The Economics of Health Care Reform

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The Economics of Health Care Reform

• Allen C. Goodman
• Wayne State University
• Presented to Adult Learning Institute
• October 25, 2011

http//www.econ.wayne.edu/agoodman
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Facts

• In 2009, the United States spent almost 2.5
  trillion dollars on health care.
• This accounted for 17.3 of GDP.
• Over 50 million U.S. residents were uninsured.

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Compare us to Other Countries
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Compare Us to Other Countries
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Inference

• We spend a lot
• By many measures, were not spending very
  effectively.
• Can we reform our health care system?
• What do we want, and what would it cost?

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Goals of Reform

• Four elements
• A health safety net for all residents,
  irrespective of age, health status, or employment
  status
• Mechanisms that promote cost containment
• Choice for patients and providers
• Ease in administration

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Questions

• Who do you cover?
• How do you provide access?
• How much does it cost?
• How do you pay for it?

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Who do you cover?

• Everyone?
• Do you not cover illegal immigrants?
• Remember, at any moment of time in the United
  States, there are millions of foreign students,
  visitors, and temporary workers.

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How do you provide access?

• Employer mandate?
• Does employer pay it?
• Most feel that the workers pay for it in the form
  of lower wages.
• Individual mandate?
• Require individuals to buy insurance.
• They may buy it from employers.
• This is no more coercion than paying taxes.

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What does it cost?

• Uninsured does not mean no care.
• Uninsured currently get
• Hadley and colleagues (2008), estimated that
  uninsured Americans consumed 86 billion worth of
  health care in 2008.
• Full year coverage to all uninsured?
• Incremental cost of providing full-year coverage
  for all uninsured would amount to 123 billion,
  so spending of those currently uninsured would
  rise from 86 to 209 billion.

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What does it cost?

• Full year coverage to all uninsured?
• Were three years past the Hadley estimates, so
  lets guess incremental cost at 164 billion,
  taking total cost to about 250 billion.
• If we divide 164 billion by 310 million people,
  you get about 529 per person.
• Can we pay it? Yes! Theres a difference
  between cant pay and wont pay.

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Patient Protection and Affordable Care Act of
2010 (PPACA)

• Require most U.S. citizens and legal residents to
  have health insurance, the individual mandate.
  Families without coverage will face penalties up
  to 2,085 per year or 2.5 of household income.
• Penalize employers with 50 or more full-time
  employees that do not offer coverage a fee of
  2,000 per full-time employee. Small businesses
  that provide health insurance for their employees
  will be eligible for tax credits. (Effective
  January 1, 2014).

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Patient Protection and Affordable Care Act of
2010 (PPACA)

• Expand Medicaid to all non-Medicare eligible
  individuals under age 65 (children, pregnant
  women, parents, and adults without dependent
  children) with incomes up to 133 of the federal
  poverty level FPL.
• Establish state-based health insurance exchanges,
  where individuals and small businesses can
  compare policies and buy coverage, administered
  by a governmental agency, or a non-profit entity.
  

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Patient Protection and Affordable Care Act of
2010 (PPACA)

• Eliminate underwriting policies that enable
  insurers to deny individuals insurance or charge
  them higher premiums based on pre-existing
  conditions.
• Establish a uniform set of benefits, called
  Essential Health Benefits, with 10 major areas of
  coverage including prescription drugs and
  preventive services. All qualified health plans,
  except employer-sponsored plans and certain
  individual policies, will be required to offer at
  least the Essential Health Benefits. (Effective
  January 1, 2014)
• Eliminate cost-sharing for Medicare covered
  preventive services recommended by the U.S.
  Preventive Services Task Force, and waive the
  Medicare deductible for colorectal cancer
  screening tests. (Effective January 1, 2011)

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Patient Protection and Affordable Care Act of
2010 (PPACA)

• Eliminate cost-sharing for Medicare covered
  preventive services recommended by the U.S.
  Preventive Services Task Force, and waive the
  Medicare deductible for colorectal cancer
  screening tests. (Effective January 1, 2011)

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Attaining goals. Coverage?

• Creating a safety net CBO estimates that
  approximately 32 million people would gain
  coverage by 2019, leaving about 23 million
  uncovered.
• Net changes would be increases of 16 million
  through Medicaid and CHIP, and 24 million through
  the exchanges, with small decreases of those in
  employer and nongroup insurance.
• This would leave about 23 million nonelderly
  residents uninsured (about one-third of whom
  would be unauthorized immigrants).

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Attaining goals. Cost containment?

• More diffuse
• Reducing consumer demand through the so-called
  Cadillac insurance tax
• Running pilot programs to test various approaches
  to revamping provider-payment incentives and
  organizational structure
• Investing hundreds of millions of dollars in new
  comparative-effectiveness research and
• Launching pilot programs to assess
  reorganizations of the medical malpractice
  process.

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Attaining goals. Choice for patients and
providers?

• In bypassing either single-payer programs or
  explicit mandated providers, PPACA will preserve
  both patient and provider choice.
• The insured would appear to have no less choice
  in insurance coverage, and payment provisions
  would seem to remain the same as previously.

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Attaining goals. Ease in Administration?

• The largest increases in the numbers insured
  would come through Medicaid/CHIP (an additional
  16 million) and the new insurance exchanges (24
  million more).
• Medicaid/CHIP is a well-established program, with
  state-level relationships already in place.
• States have not yet established the exchanges,
  however, and some considerable administrative
  costs will most likely accompany their creation
  and operation.

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In Conclusion Can We Do It?

• Other countries do.
• Resources are available.
• Costs are within reason if we choose to pay
  them.