Health Economics & Health Economics & PolicyPolicy22ndnd Edition Edition

James W. HendersonJames W. Henderson

Chapter 16Chapter 16

Medical Care Reform in the Medical Care Reform in the United StatesUnited States

Copyright 2002, South-Western, a division of Thomson Learning, James W. Henderson, Health Economics and Policy, 2e

The Push for ReformThe Push for Reform

Polls show satisfaction and uneasePolls show satisfaction and unease Forces behind reform movementForces behind reform movement

– Advocates for elderly, poor, uninsuredAdvocates for elderly, poor, uninsured Middle class Middle class

– Rising out-of-pocket costRising out-of-pocket cost– Health insurance link with employmentHealth insurance link with employment

BusinessBusiness– Rising cost creates wedge between cost of Rising cost creates wedge between cost of

employment and salary paidemployment and salary paid– Potential liability riskPotential liability risk

The Moral IssuesThe Moral Issues

Is medical care a right? Is medical care a right? What is a right? What is a right? Difference between a right and an Difference between a right and an

entitlemententitlement

Goals of ReformGoals of Reform

Who’s coveredWho’s covered What’s coveredWhat’s covered Who pays and how muchWho pays and how much

Health Insurance in the Health Insurance in the United StatesUnited States

Employer-based group plansEmployer-based group plans Individual insuranceIndividual insurance Government entitlementsGovernment entitlements

Market Access ProblemMarket Access Problem

Uninsured find it difficult to find Uninsured find it difficult to find willing providerswilling providers

Insured find themselves Insured find themselves underinsuredunderinsured

Health Insurance Health Insurance RegulationsRegulations

Federal responsibilityFederal responsibility– ERISAERISA– Federal mandatesFederal mandates

States’ responsibilitiesStates’ responsibilities– Health insurance mandatesHealth insurance mandates

Economics of MandatesEconomics of Mandates Correct perceived deficiencies in health Correct perceived deficiencies in health

insurance marketinsurance market– Tendency to undervalue certain types of benefitsTendency to undervalue certain types of benefits

Mental healthMental health Long-term careLong-term care

– Adverse selectionAdverse selection Tendency for high-risk users to enroll in high benefit Tendency for high-risk users to enroll in high benefit

plans and low-risk users to enroll in low benefit plansplans and low-risk users to enroll in low benefit plans

Viewed by state policy makers as a low Viewed by state policy makers as a low cost way of improving accesscost way of improving access

Empirical evidenceEmpirical evidence

Types of MandatesTypes of Mandates

BenefitsBenefits ProvidersProviders PersonsPersons ProcessesProcesses

Benefit MandatesBenefit Mandates

Alcoholism treatmentAlcoholism treatment Drug abuse treatmentDrug abuse treatment Oral contraceptivesOral contraceptives Mammography screeningMammography screening Prostate cancer screeningProstate cancer screening Well-child careWell-child care

Provider MandatesProvider Mandates

ChiropractorsChiropractors DentistsDentists Nurse practitionersNurse practitioners PsychologistsPsychologists

Covered Persons Covered Persons MandatesMandates

Adopted childrenAdopted children NewbornsNewborns Handicapped childrenHandicapped children Dependent studentsDependent students

Process MandatesProcess Mandates

Guaranteed issueGuaranteed issue Exclusions of preexisting Exclusions of preexisting

conditionsconditions Premium capsPremium caps Guaranteed renewableGuaranteed renewable

U.S. Policy AlternativesU.S. Policy Alternatives

State-level experimentsState-level experiments Federal involvementFederal involvement Market alternatives Market alternatives

State-level ExperimentsState-level Experiments

HawaiiHawaii OregonOregon MinnesotaMinnesota Other statesOther states

Federal InvolvementFederal Involvement

Universal coverageUniversal coverage– Single-payerSingle-payer– Employer mandateEmployer mandate– Individual mandateIndividual mandate

Universal accessUniversal access

America’s Market America’s Market OrientationOrientation

Distrust of governmentDistrust of government Heterogeneous populationHeterogeneous population Individualistic traditionIndividualistic tradition Equal opportunityEqual opportunity Philanthropic traditionPhilanthropic tradition

Conditions for Market Conditions for Market ResponseResponse

PrerequisitesPrerequisites– Rank preferencesRank preferences– Goods to buyGoods to buy– Money to spendMoney to spend

Cost-conscious behaviorCost-conscious behavior– When purchasing insurance planWhen purchasing insurance plan– When purchasing medical servicesWhen purchasing medical services

Market AlternativesMarket Alternatives

Managed competitionManaged competition Medical savings accountsMedical savings accounts

Immediate ProspectsImmediate Prospects

Medicare reformMedicare reform Patients’ bill of rightsPatients’ bill of rights Health care for the uninsuredHealth care for the uninsured Pharmaceutical drug pricingPharmaceutical drug pricing