Comparing Health Insurance Reform Models

Comparing Health Insurance Reform Models Cliff Gagnier June 6, 2007

Problems with the Current Health Care Model • Tens of Millions lack insurance • High cost of employer based health insurance disadvantaging U.S companies abroad • Poor consumer information • Equity issues • System based on willingness to pay, not need

Market Competition Model • Market Competition thought to be most efficient by proponents • Government involvement limited to a carrot approach with the private sector • Most strict example would be the elimination of Medicare and Medicaid • Generally does not solve the problems of the current system; information, equity and need • Maintains consumer choice

Economic Analysis of the Market Competition Model • Health care market suffers from a distortion known as moral hazard • Raises the prices of health care costs and premiums without equivalent increases in health care outcomes • Marginal utility is less than marginal cost

Managed Competition Model • An insurance union for collective bargaining • Results in increased competition and access to information for the group • Model has been shown to lower premiums

Economic Analysis of the Managed Competition Model • Case study: Federal Employees Health Benefit Plan (FEHBP) • Lower premium rate increases compared to the private insurance industry - 5.0% to 3.5% • Low administrative costs under the Office of Personnel Management but at the expense of negotiating for lower prices • Considered a possible model for national universal health care

Compulsory Insurance Model • Two Forms • Compulsory Individual • Each individual required to have insurance • Similar to laws mandating car or unemployment insurance • Often single payer systems - Switzerland • Compulsory Employer • Employers required to provide insurance or pay higher tax rate to fund government program • Usually coupled with tax breaks for small businesses

Single Payer Model • A single government program that provides insurance • Examples include Medicare or the Canadian health system • Reduced administrative costs due to economies of scale and non-profit status • Provides based on need rather than willingness to pay • Decreases in premium costs somewhat offset by increases in taxes

Economic Analysis of the Single Payer Model • Common criticism of single payer model - Increased wait times decreases health care outcomes • Comparing wait time effects on mortality – Quebec and Massachusetts • Quebec has longer wait times and increased mortality rates for hip surgeries • Study finds increased mortality due to longer after surgery stay and not due to longer wait times

Conclusion • No health insurance model will satisfy all interested parties • Society will need to determine which groups are favored over others but also how to do justice to those that will be worse of under a new model • None of the health insurance models will significantly lower actual health care costs • Additional reform is needed to correct the disparity between health care costs and outcomes; other nations pay significantly less

Comparing Health Insurance Reform Models