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Transcript of Holcombe 22
7/23/2019 Holcombe 22
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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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-3
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 SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-4
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 SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-5
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 SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-6
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-7
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$er1"aid health
"lan"lan
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-8
oral Ha!ar" an" A"verseoral Ha!ar" an" A"verse
#election#election In!rance ind!tr$ 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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-9
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-10
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-11
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-12
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-13
Health Insurance IncentivesHealth Insurance Incentives
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-14
Health Insurance IncentivesHealth Insurance Incentives
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-15
Health Insurance IncentivesHealth Insurance Incentives
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-16
Health Insurance IncentivesHealth Insurance Incentives
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-17
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-18
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-19
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-20
Health Care ReformHealth Care Reform
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-21
Health Care ReformHealth Care Reform
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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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe 22-22
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$Elderl$