Pub Econ Lecture 16 Health Ins II

8/3/2019 Pub Econ Lecture 16 Health Ins II

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Public Finance

Dr. Katie Sauer

Health Insurance in Colorado

Medicare & Medicaid


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In 2008, the Colorado Household Survey (COHS) wasinitiated to collect information on the health insurance

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/Satellite/HCPF/HCPF/124

2218508619


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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:


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2. How does it affect Health? Evidence

Take-Up:

Medicaid expansion in 1980s and 1990s increased thenumber of people who were eligible.

1982, 12% of those under 18 were eligible

2000, 46% of those under 18 were eligible

similar increase for pregnant women


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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


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Crowd-Out

A 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 Health

Preventative care and prenatal care visits rose by

over 50% when eligibility was expanded.

Infant mortality fell 8.5% when Medicaid wasexpanded 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


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Cost-Effectiveness

Expanding public insurance does improve health, but at

what cost?

$1million per infant life saved through Medicaid

expansions


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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 forthose 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


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Medicare uses a Prospective Payment System for

reimbursing hospitals.

- reimbursement is on expected costs, not actualservices 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


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Evidence:

- average length of hospital stay fell from 9.7 daysto 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

flat of the curve)


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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:

- DRG Creep hospitals still get to choosethe original DGR label patient with more

severe diagnosis

- many DRGs are not based on diagnosis, butare 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 traditionalMedicare.


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Evidence:

The healthiest people select into HMOs.

The government ends up losing money.

- sickest stay in traditional Medicare

- govt 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)


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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 == [(100)1000 + (100)2000 + (100)3000] / 300

= $2000

Total Government Spending == (100)1000 + (100)2000 + (100)3000

= $600,000


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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 =

= (70)1000 + (85)2000 + (100)3000

= $2118

The individuals in the HMO cost on average =

= (30)1000 + (15)2000 + (0)3000

= $1333


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The total cost to the government is =

= (70)1000 + (85)2000 + (100)3000 + 45(0.95)(2118)

= $630,530


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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%

2003 Congress raised HMO reimbursement rates to

100%. (107% in 2004)

- enrollment was 22% of all enrollees in 2009

- government is losing money


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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 plans value.


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Advantages

- consumers pick the plan that best suits theirpreferences

- competition among plans

- firms will have incentive to be efficient

- avoids having to set appropriate amount of

reimbursement

Disadvantage

- adverse selection


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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

Medicaid

2. 1/3 of retirees have health insurance from

former employers

3. purchase Medi-gap policies


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They lead to a negative financial externality on theMedicare program.

When other forms of coverage cover Medicares

deductibles or coinsurance the amount of medicalcare used increases.

Suppose my Medicare co-pay is $20. If my Medi-gap

policy covers that co-pay, the cost of a visit is now freeto me.

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Pub Econ Lecture 16 Health Ins II

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