Chapter 18 Health Care

1. Chapter 18Health Care

2. Chapter Outline • WHERE THE MONEY GOES AND WHERE ITCOMES FROM • INSURANCE IN THE U.S. • ECONOMIC MODELS OF HEALTH CARE • COMPARING THE U.S. WITH THE REST OF THE WORLD

3. The Money • 16% of GDP spent on health care (2 trillion of 12.5 trillion) • 45% spent by governments (Medicare, Medicaid etc.)

4. Government Health Programs • Medicare public insurance in the U.S. which covers those over age 65 • $342 billion • Medicaid public insurance in the U.S. which covers the poor • $313 billion

5. Where the Private Money Comes From • Private Insurance • $694 billion • Out-of-Pocket Patient Expenses • $249 billion

6. Where the Money Goes • Hospitals • $613 billion • Doctors • $412 billion • Prescription Drugs • $200 billion • Research • $40 billion

7. Insurance Coverage • 82% covered all year • 8% covered part of the year • 10% without any insurance all year

8. Insurance Types • Private Group Insurance • Private Individual Insurance • Medicare • Medicaid

9. Why People Buy Insurance • People who believe that their insurance premiums will be less than their expected health care expenditures will buy insurance. • People who are risk averse (they would rather pay more than their predicted expenditures to limit their risk of large expenses) will buy insurance. • A person who isrisk neutral(they would not pay more than their predicted expenditure to eliminate uncertainty) would not buy insurance.

10. Vocabulary of Insurance • Deductible the amount of health spending a year that you have to pay before the insurance company pays anything • Co-payment either a set amount or the percentage of the bill after the deductible has been taken out that you have to pay • Maximum out-of-pocket the most that a person or family will have to pay over a year for all covered health expenses • Lifetime maximum the most that an insurance company will pay on your health expenses over your lifetime

11. Types of Insurance Plans • Fee-for-service • Health Maintenance Organization (HMO) • Preferred Provider Organization (PPO)

12. Controlling Expenses • HMO’s and PPO’s use Primary Care Physicians (PCP’s) or Gatekeepers who are physicians charged with making the initial diagnosis and making referrals

13. Advantages and Disadvantages of Insurance Types

14. Public Insurance: Medicare • Those over 65 are eligible • Part A • Covers expenses incurred in hospitals • Compulsory • Financed with premiums and 1.45% payroll tax on employers and employees • Part B • Covers doctor visits • Voluntary • Financed with premiums and general tax revenue

15. Public Insurance: Medicaid • Covers the poor • eligibility standards vary from state to state • No premiums are required • Some states have very small co-payments

16. The Uninsured • 21 million of 40-45 million go without insurance all year • 18-20 million are between age 18 and 34 • 8.5 million are under 18

17. Why Health Care is not “Just Another Good” • Rapid increases in quality (which get confused as price increases) • Treatments developed in the 1990s for AIDS are expensive but this is a quality increase, not a price increase • Consumers have less knowledge about what they are buying than they typically do when buying goods.

18. P P S S P* P* Dpoor+nonpoor Dpoor+nonpoor Dnonpoor Dnonpoor Dpoor Dpoor Qpoor Qnonpoor Qnonpoor Q/t Q/t With Medicaid Without Medicaid Why Medicaid Raises All Health Care Prices Qpoor

19. Why Co-Payments Increase Prices • Third-Party Payer: an entity other than the consumer pays part of the costs • If people only pay 20% of a price they will consume much more

20. P 5PA Dwith 20% co-pay S Dno insurance P’ PA A Q/t QA Modeling Third-Party Payment

21. Moral Hazard with Health Insurance • Moral Hazard: the fact that having insurance increases the demand for the good • If people choose to smoke, to drink to excess, to overeat and to not exercise, because they will pay fewer of the monetary consequences then this is moral hazard.

22. The HMO Debate • To control costs, HMOs use rules to limit expenses. • E.g. recuperating time in a hospital is limited for births. • These rules sometimes conflict with doctors’ wishes for their patients. • With patients having little interest in controlling costs, HMOs rely on rules to control costs.

23. Organ and Blood Donation • There is always severe organ shortage. • Economists argue that part of the problem is that laws prevent people from buying and selling organs. • There is often a shortage of blood. • Economists argue that part of the problem is that laws prevent people from buying and selling their blood for medical use even though they can sell their blood plasma for cosmetic use.

24. The Rest of the World • Most of the industrialized world uses a single-payer system where the government collects (usually very high) taxes to pay for everyone’s health care

25. Within one year of enactment (2010-2011) Insurance companies barred from dropping people from coverage when they get sick, ending the practice of rescission. Lifetime coverage limits eliminated and annual limits restricted. Young adults able to stay on their parents' health plans until age 26. Many health plans currently drop dependents from coverage when they turn 19 or finish college. Uninsured adults with pre-existing conditions will be able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014. A temporary reinsurance program is created to help companies maintain health coverage for early retirees between the ages of 55 and 64. This also expires in 2014. Medicare drug beneficiaries who fall into the "doughnut hole" coverage gap will get a $250 rebate. The bill eventually closes that gap which currently begins after $2,700 is spent on drugs. Coverage starts again after $6,154 is spent. A tax credit becomes available for some small businesses to help provide coverage for workers. A 10% tax on indoor tanning services that use ultraviolet lamps goes into effect on July 1.

26. International Health Care Finance Arrangements a) option to purchase private insurance for all expenses b) option to purchase private insurance for non-covered expenses c) all non-Medicare, non Medicaid A) Mostly private Fee-for-Service B) Government imposed fee schedule C) Public employees

27. Country Comparisons

28. Country Comparisons (cont.)

29. Advantages and Disadvantages of Single-Payer Systems • Advantages • Universal coverage • Low-to-no cost coverage to patients • Disadvantages • Long waiting lines for heart bypass and other surgeries • Lower Survival Rates on many ailments • High taxes

30. Within one year of enactment (2010-2011) • Insurance companies barred from dropping people from coverage when they get sick, ending the practice of rescission. • Lifetime coverage limits eliminated and annual limits restricted. • Young adults able to stay on their parents' health plans until age 26. • Uninsured adults with pre-existing conditions will be able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014. • A temporary reinsurance program is created to help companies maintain health coverage for early retirees between the ages of 55 and 64. This also expires in 2014.

31. Medicare drug beneficiaries who fall into the "doughnut hole" coverage gap will get a $250 rebate. • A tax credit becomes available for some small businesses to help provide coverage for workers. • A 10% tax on indoor tanning services that use ultraviolet lamps goes into effect on July 1.

32. Effective during 2011 • Medicare provides 10% bonus payments to primary care physicians and general surgeons. • Medicare beneficiaries will be able to get a free annual wellness visit and personalized prevention plan service. • New health plans will be required to cover preventive services with little or no cost to patients. • A new program under the Medicaid plan for the poor goes into effect in October that allows states to offer home and community based care for the disabled that might otherwise require institutional care.

33. Employers are required to disclose the value of health benefits on employees' W-2 tax forms. • An annual fee is imposed on pharmaceutical companies according to market share.

34. Effective as of 2012 • An incentive program is established in Medicare for acute care hospitals to improve quality outcomes. • The Centers for Medicare and Medicaid Services, which oversees the government programs, begin tracking hospital readmission rates and puts in place financial incentives to reduce preventable readmissions. • Companies will be required to issue 1099 forms to any vendor of services or rental property to which the business has paid more than $600. Form 1099 is also sent to the IRS. Under the existing law, businesses issued the Form 1099 only to individuals who provided services or property to a business. The health care bill mandate aims to collect lost revenue from companies that under-report on their tax returns. The provision is expected to raise $17 billion over 10 years.[149]