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Chapter 16: Health Insurance II In 2008, the Colorado Household Survey (COHS) was initiated 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/1242218508619 Goals: - assess the issues surrounding health insurance coverage in Colorado - baseline information about health care coverage and access in anticipation of health reform efforts
What are the effects of Medicaid Programs? 1. How does it affect health? Framework:
2. How does it affect Health? Evidence Take-Up: Medicaid expansion in 1980s and 1990s increased the number 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 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 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 4
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 was expanded 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 Cost-Effectiveness Expanding public insurance does improve health, but at what cost? $1million per infant life saved through Medicaid expansions
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 for those 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 Medicare uses a Prospective Payment System for reimbursing hospitals. - reimbursement is on expected costs, not actual services 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 hospitalspecific adjustment Evidence: - average length of hospital stay fell from 9.7 days to 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 ³flat of the curve´) 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: - ³DRG Creep´ hospitals still get to choose the original DGR « label patient with more severe diagnosis - many DRGs are not based on diagnosis, but are also based on the treatment used - applies only to one part of the medical system
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 traditional Medicare. Evidence: The healthiest people select into HMOs. The government ends up losing money. - sickest stay in traditional Medicare - gov¶t 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) __________________________________________________ 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 =
Total Government Spending =
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 =
The individuals in the HMO cost on average =
The total cost to the government is =
________________________________________________________ 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% 6
2003 Congress raised HMO reimbursement rates to 100%. (107% in 2004) - enrollment was 22% of all enrollees in 2009 - government is losing money
The problem with the current approach is the government must estimate how much to reimburse managed care plans. Another Option: Full Choice Plans with Premium Support - voucher for a certain amount - apply it to a range of insurance options - traditional Medicare - private options _________________________________ Example: 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 plan¶s value. __________________________________ Advantages - consumers pick the plan that best suits their preferences - competition among plans - firms will have incentive to be efficient - avoids having to set ³appropriate´ amount of reimbursement Disadvantage - adverse selection 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
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 ³Medi-gap´ policies They lead to a negative financial externality on the Medicare program. When other forms of coverage cover Medicare¶s deductibles or coinsurance « the amount of medical care 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 free to me.