Ch16 Handout Health Ins II

8/3/2019 Ch16 Handout Health Ins II

http://slidepdf.com/reader/full/ch16-handout-health-ins-ii 1/8

Public Economics ± Dr. Saue

Chapter 16: Health Insurance II

In 2008, the Colorado Household Survey (COHS) was initiated to collect information on the healthinsurance status of Coloradans.

- sponsored by the Colorado Department of Health Care Policy and Financing- funded by The Colorado Trust (grantmaking foundation promoting health in CO)

http://www.colorado.gov / cs / Sat ellit e /HC PF /HC PF /1242218508619

Goals:- assess the issues surrounding health insurance coverage in Colorado- baseline information about health care coverage and access in anticipation of health reform efforts



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Table 16-2



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What are the effects of Medicaid Programs?

1. How does it affect health? Framework:

2. How does it affect Health? Evidence

Take-Up:Medicaid expansion in 1980s and 1990s increased the number of people who were eligible.

1982, 12% of those under 18 were eligible

2000, 46% of those under 18 were eligiblesimilar increase for pregnant women

Did the newly-eligible people enroll in Medicaid?Only about 25%Only about 10% of those eligible through CHIP

Why?lack of information?stigma?

many already had insurance

Crowd-OutA typical employer-offered health plan is $280 per month.

- copays

Medicaid is free.- low copays, if any

Estimates: private insurance declines are about 20-50% of the public insurance increases



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Health Care Utilization and HealthPreventative care and prenatal care visits rose by over 50% when eligibility was expanded.Infant mortality fell 8.5% when Medicaid was expanded to pregnant women.

Canada: when national health insurance was introduced 4% decline in infant mortality and 8.9%decrease in low birth weight.

CA: losing insurance makes health deteriorate

Cost-EffectivenessExpanding public insurance does improve health, but at what cost?

$1million per infant life saved through Medicaid expansions

Medicare

The role of insurance is consumption smoothing.- not improved health outcomes

Medicare is successful in consumption smoothing.

- large reduction in out-of-pocket spending for those who typically have high medical spending

The debate surrounding Medicare is mostly around controlling its costs.- wide support for universal coverage for elderly and disabled

Medicare uses a Prospective Payment System for reimbursing hospitals.- reimbursement is on expected costs, not actual services delivered- all diagnoses are grouped into 467 DRGs (Diagnosis Related Groups)- reimbursement is on a fixed amount based on the DRG- fixed reimbursement amount is based on national standard for treating that DRG and a hospital-specific adjustment

Evidence:- average length of hospital stay fell from 9.7 days to 8.4 days in the first year - hip fractures: 22 days down to 13 days- 15% drop in ICU admissions- 16% drop in cardiac care units- mortality rates did not change (we are on the ³flat of the curve´)

Growth Rate in Hospital Costs:1967 to 1982 annual growth rate 9.6%1983 to 1988 annual growth rate 3.0%

1988 to 1997 annual growth rate 5.4%

Problems:- ³DRG Creep´ hospitals still get to choose the original DGR « label patient with moresevere diagnosis- many DRGs are not based on diagnosis, but are also based on the treatment used- applies only to one part of the medical system



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Medicare Managed Care

Another way to control costs is through managed care.- cover more out-of-pocket expenses- restricted to certain providers, services

1985 Medicare HMOs introduced.

Government reimburses HMOs 95% of the average annual medical costs of enrollees who stayed in

traditional Medicare.

Evidence:The healthiest people select into HMOs.The government ends up losing money.

- sickest stay in traditional Medicare

- gov¶t pays HMOs 95% of the average cost of the patients in traditional Medicare

- the true cost for HMOs per patient was much lower (healthier patients) __________________________________________________

Example: 300 enrollees in traditional Medicare- 100 have average costs of $1000 per year - 100 have average costs of $2000 per year - 100 have average costs of $3000 per year

Total Average Cost per person =

Total Government Spending =

Suppose an HMO option is introduced.- 30 of the healthiest individuals opt in- 15 of the middle group opt in- none of the sickest group opt in

The individuals in Medicare cost on average =

The individuals in the HMO cost on average =

The total cost to the government is =

________________________________________________________ In 1997, the government lowered payments to HMOs.Many HMOs dropped Medicare patients.

- Medicare HMO enrollment fell from peak of 16% of enrollees to 12.6%



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2003 Congress raised HMO reimbursement rates to 100%. (107% in 2004)- enrollment was 22% of all enrollees in 2009- government is losing money

The problem with the current approach is the government must estimate how much to reimbursemanaged care plans.

Another Option: Full Choice Plans with Premium Support - voucher for a certain amount- apply it to a range of insurance options

- traditional Medicare- private options

_________________________________ Example: Suppose there are 3 plans in your local area:

A costs $1800 per year B costs $2000 per year C costs $2500 per year

The each offer different amounts of coverage.Suppose the government offers a voucher in the amount of the median plan¶s value.

__________________________________ Advantages

- consumers pick the plan that best suits their preferences- competition among plans

- firms will have incentive to be efficient- avoids having to set ³appropriate´ amount of reimbursement

Disadvantage- adverse selection

The healthiest people will sort into the low-priced plans.

The sickest people will sort into the high-priced plans. __________________________________ After adverse selection:

A costs $1600 B costs $2100 C costs $3000



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Gaps in Medicare Coverage

Three common ways of filling gaps in coverage:1. low income elderly get coverage through Medicaid2. 1/3 of retirees have health insurance from former employers3. purchase ³Medi-gap´ policies

They lead to a negative financial externality on the Medicare program.When other forms of coverage cover Medicare¶s deductibles or coinsurance « the amount of

medical care used increases.

Suppose my Medicare co-pay is $20. If my Medi-gap policy covers that co-pay, the cost of avisit is now free to me.

Ch16 Handout Health Ins II

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