment
Choice for patients and providers
Ease in administration
The Cost of the PPACA
• It is difficult to predict changes in health care
spending under the PPACA.
• In an early forecast by analysts at CMS, Sisko et al.
(2010) estimated that national health care spending as
a share of GDP will be 0.3 percentage points higher
(about $88 billion) in 2019 than without PPACA.
• Analysts expect Medicare to be $86.4 smaller under
PPACA in 2019 than under previous assumptions;
they expect Medicaid/CHIP, in contrast, to be $89.9
billion larger.
Table 23-1 Congressional Budget Offices Estimated
Effects of the Insurance Coverage Provisions of the
PPACA
Table 23-2 Estimated Fiscal
Effects of PPACA
CONCLUSIONS
• Cost-containment and reduction or
elimination of the number of uninsured are
the principal goals of health system reform
in the United States.
• Other goals include administrative
simplicity and choice for providers and
patients.
CONCLUSIONS
• Improving the quality of care is also emerging as
a national priority.
• The most serious obstacle to reform the divide
over whether to expand the government’s role
through mandates, additional regulations, and
tax subsidies or whether to rely increasingly on
markets through deregulation and tax changes
that neutralize the current bias toward subsidized,
employer-based insurance.
CONCLUSIONS
• The PPACA is a long-term “fix” in that
provisions will step in gradually until 2018,
which formulates an individual mandate for
consumers to purchase health insurance and
provides market-pooling mechanisms to
make the insurance available to many who
were previously not able to get it.