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22

CHAPTER

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

Health Care

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Randall Holcombe 22-2

Health CareHealth Care

Government i involved in health care inGovernment i involved in health care in

m!lti"le #a$m!lti"le #a$ Re%!latorRe%!lator

&inancier&inancier

ProviderProvider

Government %reatl$ in'l!ence healthGovernment %reatl$ in'l!ence health

carecare

Sho!ld %overnment in'l!ence it more(Sho!ld %overnment in'l!ence it more(

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Rationales for GovernmentRationales for Government

InvolvementInvolvement P!blic HealthP!blic Health

Conta%io! dieaeConta%io! dieae

Ne%ative E)ternalit$Ne%ative E)ternalit$

*iemination o' health care in'ormation*iemination o' health care in'ormation

E+!it$E+!it$

Inabilit$ 'or all "eron to a''ord healthInabilit$ 'or all "eron to a''ord healthin!rancein!rance

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Public HealthPublic Health

S"read o' conta%io! dieaeS"read o' conta%io! dieae E)am"le: t$"hoid 'ever, choleraE)am"le: t$"hoid 'ever, cholera

O""ort!nit$ 'or dieae to "read ra"idl$O""ort!nit$ 'or dieae to "read ra"idl$

Government etablihed "!blic healthGovernment etablihed "!blic health

boardboard

Controlled e"idemicControlled e"idemic Hi%hl$ !cce'!lHi%hl$ !cce'!l

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Public Versus Private HealthPublic Versus Private Health

Man$ common health "roblem toda$ areMan$ common health "roblem toda$ are

"rivate in nat!re"rivate in nat!re Nonconta%io!Nonconta%io!

Examples:Examples: heart dieae, cancerheart dieae, cancer

Problem are erio! b!t "rivateProblem are erio! b!t "rivate

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Public Health PolicyPublic Health Policy

-./0 1 Medicare and Medicaid created-./0 1 Medicare and Medicaid created

Government "aid 'or health care o'Government "aid 'or health care o'

elderl$ and need$ re%ardle o' "roblem2elderl$ and need$ re%ardle o' "roblem2nat!renat!re

*itinction bet#een "!blic and "rivate*itinction bet#een "!blic and "rivate

health concern ha been obc!redhealth concern ha been obc!red

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Health InsuranceHealth Insurance

Ma3or "olic$ i!e 4 !niveral healthMa3or "olic$ i!e 4 !niveral healthin!rancein!rance

Recent "roblemRecent "roblem -.56 4 -67 "o"!lation covered-.56 4 -67 "o"!lation covered

&actor ma8in% health in!rance&actor ma8in% health in!rancecommon"lacecommon"lace

Riin% medical cotRiin% medical cot Ta) ded!ctibilit$ o' em"lo$er1"aid healthTa) ded!ctibilit$ o' em"lo$er1"aid health

"lan"lan

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oral Ha!ar" an" A"verseoral Ha!ar" an" A"verse

#election#election In!rance ind!tr$ m!t deal #ith t#oIn!rance ind!tr$ m!t deal #ith t#o

'actor'actorMoral ha9ardMoral ha9ard

dvere electiondvere election

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oral Ha!ar"oral Ha!ar"

Moral ha9ard 4 #hen an individ!al haMoral ha9ard 4 #hen an individ!al ha

ome control over event that tri%%erome control over event that tri%%er

in!rance "a$mentin!rance "a$ment Example:Example: drivin% a cardrivin% a car

Increae health care cotIncreae health care cot

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A"verse #electionA"verse #election

dvere election 4 occ!r #hen thoedvere election 4 occ!r #hen thoe

mot li8el$ to ma8e in!rance claim b!$mot li8el$ to ma8e in!rance claim b!$

in!rance, thoe not li8el$ to ma8ein!rance, thoe not li8el$ to ma8e

claim do notclaim do not

dvere election created beca!e:dvere election created beca!e: Individ!al have better in'ormationIndivid!al have better in'ormation

Stron% "!blic entiment abo!t char%in%Stron% "!blic entiment abo!t char%in%

hi%her1ri8 individ!al morehi%her1ri8 individ!al more

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oral Ha!ar" an" A"verseoral Ha!ar" an" A"verse

#election#election Em"lo$er1"rovided in!rance avoid motEm"lo$er1"rovided in!rance avoid mot

o' the advere election "roblemo' the advere election "roblem ll em"lo$ee %et in!rancell em"lo$ee %et in!rance

Sin%le1"rovider in!rance #o!ld eliminateSin%le1"rovider in!rance #o!ld eliminate

advere electionadvere election

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Health Insurance IncentivesHealth Insurance Incentives

No one ha an incentive to control healthNo one ha an incentive to control healthcare cot !nder tandard healthcare cot !nder tandard healthin!rancein!ranceMar%inal cot to "atient ; 9eroMar%inal cot to "atient ; 9eroMar%inal bene'it to doctor i hi%hMar%inal bene'it to doctor i hi%h

Incentive to overcon!me health careIncentive to overcon!me health care

erviceervice Cot o' over"rod!ction "aed onto allCot o' over"rod!ction "aed onto all

health in!rancehealth in!rance

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T#o "oible #a$ to miti%ate health in!ranceT#o "oible #a$ to miti%ate health in!rance

incentive "roblemincentive "roblem

*ed!ctible*ed!ctible

Individ!al "a$ 'irt everal dollar o' ervice,Individ!al "a$ 'irt everal dollar o' ervice,in!rance "a$ remainderin!rance "a$ remainder

MC till e+!al 9eroMC till e+!al 9ero

Co"a$mentCo"a$ment Patient "a$ a certain "ercenta%e o' total billPatient "a$ a certain "ercenta%e o' total bill

B!l8 till "aid b$ in!rerB!l8 till "aid b$ in!rer

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HMO 4 Health Maintenance Or%ani9ationHMO 4 Health Maintenance Or%ani9ation cce"t "a$ment in advancecce"t "a$ment in advance

Provide re+!ired medical careProvide re+!ired medical care

dvanta%edvanta%e Incentive to conerve cotIncentive to conerve cot

*iadvanta%e*iadvanta%e Incentive to conerve cotIncentive to conerve cot

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Ho"ital Reimb!rement 'or In!redHo"ital Reimb!rement 'or In!redE)"eneE)"ene &i)ed "a$ment 'or certain "roced!re&i)ed "a$ment 'or certain "roced!re

Create incentive to red!ce cotCreate incentive to red!ce cot Hitoricall$ reimb!red !in% <cot1"l!=Hitoricall$ reimb!red !in% <cot1"l!=

$tem$tem

Incentive to increae cotIncentive to increae cotP!rchae e)"enive e+!i"mentP!rchae e)"enive e+!i"mentLen%then ho"ital ta$Len%then ho"ital ta$

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The Evolution of $%th CenturyThe Evolution of $%th Century

Health CareHealth Care Role o' the M in tran'ormin% healthRole o' the M in tran'ormin% health

care in the United Statecare in the United State Controlled "h$ician2 entr$Controlled "h$ician2 entr$

Promoted 'ee 'or ervicePromoted 'ee 'or ervice

Created c!rrent "h$ician1"atientCreated c!rrent "h$ician1"atient

relationhi"relationhi"

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Government Health CareGovernment Health Care

Pro&ramsPro&rams MedicareMedicare

&ederal "ro%ram&ederal "ro%ram

Provide health care to the elderl$Provide health care to the elderl$

MedicaidMedicaid R!n b$ tate, 3ointl$ 'inanced b$ tate andR!n b$ tate, 3ointl$ 'inanced b$ tate and

'ederal %overnment'ederal %overnment

Provide health care to need$Provide health care to need$

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Health Care ReformHealth Care Reform

Univeral covera%eUniveral covera%e Example:Example: the Canadian $temthe Canadian $tem

dvanta%e:dvanta%e: Eliminate advere electionEliminate advere election Red!ce tendenc$ to avoid "reventative careRed!ce tendenc$ to avoid "reventative care

*iadvanta%e:*iadvanta%e: S"ecialit rationedS"ecialit rationed Cot are hiddenCot are hidden U>S "rovide a'et$ valveU>S "rovide a'et$ valve

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Medical Savin% cco!nt ?MS@Medical Savin% cco!nt ?MS@ Provide catatro"hic covera%eProvide catatro"hic covera%e

*irect control o' ro!tine e)"endit!re*irect control o' ro!tine e)"endit!re

Ha advanta%e o' creatin% incentive toHa advanta%e o' creatin% incentive to

ave on ro!tine e)"endit!reave on ro!tine e)"endit!re

*oe not addre e)"enive treatment*oe not addre e)"enive treatment

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Mandated Em"lo$er Covera%eMandated Em"lo$er Covera%e

Problem incl!de:Problem incl!de:

Increae cot o' hirin% #or8erIncreae cot o' hirin% #or8er

Ne%ative im"act on labor mar8et 'or lo#1Ne%ative im"act on labor mar8et 'or lo#1

income #or8erincome #or8er

*oe not '!l'ill the %oal o' !niveral covera%e*oe not '!l'ill the %oal o' !niveral covera%e

Pa$ or Pla$Pa$ or Pla$ Similar "roblem a em"lo$er mandateSimilar "roblem a em"lo$er mandate

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Interest Groups an" HealthInterest Groups an" Health

Care ReformCare Reform Health care re'orm #ill !ltimatel$ beHealth care re'orm #ill !ltimatel$ be

determined thro!%h "olitical "rocedetermined thro!%h "olitical "roce

&!t!re o' health care #ill be "artl$&!t!re o' health care #ill be "artl$

determined b$ "ecial interetdetermined b$ "ecial interet *octor*octor

In!rance com"anieIn!rance com"anie

Elderl$Elderl$

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