1、Markets for health care and insuranceWe have learned about the problems that arise in both these marketsMarkets for health care servicesOligopoly pricingMonopoly rents for doctors and specialistsMedical arms racesHealth insurance marketsAdverse selection and underinsuranceMoral hazard and technology
2、 overuseHealth policy tries to deal with these problems(but every new policy creates new problems or exacerbates old ones).Ch 15|The health policy conundrumARROWS IMPOSSIBILITY THEOREMArrows impossibility theorem The task of designing a national health system is at its heart an optimization problem,
3、not dissimilar to the task of an individual in the Grossman model.Societies must decide how much time and money they want to spend on improving their health,and how much time and money they want to spend on other national priorities like education and the military.Then they must chart a strategy for
4、 achieving the level of health they want,both cheaply and efficiently.Arrows impossibility theorem But this analogy between an individual and a society is not quite right.A society composed of many people is fundamentally different from a single person.For example,each individual in a society is pre
5、sumed to have consistent and transitive preferences.Without transitive preferences,welfare economics falls apart.However,economist Ken Arrow has proved that societies do not necessarily have transitive preferences,even when everyone in them does.His finding is known as Arrows impossibility theorem.I
6、mplications of Arrows theorem Arrows theorem suggests it does not make sense to speak of an“optimal”health policy for a country because societies may not have preferences that can be optimized in the traditional sense.Nevertheless,political decisions do get made and various national health policies
7、have emerged.We will assess these policies by analyzing how well they meet three broad goals:health,wealth,and equity.These assessments cannot reveal which policies are“optimal,”but they allow us to study the tradeoffs inherent in health policy.Ch 15|The health policy conundrumTHE HEALTH POLICY TRIL
8、EMMAThe health policy trilemmaNations have three broad goals in mind when designing health policyAny attempt by a nation to move closer to one of these three goals necessarily involves a tradeoff that moves that nation further away from another goal.For example,any hypothetical policy that combats a
9、dverse selection and increases equity would either increase costs or lower health for some.The health policy trilemmaThere will always be tradeoffs,so there will never be a perfect health care system where all three goals are maximized.The health policy trilemmaFurthermore,people disagree about how
10、important each of these three is.Some countries value social equity very highly,and are willing to pay more in taxes to achieve it.Others place a higher value on health,and are willing to tolerate more moral hazard or monopoly pricing to secure it.Key health care policy choicesEvery policy choice in
11、volves a tradeoff between health,wealth and equity(otherwise it would be obvious and probably implemented already).The policy options that follow are thus presented as answers to the three broad questions that any national health care system must answer:How should insurance markets work?How should m
12、oral hazard be controlled in public insurance?How should health care provider markets be regulated?Ch 15|The health policy conundrumHOW SHOULD HEALTH INSURANCE MARKETS WORK?How should health insurance markets work?Several options:Completely private insurance marketsUniversal public insuranceCompulso
13、ry insuranceEmployer-sponsored insuranceMeans-tested health insuranceThese are not mutually exclusive,and many nations employ several at onceOption 1:Private insurance marketsThe Rothschild-Stiglitz model model predicts that in private markets,only the frail customers are insured fully and much of t
14、he population is underinsured.Under certain conditions,a completely private market can unravel completely,leading to uninsurance for everyone.This option minimizes government involvement,but it results in maximal adverse selection.Taxpayers are happy with low tax bills,but many citizens cannot buy f
15、ull insurance.Instead they fret about the medical bills they might rack up if they become ill or injured.Option 2:Universal public insuranceThe government provides insurance to all citizens,and finances it with taxes.This policy option is appealing because it side-steps adverse selection and ends un
16、insurance.It also furthers the goal of equity because the poor pay little or nothing for coverage.However,with universal public insurance,steps must be taken to control moral hazard,which can explode the government budget if left unchecked.Option 2:Universal public insuranceHigher taxes are the main
17、 cost of public insurance.Further,most taxes distort behavior by discouraging labor and commerce,so the entire economy may become less efficient as a result.But some argue that universal public insurance is more efficient than private insurance markets because of low overhead costs.Higher taxes are
18、one cost of public insurance.Note:this is“single-payer”health care because one entity(the government)pays for all care.Option 3:Compulsory insuranceA mandate(a legal requirement that everyone in a population purchase private insurance)confronts adverse selection by effectively banning it.For example
19、,even healthy customers who would prefer to opt out are legally required to buy into the system.But a mandate is not free for governments and does not absolve them of regulating the market.A mandate can be expensive,and many citizens cannot afford it.Thus,mandates are usually either coupled with sub
20、sidies to the poor or paid for with payroll taxes.A mandate must also be carefully defined or it may be completely ineffective.Option 4:Employer-sponsored insuranceUnder such a system,employers are required or encouraged to offer a private insurance contract to all of their employees.Job-specific hu
21、man capital provides a strong incentive for healthy employees with a low risk of illness to pool with high risk,unhealthy employees.This mitigated adverse selection.Drawbacks:can create labor market inefficiencies,and not appropriate for unemployed populations(children,retirees,disabled).Option 5:Me
22、ans-tested insuranceSubsidized health care for the poor.Example:Medicaid in the U.S.It attempts to improve equity by providing health care to those who otherwise could not afford it.The costs of expanding subsidized insurance for the poor are basically identical to the costs of expanding public heal
23、th insurance in other ways:higher tax burdens and greater moral hazard.Ch 15|The health policy conundrumHOW SHOULD MORAL HAZARD BE CONTROLLED?How should moral hazard be controlled?In a private market,private insurers compete to offer customers the optimal mix of insurance coverage and moral hazard c
24、ontrol.But when governments enter the insurance market,lawmakers and policymakers assume responsibility for these tough decisions.The experience of many countries has shown that moral hazard control is controversial and politically treacherous.How should moral hazard be controlled?Policymakers do no
25、t have a neatly labeled figure to help them make these decisions,so they must make some educated guesses about how much moral hazard to eliminate.How should moral hazard be controlled?Again,several tools available:Health technology assessment(HTA)Cost sharingGatekeeping and queuingProspective paymen
26、tsOption 1:Cost-effectiveness analysisCEA entails gathering information about treatment options and determining which options produce the most additional health for the least cost.CEA limits moral hazard by reducing spending on inefficient,costly treatments.But CEA also makes insurance contracts les
27、s“full”for patients,because some services are no longer covered.This tradeoff can be worthwhile because it makes the entire system cheaper.Option 1:Cost-effectiveness analysisBut denying coverage for some treatments may be unappealing for political reasons.While some governments have embraced CEA,ot
28、hers have reacted by shunning it altogether.Example:U.S.Medicare is forbidden by law from using CEA in its coverage decisions.Medicare covers any medically effective treatment,no matter how expensive.This strategy obviates gut-wrenching decisions about treating sick patients,but it also allows moral
29、 hazard to flourish.Option 2:Cost sharingCost sharing may be accomplished through the use of deductibles,coinsurance,and copayments.These are out-of-pocket costs that insured patients pay when they receive health care.Cost sharing controls moral hazard in a way that is sometimes more politically pal
30、atable than CEA,but it also makes health care less affordable for patients.This can undermine equity.Option 2:Cost sharingExample:the US Medicare system does not fully cover patient costs.As of 2012,Medicare enrollees must pay the first$1,156 dollars of expenses for each hospital visit and the first
31、$140 of outpatient clinic expenses each year.They must also start paying$289 per day once a hospital stay lasts longer than 60 days.This forces enrollees to either economize or purchase supplemental private insurance.Option 3:Gatekeeping and queuingGate-keeping entails a tiered system of doctors tha
32、t patients must visit in a specified order.This keeps costs down by eliminating frivolous appointments and focusing limited resources on patients who truly need care.Public insurance systems also control costs by limiting the total number of specialists available.However,when demand for specialists
33、services outstrips supply,queues result.Option 3:Gatekeeping and queuingUsually queues are a sign of a market inefficiency,but in the presence of moral hazard,queues might be an indication of inflated demand.If so,limiting the number of specialist may save money without sacrificing health.The hassle
34、 of waiting in line constitutes a non-financial cost that patients must“pay”for care.Queue-based systems may be more equitable than a cost-sharing system if it means that rich and poor alike must wait for care.But queuing systems risk provoking political backlash.Option 4:Prospective paymentsThe tra
35、ditional method for paying for health care is retrospective payments.Such payments are made after a service is rendered,and the amount paid depends on how much health care is received.In a fee-for-service system,doctors have no reason to deny patients a service because the costs are too high.This sy
36、stem fosters trust between patients and doctors,but creates incentives for physician-induced demand.Option 4:Prospective paymentsAn alternative system designed to reduce moral hazard is prospective payments.With prospective payments,payments are made to doctors or hospitals before health care is del
37、ivered.Charges are not based on procedures performed,but on the condition of the patient who is admitted.Example:A prospective-payments system will pay hospitals a fixed amount for treating any heart attack patient.This gives hospitals incentives to economize in their treatment of heart attack patie
38、nts,because they no longer receive extra payments for doing extra work.Option 4:Prospective paymentsSince the early 1980s,governments around the world have embraced prospective payment schemes as an effective way to reduce moral hazard and physician-induced demand.But prospective payment systems com
39、e at a price.Doctor-patient relationships turning adversarialIn one study conducted after the U.S.Medicare program implemented prospective payments in 1984,patient mortality increased significantly at a subset of hospitals in the months after the transition.Ch 15|The health policy conundrumHOW SHOUL
40、D HEALTH CARE PROVISION BE REGULATED?How should health care provision be regulated?Recall the maladies of private health care markets:Oligopoly pricingMonopoly rents for doctors and specialistsMedical arms racesPhysician-induced demandWhat sets of policies can combat these maladies without creating
41、new inefficiencies that are even worse?How should health care provision be regulated?Approach 1:Nationalize health care provision.Under this approach,hospitals are government-run and financed by taxes,and physicians are employed by the government.This approach could reduce costs of medical care and
42、improve quality of care if the maladies of hospital oligopoly or inefficient quality competition are sufficiently severe.It may also limit inefficient quality competition.How should health care provision be regulated?Available optionsPublic provisionPrivate hospital marketsGovernment-set pricesOptio
43、n 1:Public provisionUnder this approach,hospitals are government-run and financed by taxes,and physicians are employed by the government.This approach could reduce costs of medical care and improve quality of care by banishing oligopoly power and medical arms races.Some also suggest that nationalize
44、d systems are less efficient than private markets.Governments are vulnerable to agency problems,because government workers may have less incentive than private workers to ensure the success of their hospital.Government systems also lack clear feedback mechanisms to correct them if they are not succe
45、eding.Option 1:Public provisionEmpirically,countries with nationalized systems seem better at controlling health care costs.However,the common charge against government-run hospitals is that they offer lower quality health care.Example:Countries with public hospitals suffer long queues.Option 2:Priv
46、ate provisionThis approach allows for competition among hospitals and preserves the incentives for hospitals to operate efficiently.However,in private markets,too little competition leads to market power and the accompanying social loss due to high prices and underprovision.Conversely,too much compe
47、tition can exacerbate inefficient quality competition,lead to a medical arms race,and increase health care costs.Option 2:Private provisionAnother concern is that some populations like the poor and uninsured will lack access to care.One solution is to give tax breaks to non-profit hospitals,which hi
48、storically have attended to the poor and the vulnerable.Most developed countries also require hospitals to provide emergency care to incoming patients regardless of their citizenship status or ability to pay.Such“last resort”laws promote equity by ensuring a minimum level of care for everyone,but th
49、ey also impose costs and deter hospitals from building emergency rooms and trauma centers.Option 3:Government-set pricesBy setting prices,governments aim to prevent private providers from exercising market power and keep health care affordable.In theory,such price controls could contain hospital cos
50、ts,but government set prices could also induce some perverse incentives.Unless prices are set properly,treatments priced below marginal costs may not be offered,while the most profitable services may be over-prescribed.Ch 15|The health policy conundrumCOMPARING NATIONAL HEALTH POLICIESThree health p
