public policy for health care. government involvement in the health care market as health insurer...
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Public Policy for Health Care
Government Involvement in the Health Care Market
As health insurer Medicare and Medicaid Veterans, military personnel, Native Americans Public hospitals, clinics, psychiatric centers
As direct provider of services Government paid employees in Veteran system Government paid employees in DoD system Setting reimbursement rates for providers in
Medicare/Medicaid
Financier of research and monitoring public health NIH biomedical research Other health related research
Tax policy “Sin” taxes Waiver of employer spending on health
insurance
Government Involvement in the Health Care Market
Regulator Drugs and medical devices Regulation of rates Capacity approvals for nursing homes Insurance rate regulation Standards for malpractice litigation
Government Involvement in the Health Care Market
On what grounds is it justified?
Government Involvement in the Health Care Market
Justification
Externalities Individual lifestyle choices
Market failures Support/replace markets
Income (resource) distribution Re-distributive policies
If the government does get involved in the health care
market…..
What are inputs to public health?
Determinants of Health
Lifestyle Risk perceptions Risky behaviors
Public healthMedical careRandom effects
Public health dilemma
Three goals of a public health delivery system
Right amount of care
To the right amount of people
With the costs equitably
distributed
Types of problems facing public policy makers
Why are medical health costs rising so rapidly
Should we have public or private provision of
health insurance?
Should receipt of health insurance be linked to
employment?
Knowledge of the Market
Trends in Medical Spending:National health care expenditures in billions of $
Year Total Per Capita %GDP
1970 262.7 1,224 7.1
1975 344.7 1,535 8.0
1980 445.1 1,894 8.9
1985 595.0 2,399 10.2
1990 790.9 3,048 12.1
1993 915.1 3,416 13.6
1994 949.4 3,510 13.71996 medical inflation rate > CPI
Hospital room prices driving the inflation factor
Source of Health Insurance: 1993
Health Workers NoWorker
Coverage full-time part-time self in family
Employer 75.0 54.4 41.5 10.9
Medicaid 2.4 7.2 2.7 54.6
Other 1.0 2.2 2.6 6.3
Non-group 6.2 14.5 25.4 7.0
Uninsured 15.4 21.7 27.8 21.1
Employers are being asked to pick up a greater share of health insurance costs.
Facts: Medical care cost have been increasing at an
alarming rate
Expansion of benefits in the public sector has been
larger than in the private sector
Expansion of enrollment in the public sector has
been larger than in the private sector
Why?
What has accounted for the increase in per capita medical care?
Demographics (2%)
Income (5%)
Spread of insurance (13%)
“Cost disease” in services sector (5%)
Administrative expenses (13%)
Inflation in factor prices or “economic rents” (3%)
New technologies and resulting over consumption of medical care (59%)
Diffusion of new technologies
New and better treatment options Dental care, joint replacement, orthroscopic surgery,
lazic surgery,etc
Diffusion of new technologies Mamograms, colonoscopy, skin biopsies, cholesterol
drugs, etc
Change in treatment options: Gall bladder stones, heart surgery, etc
Heart Attack……………
Medical Management: Drugs, monitoring, counseling,
treatment (100%)
Cardiac Catherization: Coronary bypass surgery (+300%) Angioplasty (+160%)
Essentially all of the growth of costs for treatment of heart attacks has resulted from the diffusion of new technologies
What is the marginal value of more health care?
Do people who receive these additional treatments live longer and fare better than those who don’t?
Is more care resulting in better outcomes?
The impact of new technologies
Average value of technology Is technology on net valuable?
Marginal value of technology What is the impact of more care on mortality and
morbidity?Overprovision of care?Root problem in health care cost inflation?
Studies on the Marginal Value of Health Care
Comparison studies of “insured” and “uninsured” patients
Comparison studies of “private” and “state” physician care
Comparison studies of “more intensive” and “less intensive” treatment options
The marginal value of new technology
Overuse of care
New technologies and medical ethics
Genetic testing?
Demand-side explanation
Moral hazard and over insurance
Supply-side explanation
Supplier induced demand and the medical arms race
Solutions to over consumption of medical care?
Basic problem is one of separation of insurance and provision of care
Providers decide on treatment
Insurers pay the bills
Solutions to over consumption of medical care?
Basic problem is one of separation of insurance and provision of care
No knowledge of probability of
illness
Socially desirable optimal insurance
coverage
Who bears the cost of medical care financing?
Optimal insurance markets Risks are large and neither the insurer or insured know
the individual’s probability of experiencing a particular medical condition
Adverse selection Selection of health insurance based on prior knowledge
and resulting price inflation Experience rating, risk selection, and market
failure Price discrimination and refusal of care
Three solutions to the problem of risk selection:
Contracts for more than one yearMandatory pooling on a basis
other than riskRisk adjustment
Taxes on, rebates to, insurers who insure “healthier” or “sicker” individuals
Solutions to overprovision of care
Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) Point of Services Plans (POSs)
Logic: Increase the choice that people have over different insurance policies, particularly policies that will limit the amount of care provided, and increase the financial returns from choosing less expensive health insurance.
Growth of Managed Care
73%
49%
16%22%
11%
20%
0%
9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FFS HMO PPO POS
19871993
Integration of insurance and delivery function in health care
Evidence of the effectiveness of managed care in limiting
costs Short-run effects
10% cost saving Slower cost growth Fee for service lower No evidence of health impact
Long-run effects No evidence of long-term cost savings No evidence of health impact
Public Policy for Health Care
Government Involvement in the Health Care Market
As health insurer
As direct provider of services
Financier of research and monitoring public
health
Tax policy
Regulator
Justification
Externalities
Market failures
Income (resource) distribution
Three goals of a public health delivery system
Right amount of care
To the right amount of people
With the costs equitably
distributed
Facts: Medical care cost have been increasing at an
alarming rate
Expansion of benefits in the public sector has
been larger than in the private sector
Expansion of enrollment in the public sector has
been larger than in the private sector
What has accounted for the increase in per capita medical care?
Demographics
Income
Spread of insurance
Cost disease in services sector
Administrative expenses
Inflation in factor prices or “economic rents”
New technologies and resulting over consumption of medical care
Diffusion of new technologies
New and better treatment options
Diffusion of new technologies
Change in treatment options
The marginal value of new technology
Overuse of care
Demand-side explanation (moral
hazard)
Supply-side explanation
Who bears the cost of medical care financing?
Optimal insurance markets
Adverse selection
Experience rating, risk selection, and
market failure
Three solutions to the problem of risk selection:
Contracts for more than one year Mandatory pooling on a basis other than
risk Risk adjustment
Taxes on, rebates to, insurers who insure “healthier” or “sicker” individuals
Solutions to overprovision of care
Health Maintenance Organizations (HMOs)
Preferred Provider Organizations (PPOs)
Point of Services Plans (POSs)
Logic: Increase the choice that people have over different insurance policies, particularly policies that will limit the amount of care provided, and increase the financial returns from choosing less expensive health insurance.
Growth of Managed Care
73%
49%
16%22%
11%
20%
0%
9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FFS HMO PPO POS
19871993
Integration of insurance and delivery function in health care
Evidence of the effectiveness of managed care in limiting
costs Short-run effects
10% cost saving Slower cost growth Fee for service lower No evidence of health impact
Long-run effects No evidence of long-term cost savings No evidence of health impact
Public Health Care Programs
MedicaidMedicare
Medicaid
Dominant public program for financing basic health
and long-term care services for low-income Americans
Medicaid Entitlement Program
Jointly funded by federal and state funds Rich states 50/50 cost sharing Poor states 80/20 cost sharing
Administered by the states Eligibility not tied to TANF benefit receipt State flexibility:
Eligibility criteria Benefit package Payment policies
Covers only 46-60% of poor and near poor Half Medicaid beneficiaries are children
Medicaid Entitlement Program
Covers only 46% of poor and near poor Half Medicaid beneficiaries are children
Only 23% are adults in families with children
Distribution of beneficiaries does not match distribution of expenditures 67.7% goes to the elderly and disabled Mainly acute and long-term care
Expenditures dominated by hospital expenditures
Medicaid Entitlement Program
Medicaid Spending Growth
1988-1992 saw an increase in Medicaid spending of 22% per year
Medicaid Spending Growth1988-1992
Enrollment Growth De-linking of eligibility (1987) Expansion of SSI eligibility
1988 Medicare Catastrophic ActLow income elderly and disabledLearning disabled, AIDS, substance abuse, other
social/medical problems Recession
Medicaid Spending Growth1988-1992
Utilization Growth Population growth Expansion of services covered
Disproportionate Share Hospital (DSH) Payments
Other Factors Inflation in health care prices Growth in nursing homes
Medicaid Spending Growth1988-1992
Why the expenditure slowdown in 1992?
Medicaid growth has averaged only 9.5% per
year from 1992-1995
Medicaid Expenditure Slowdown
Enrollment TANF rolls
Spending per enrollee Managed care?
DSH Payments 1991 and 1993 legislation?
Other Factors inflation in factor prices
Medicare Program
Major public health care program for the elderly (1965), the disabled, and people with end-stage renal disease (1972)
Medicare Financing Part A (Hospital Insurance) Accounts for 2/3rds of the program costs
Inpatient care, skilled nursing, home health care, hospice
Funded by “Hospital Insurance Trust Fund” Hospital Insurance Trust Fund funded by a
2.9% payroll tax on all wage/salary income All 65+ elderly are eligible to receive benefits
if they (or their spouse) are on Social Security
Part B (Supplemental Medical Insurance)
Accounts for 1/3rd of program costs Physicians, outpatient, lab services, ambulatory care
Funded by Supplemental Medical Insurance Trust Fund
Supplemental Medical Insurance Trust Fund funded by beneficiaries and general revenues Beneficiary premiums approximately $50/month
Medicare Financing
Medicare v. Private Insurance
Does not cover outpatient prescription drugs
Limited coverage for long-term care
No “stop loss” provision
Unrestricted choice of care provider
Covers outpatient prescription drugs
Does not cover long-term care
Usually has a “stop loss” provision
Some have choice restrictions
Medicare Private Insurance
Medicare Benefits
Medicare covers approximately ½ of the medical needs of the aged
Additional insurance Former employers Medigap insurance Neither cover long-term care Long-term care insurance
Link between Medicare and Medicaid:
Distributional effects
Medicaid must pick up Medicare’s premiums, deductible, and
coinsurance for poor aged and disabled people.
Medicare Cost Containment
Medicare Managed Care
Insurance plans that provide treatment using specified sets of providers and beneficiaries have no cost sharing in the program
Medicare Managed Care
Narrow choice of plan providers
Reimbursement rates at 95% of average fee-for-service in the area
Or, fixed per patient fee (capitization)
HMO monitors and controls service provision
Usually covers prescription drugs
Only 10% or all Medicare patients are enrolled in Medicare Managed Care programs. Why? Limited choice Limited financial incentive to join
Medicare Managed Care
Medicare’s successes
Medicare’s successes
Improved access to health care among elderly and
disabled
Reduced impoverishment related to large medical bills
Income from Medicare has become the bedrock for
many medical practices
Has contributed substantially to overall public health
The problems with Medicare
Problems with Medicare
Cost of program places it in jeopardy
To put these statistics in perspective, public sector spending on education has remained constant at about 5% of GDP
for over two decades
Cost of Medicare
Retirement of baby boomers 2010-2030
Aging of the population Twice the cost for the
+85 group
Dependency ratio Lower fertility rates Less wage earners
Percentage increase in costs versus percentage increase in payroll taxes
Real per capita spending
Number of Enrollees Cost of Care
Problems with Medicare
Cost of program places it in jeopardy Wasted resources
Cost sharing so low that beneficiaries have no incentive to limit care or choose between care options, particularly those with supplemental insurance
Providers who are paid fee-for-service have no incentive to cut back on services
Overprovision of care based on technological development and ethical practices
Political Context for Medicare Reform
Political Environment
Medicare is an enormously popular program Medicare is a universal program Medicare coverage is fairly comprehensive Interrelatedness between the public and
private systems If Medicare reimbursement rates substantially <
than private rates access to care may be a huge problem
Medicare-Options for the Future
Payment reductionsIncreasing beneficiary paymentsRestructuring Medicare program
Capping Medicare Spending
Payment Reductions
Fee-for-service = excessive care Prospective Payment System (PPS) for
inpatient hospital care: Weighted base rate per patient Offsetting behavior “squeezing the balloon” Targeted only price not the technology intensity
of service – compensation by increasing number of services
Increasing Beneficiary Payments
Increased cost sharing Huge distribution impact
Increased Part B premium contributions Changes relative contributions of working and
non-working population Doesn’t address overall cost containment
Increased age at eligibility
Restructuring Medicare Program
Convert to a “choice-based” program Coupon system and cost sharing Financial incentive for efficient choices Guaranteed plan for guaranteed price
+ more efficient choices + Less rapid increase in costs - Bigger base package cost (LTC, Rx drugs) - Quality assurance (coupon value v. care) - Service availability (coupon value v. care)
Restructuring Medicare Program
Global Budgets Sectors (hospitals) paid a fixed amount for the
entire year rather than separate payments for each patient/service
The Social Role of Medicare