Health Economics

1. Health Economics Chapter 11: The Organization of Health Insurance Markets

2. Employer Based Health Insurance • Health insurance in the US is primarily employer based. Why? • History. Post WWII, the demand for workers was high but there were price and wage controls in effect to control inflation. • Companies needed to lure workers and used fringe benefits to do it. (Think the IT boom and how Google hires) • 1940 – 12 million privately insured (132 mil total pop – 9%) • 2000 – 200 million privately insured (274 mil total pop – 73%) Towson University - J. Jung

3. Employer Based Health Insurance 2 2. Adverse Selection. Group insurance of this type provides a better pool, statistically speaking. • Economies of scale. Relative to processing claims for individuals, loading costs for a group of employees is less expensive. • Related to experience rating  for some reason, those who work in a particular firm are more likely to be in a smaller range of risk than compared to a random sample of the same size from the general population. Towson University - J. Jung

4. A Brief History of Insurance • 1950 – 12 million insured; 2000 – 238 million insured • Historically, most people were covered by Blue Cross (hospital coverage) and Blue shield (physician insurance) – BCBS. • BCBS began as a purely non-profit organization with a bunch of regional providers. Towson University - J. Jung

5. A Brief History of Insurance 2 Nowadays, there are many for profit insurance companies. • BCBS were granted non-profit status because of “community rating” practices. • For profit insurance companies used experience rating to skim the low risk away from BCBS • BCBS was too large and unwieldy to respond to the competition • In 1994, BCBS affiliates were permitted to seek for profit status to raise capital and be more flexible in rating schemes • Increased prevalence of cost savings schemes that are brought on by managed care organizations Towson University - J. Jung

6. Insurance Coverage Type Towson University - J. Jung

7. Firm Size and Insurance Coverage • Economies of scale in health insurance: • Also, a catastrophic loss (e.g., cancer) will have a large per capita impact in small firms but not so much for larger firms. Towson University - J. Jung

8. The Results • In response to this phenomenon, Congress passed and Clinton signed into law the Health Insurance Portability and Accountability Act of 1996.(HIPAA) • Before this, pre-existing condition clauses might keep you at a particular job. • Requires group insurance plans to include any new members, irrespective of pre-existing conditions, and at the same price as the insurance is available to other group members. Towson University - J. Jung

9. Percent Uninsured by Age, 2000 Towson University - J. Jung

10. Total Uninsured: 38.4 million, or 15.7%

11. Some Myths About the Uninsured • Myth 1: The uninsured go without coverage because they believe they do not need it or don’t want it. Towson University - J. Jung

12. Some Myths About the Uninsured • Myth 1: The uninsured go without coverage because they believe they do not need it or don’t want it. • FACT?: The majority of uninsured, regardless of how young they are, say they forgo coverage because they cannot afford it, not because they don’t need it. Towson University - J. Jung

13. Some Myths About the Uninsured • Myth 2: Most of the uninsured do not have health insurance because they are not working and so don’t have access to health benefits through an employer. Towson University - J. Jung

14. Some Myths About the Uninsured • Myth 2: Most of the uninsured do not have health insurance because they are not working and so don’t have access to health benefits through an employer. • ‰FACT?: Most of the uninsured are either working full-time or have someone in their immediate family who does — the problem is that the majority of the uninsured are not offered benefits through their employers. Towson University - J. Jung

15. Some Myths About the Uninsured • Myth 3: Most of the growth in the uninsured has been among those with higher incomes. Towson University - J. Jung

16. Some Myths About the Uninsured • Myth 3: Most of the growth in the uninsured has been among those with higher incomes. • ‰ FACT: The majority of the growth in the uninsured since 2000 has been among people earning less than $38,000 a year for a family of four (commonly considered low-income). Towson University - J. Jung

17. Some Myths About the Uninsured • Myth 4: Most of the uninsured are new immigrants who are not U.S. citizens. • Myth 5: The uninsured often receive health services for free or at reduced charge. Towson University - J. Jung

18. Some Myths About the Uninsured • Myth 4: Most of the uninsured are new immigrants who are not U.S. citizens. • ‰ FACT: The large majority of the uninsured (79%) are American citizens. • Myth 5: The uninsured often receive health services for free or at reduced charge. • ‰ FACT?: Free or even discounted health services are not common and when the uninsured are unable to pay the full costs, the unpaid medical bills add to their providers’ costs. Towson University - J. Jung

19. Some Myths About the Uninsured • Myth 6: The uninsured can get the care they need when they really need it and are able to avoid serious health problems. Towson University - J. Jung

20. Some Myths About the Uninsured • Myth 6: The uninsured can get the care they need when they really need it and are able to avoid serious health problems. • ‰ FACT: The uninsured are more likely to postpone and forgo care with serious consequences that increase their chances of preventable health problems, disability, and premature death. Towson University - J. Jung

21. Some Myths About the Uninsured • Myth 7: Buying health insurance coverage on your own is always an option. • Myth 8: We don’t really know how large the uninsured problem is and many are only uninsured for brief periods. Towson University - J. Jung

22. Some Myths About the Uninsured • Myth 7: Buying health insurance coverage on your own is always an option. • ‰ FACT: Individually purchased policies vs. job-based group policies with similar benefits are more expensive and coverage can be limited or even denied to persons in less than good health. • Myth 8: We don’t really know how large the uninsured problem is and many are only uninsured for brief periods. • ‰ FACT??: Depending on whether we count the number of people who are uninsured during a specific month, for an entire year, or just for short periods, the numbers will differ; and all measures are useful. Towson University - J. Jung

23. Some Myths About the Uninsured • Myth 9: The health care the uninsured receive, but do not pay for, results in higher insurance premiums. • Myth 10: Expanding health insurance coverage to all, or even a large share of the uninsured, will cost far more than the country currently spends on health care. Towson University - J. Jung

24. Some Myths About the Uninsured • Myth 9: The health care the uninsured receive, but do not pay for, results in higher insurance premiums. • ‰ FACT?: The large majority of uncompensated care is subsidized through a mix of federal and state government dollars not cost-shifts to private payers. • Myth 10: Expanding health insurance coverage to all, or even a large share of the uninsured, will cost far more than the country currently spends on health care. • ‰ FACT?: Because both the uninsured and government subsidies pay for a good share of their health care costs already, the amount of additional health spending to cover all of the uninsured is relatively small. Towson University - J. Jung