1、The American modelUnlike every other developed country,the United States lacks universal guaranteed insurance for all citizens.Nevertheless,most Americans find insurance coverage through one of these three avenues:employer-based insurance,Medicare and Medicaid.This mix of private and public insuranc
2、e is a hallmark of the American model.The American modelMajor characteristics:Private health insurance markets:The non-elderly and non-poor seek insurance on the private market,which is centered around employer-based health insurance pools.Partial universal health insurance:Subsidized universal heal
3、th insurance is provided to two vulnerable subpopulations:the elderly(through Medicare)and the poor(through Medicaid).Private health care provision:Most hospitals and doctors clinics are private.While there is some antitrust regulation,there are few legal restrictions on where doctors can practice a
4、nd hospitals can open.There are also no direct price controls enforced by the government.The American modelThe American model reflects a political preference for liberty and free choice.Patients(usually)have free choice of:DoctorHospitalInsurance plan Doctors(usually)have free choice of:Prices to ch
5、argeWhere to practiceWhom to treatCh 18|The American modelEMPLOYER-SPONSORED HEALTH INSURANCEEmployer-sponsored health insuranceMost insured non-elderly Americans receive coverage through employer-sponsored plans.This insurance is not“free”,since it is actually part of the workers total compensation
6、 package.The cost of premiums are taken out of the workers wages.The fact that the costs of insurance effectively come out of the workers wages is known as wage pass-through.So for the same type of job and skill-level,jobs without employer-sponsored insurance plans may offer higher wages than jobs w
7、ith them.Employer-sponsored health insuranceEmployer-sponsored insurance combats adverse selection by providing a reason for employees to pool together.However,not all members of an employer-sponsored plan are together in a single pool.Example:Consider a firm with four employees,two of whom are youn
8、g and two of whom are old.The younger employees have lower expected health care costs than the older two.Therefore,this firm would likely use wage pass-through to“charge”older employees more for their health insurance(through forgone wages).Meanwhile,the younger workers pay less,so they are less tem
9、pted to leave for other firms.Differential wage pass throughDifferential wage pass-through can occur whenever employers can observe elevated health risks among their employees.Technically,passing lower wages through to sicker workers is illegal in the US,but wage discrimination is difficult to detec
10、t,and there is evidence that people who have higher expected medical expenditures do earn less.Differential wage pass throughExamplesMaternity benefits:Women of childbearing age saw their salaries fall relative to both men and older women in the years following the passage of a 1976 law mandating ma
11、ternity care coverage for employer-sponsored insurance plans.Obesity:in jobs with employer-sponsored health insurance,the obese earn much less than their thin coworkers.In jobs with no insurance,the obese and thin earn about the same wage.Firm-specific human capitalWhy dont these employer pools have
12、 adverse selection problems?If healthy workers could find desirable new jobs elsewhere where they do not subsidize unhealthy colleagues,then they have every incentive to leave their current jobs.So why do healthy employees stay in their jobs,even when they are subsidizing their unhealthy co-workers?
13、Firm-specific human capitalFirm-specific human capital:knowledge and experience gained from working at a particular firm that is highly relevant there but irrelevant at other companies.Workers with firm-specific human capital can be much more productive at their firm than anywhere else.The accumulat
14、ion of firm-specific human capital can mean that an employee who is invaluable to one firm would be just mediocre at another firm.If so,wages the worker earns in her current job would exceed what she could earn at another company.Job lock So employer-sponsored health insurance combats adverse select
15、ion,but it can also hinder job mobility.The confluence of employer-sponsored health insurance,wage-pass through,and sticky wages is known as job-lock.Through job lock,employer-sponsored health insurance distorts labor markets and can reduce social welfare.Job lock Example:Consider an employee who is
16、 bound to a wheelchair by multiple sclerosis(MS).Despite his higher health care costs,his wages have not been cut because of“wage pass-through”since his diagnosis(his company would have been sued).Suppose this employee would be a better fit for a new job opportunity elsewhere.However,his potential n
17、ew employer,observing his wheelchair,lowers his offered wage to compensate for an anticipated rise in health care premiums.This lower offer deters the worker from switching jobs,and he stays unhappily and inefficiently at his current one.Job lock This worker would be more productive at a new job,so
18、it would be socially efficient for him to switch.But job lock discourages him from doing so.While job-lock reduces voluntary employee turnover rate by 25%,the total cost of job lock in the U.S.is modest,less than 0.1%of GDP.The social loss from job lock may be this modest because of policies aimed a
19、t mitigating the harm caused by job lock.Example:The COBRA Act of 1985 Ch 18|The American modelTHE MANAGED CARE ALTERNATIVEThe fee-for-service modelIn the middle of the 20th century and into the 1980s,the U.S.private insurance market was dominated by indemnity insurance.This type of insurance is als
20、o known as fee-for-service(FFS)because customers receive health care,and then the insurance company pays the doctor or hospital a fee for each service rendered.Coverage for specific treatments was rarely denied,even costly ones that provided minimal benefits.The fee-for-service model did little to c
21、ontain moral hazard,and provided ample incentive for physician-induced demand.The story of Kaiser PermanenteThe Kaiser managed care plan began as a communal insurance pool for workers in California shipyards during World War II.Henry Kaiser realized it would be cheaper to provide medical care for hi
22、s employees directly,rather than paying for it at outside hospitals.In the decades after Kaiser Permanente was founded,more insurers began offering managed care plans.Customers and policymakers alike took notice of their apparent cost savings.What is managed care?Managed care:a philosophy of health
23、insurance that employs tactics intended to reduce moral hazard,physician-induced demand,and premiums.These tactics include:gatekeeping patients can only visit specialists or surgeons after receiving approval from a primary care doctor.coverage networks and vertical integration patients can only rece
24、ive care from a specified list of providers.monitoring doctors and hospitals are monitored for costs and health outcomes.salaries and fixed payments the insurer pays a fixed amount for care;not fee-for-service.denials of coverage care may not be covered if it is not cost-effective.The rise of manage
25、d careA 1973 federal law established the term health maintenance organization(HMO)to denote vertically-integrated managed care organizations like Kaiser Permanente.Another type of managed care option is the preferred provider organization(PPO).A PPO is a less restrictive version of an HMO that does
26、not integrate insurer and provider.U.S.consumers and employers have gradually migrated from expensive fee-for-service insurers toward cheaper managed care HMOs and PPOsDoes managed care work?Gottfried and Sloan(2002)find that there is no systematic difference in health outcomes between managed care
27、organizations and fee-for-service plans.Although outcomes are worse for vulnerable populations(poor,sick,disabled)Managed care organizations do keep costs lower.In general,managed care patients are hospitalized less often and undergo fewer expensive tests.There is also evidence that managed care has
28、 slowed the proliferation of expensive technologies like MRI machines.Does managed care work?One important caveat is that managed care plans tend to attract healthier customers due to adverse selection.If this is the case,managed care might be reducing costs simply because their customers are health
29、ier.An interesting side note is that academic researchers who study managed care professionally are less likely to personally enroll in managed care plans themselves.Ch 18|The American modelMEDICAREThe US Medicare programMedicare is a government insurance program that provides insurance coverage to
30、48 million elderly and disabled people(as of 2012).The Medicare program consists of four parts:1.Part A pays for enrollees hospital care.2.Part B pays for outpatient care and physician services.3.Part C provides an option for Medicare enrollees to receive their health insurance from a private plan,r
31、ather than through Plans A and B.4.Part D pays for enrollees prescription drugs.The US Medicare programAll American citizens over 65 years of age,and severely disabled Americans who have been out of work for two years,are eligible to enroll.Medicare is expensive because it covers populations that ar
32、e less healthy than the general population,which tend to demand lots of medical care.It also reimburses for any procedure that is shown to be medically effective,irrespective of cost.Finally,it sets premiums far below an actuarially fair level.This means it needs large outside sources of funding(tax
33、es on the young).Cost control in MedicareMedicare includes several mechanisms designed to mitigate moral hazard and control costs.In both Medicare Parts A and B,patients face cost-sharing requirements,including deductibles and copayments for outpatient visits and hospital stays longer than 60 days.H
34、owever,most Medicare enrollees also purchase private supplemental insurance,called Medigap plans,which pay for enrollees deductibles and copayments,and thereby undercuts the moral hazard mitigation effects of cost-sharing.Cost control in MedicareA more significant cost control mechanism is the Diagn
35、osis Related Group(DRG)system.Under this system,Medicare pays a fixed amount to hospitals based upon the diagnosis the patient has when admitted to the hospital,rather than on his length of stay or the extent of care given.The DRG system of hospital payment transfers risk from the government to hosp
36、itals and eliminates incentives for hospitals to provide unnecessarily expensive care to patients.Prospective paymentsCost-effectiveness analysisFinally,there is a major cost control tool that Medicare is prohibited from using:cost-effectiveness analysis.Any treatment that is proven effective in sci
37、entific studies regardless of cost is covered by Medicare.It seems likely that Medicare could reap substantial budgetary savings from CEA,but so far there has been little political will to introduce CEA into Medicares coverage determinations.Ch 18|The American modelMEDICAIDMedicaidMedicaid is a publ
38、ic insurance program that provides highly subsidized insurance coverage to low-income families who have no insurance.Unlike Medicare,which is run by the U.S.federal government and administered uniformly across the country,Medicaid is run jointly by the federal and state governments.State governments
39、 have wide latitude to set budgets,determine eligibility rules and decide how generous their local Medicaid program is.As a consequence,Medicaid coverage and generosity can vary substantially from state to state.MedicaidIn 2009,Medicaid covered 62.5 million people about a fifth of the U.S.population
40、 and its expenses totaled about$400 billion nationwide.Low income alone does not qualify one for Medicaid in most states.Various other factors including martial status,number of children,pregnancy,disability,health and immigration status can affect eligibility.In general,able-bodied individuals with
41、out children are not eligible for coverage,no matter how low their incomes.Cost control in MedicaidCost-sharing burdens for Medicaid enrollees are typically very low,so Medicaid programs must contain costs and curb moral hazard with a combination of eligibility and coverage restrictions.One way that
42、 states control Medicaid expenditures is by setting reimbursement rates at a low level.A doctor treating a Medicaid patient receives only a fraction of the payment she would get for seeing a similar,but privately-insured,patient.As a result,Medicaid patients can have trouble finding a regular source
43、 of care,as many doctors choose not to accept Medicaid patients.Cost control in MedicaidStates also control costs by restricting the set of prescription drugs available to Medicaid enrollees,and by setting reimbursement rates at a low level.The list of drugs available often excludes expensive brande
44、d drugs when generic alternatives are available.Some states have also experimented with other forms of cost containment,including explicit cost-effective analysis.Work disincentive effects of MedicaidWhile Medicaid certainly improves health equity,it also reduces economic efficiency.Medicaid eligibi
45、lity rules create a disincentive to work as hard as possible,because rising incomes can mean disqualification from Medicaid.Ch 18|The American modelUNINSURANCEUninsuranceAs of 2012 there are 50-60 million people in the U.S.who are not covered by any health insurance program,and are termed uninsured.
46、The uninsured can pay for medical care out-of-pocket,but they face the risk of catastrophic health bills and often end up deferring care until it becomes an emergency.The persistence of uninsurance has been a key driver of health policy reform in the U.S.Why dont Beveridge and Bismarck systems have
47、this problem?Ch 18|The American model2010 HEALTH REFORM2010 health reform In March 2010,the US congress passed the Patient Protection and Affordable Care Act(PPACA),colloquially known as“Obamacare.”Most parts of the law are slated to go into effect in 2014.The law has thousands of provisions but thr
48、ee major parts:Medicaid expansionAn individual insurance mandateCuts to Medicare spendingThree major parts of PPACAMedicaid expansionPPACA expands Medicaid coverage dramatically by forcing states to cover broader classes of peopleEstimated to add 17 million to Medicaid rolesBut,a 2012 US Supreme Cou
49、rt ruling says that states can opt out of this part of the lawAn individual insurance mandateCuts to Medicare spendingThree major parts of PPACAMedicaid expansionAn individual insurance mandateAll citizens who do not have insurance through work or another public insurance program must buy insurance
50、on a state-wide private marketThis is designed to combat adverse selection,much in the manner of Bismarck managed competitionPeople with low incomes will receive subsidiesCuts to Medicare spendingThree major parts of PPACAMedicaid expansionAn individual insurance mandateCuts to Medicare spendingExte
