PH 126 Final

$2.6 trillion dollar question

- Is the U.S. getting good value for its spending? Consensus is no. -One-third of healthcare expenditures may be spent on ineffective or unproductive care -Evidence supports still being true today -Significant variation in care -Unproven effectiveness of many procedures -Acting principle: doing more, or at least something, is better than doing nothing

Market-based prices are to an economist as what God is to a deist

- Prices incorporate important information -Prices attempt to reflect society's (those with income/wealth) preferences -Prices attempt to reflect the costs of production -Correspondence between market-based prices and a Pareto efficient allocation of resources -Pareto efficient: no one can be made better off, without someone being made worse off

The Grossman Model says that health is a consumption good because:

A. Healthcare spending is relatively high in the U.S. and thus a driver of consumption B. Health, in and of itself, has value (i.e. provides utility) C. People consume more medical care if they have a taste for health care

The United States spends more per capita on health care than any other country. Which of the factors below does not contribute to higher spending?

A. High unit prices B. High use of technology C. High government reimbursement rates: i think D. High disease burden

What is an example of the economic theory of regulation?

A. Legislatures and regulators craft policies based on a policy analyst's report that described a policy that would lead to a highly efficient, yet equitable, result B. Special interest lobbyists influence legislation and regulation to benefit their own interests, even if the cost to society is large: correct

Why are market distortions a concern?

A. Prices do not reflect an amalgamation of people's preferences and the cost to produce goods and services (i.e., allocative efficiency) B. Society will end up with an inequitable distribution of wealth

What is the primary reason that managed care plans have increased their market share during the past 30 years?

A. Reduce costs B. Improve quality C. Improve health outcomes

There is a close correspondence between market-based prices and:

A. Society having an equitable distribution of wealth B. Society having an efficient allocation of resources: i think

If you create a screen that considers most situations as needing care, then:

A. The care will be very cost effective B. Unnecessary care will increase

When is cost effectiveness analysis relevant?

A: A new treatment costs more and produces better health outcomes B: A new treatment costs more and produces worse health outcomes C: A new treatment costs less and produces better health outcomes

What market has a higher Hirschman-Herfindahl Index (HHI)

A: Four firms with the following market shares: 25%, 25%, 25%, 25% B. Four firms with the following market shares: 50%, 25%, 15%, 10%

A firm has market power if:

A: The firm faces a downward sloping demand curve, but competitors exist in the market B. The firm faces a downward sloping demand curve, but no competitors exist in the market C. Both A and B

Economics of licensure

Advantages: Asymmetric information Tries to ensure a minimum level of quality Re-licensing exams? Negative externalities to low-quality care Disadvantage Limits entry Raises training costs, which results in higher wages, which results in higher health care costs Reduces access

Adverse Selection

Adverse selection is caused by asymmetric information Individuals know more about their health status as compared to insurance firms, so they sort themselves Sick will more likely to apply for insurance Sick will choose plans with more benefits and less cost sharing

Select the Criteria

Apply criteria to outcomes (not alternatives) Types of criteria - be overt about values -Efficiency-based Economic, finance Cost benefit, cost effectiveness -Values-based Equality, equity, fairness, social justice - Weighting criteria Legality Political acceptability Implementable and realistic (not just theoretical) Seek better; may not get "best"

Why is healthcare affordability a concern to households, employers, and the government

-Employers and employees are becoming less able to afford health insurance -And the federal government is becoming less able to afford its healthcare obligations: At current growth rates, non-discretionary spending, particularly Medicare & Medicaid, will overwhelm the federal budget

Growth of Managed care

-Growth in managed care plans skyrocketed over the next decades -Medicare Advantage Enrollment has been Increasing -Medicaid Managed Care Enrollment has been Increasing -Insurance premiums dropped relative to earnings and inflation during the HMO heyday in the 1990s

How can insurers pool risk

Standard deviation of the sample mean decreases dramatically as the sample size increases, so if an insurer insures a large number of people, the insurer is not exposed to a lot of risk (i.e., insurer's expected healthcare expenditure has a low variance/low uncertainty). Note the expected health expenditures E(X) is the same no matter how many people are insured.

Role of increasing democratization in American Politics

Constitutional arrangement leading to shared powers only tells part of the story of fragmentation Access to public decision-making is broad in the United States

MAnaged Care Organizattions

Definition: a managed care organization employs techniques to primarily control the costs. Examples include: Health maintenance organizations (HMO) Point of service plans (POS) Exclusive provider organization (EPO) Preferred provider plans (PPO) Traditional indemnity insurers only made limited efforts to manage the cost and quality of health care

Sources of FRagmentation

U.S. Constitution articulates a separation of powers Congress Legislation and power of the purse Presidency Commander in Chief, make treaties, "take care" clause Judicial branch Power of judicial review (Marbury v. Madison, 1803)

Improving Health Care Quality

Development of a national quality strategy Coordinated care through medical homes and other models Quality-based payments for health care providers and improved information on provider quality Comparative effectiveness research to identify most effective treatments and interventions Enhanced data collection to address health care disparities

Types of public policy- Distributive

Distributive Policy: Definition... Involves the allocation of services or benefits to particular segments of the population. Benefits... May provide benefits for a very small segment of the population or for a very broad segment of the population, but either way beneficiaries are well defined. Costs... While beneficiaries are well defined, costs are usually born by the entire population. Political conflict... Appears to produce only "winners," and thus minimizes conflict. Examples include... Pork barrel projects (transportation, water), health research grants.

Dynamic efficiency: is the rate of technological advance optimal?

Dynamic efficiency involves the tradeoff between the utility of consuming today versus investing today to make society better off in a future period Example Healthcare service consumption today versus investing in medical imaging research

Medicare Part C: Medicare Advantage

Overview Medicare pays private insurance firms a capitated payment for each enrollee for Parts A & B on a risk-adjusted basis Covers Medicare Part D Enrollees: 14.4 million (28% of all) (2013) 1982: first risk contract program 95% of FFS costs, rebate 1997: Medicare + Choice (M+C) program New payment formula Caused some plans to leave 2003: Medicare Advantage (MA) Increase payments (2004) Regional plans (2006) Risk adjustment Medicare Advantage Enrollment has been Increasing

Identify key components of the Affordable Care Act.

Individual Mandate Health Insurance Exchanges Medicaid Expansion Marketplace Reforms

Derived Market Demand

Individuals generate a demand schedule for each good or service based on maximizing utility Demand = function(price, income, pricesubstitutes, pricecomplements, preferences) Individual demand curves are aggregated

What is a hospital?

Inpatient beds Diagnostic services Therapeutic services Licensed by the state Accreditation Joint Commission

Illustration of investing in health stock and the resulting outputs

Inputs: health care, diet, exercise, time, income, environment into production proces- health stock-health days- market and non market goods

OECD 2012 Survey FindingsSummary

Overview Pay-for-performance programs reported in 15 OECD countries Types of providers countries pay bonuses to: Primary care physicians (14) Specialists (7) Acute Care Hospitals (10) Primary Care Summary Types of performance targets: Majority of countries use 3+ types of targets Majority use: Preventive Care, Management of chronic diseases, and efficiency targets Measurement of performance targets: Absolute is most common and 5 countries use 2+ Payment Mechanism: No predominant method of payment, both direct to individual physicians and to the organization can occur

Preferred Provider Organization (PPO) and Exclusive Provider Organization (EPO

PPO Preferred providers covered at lower cost sharing, but still higher then HMOs Out-of-network providers covered at higher cost sharing No gatekeeper physicians Physicians typically paid fee-for-service (payment for each service rendered) Hospitals reimbursed in a variety of ways (per diem, DRGs), except capitation Most expensive premiums EPO Similar to PPO, but only in-network providers are covered (except emergencies)

Confront TRadeoffs

Most commonly between money and a good or service Rarely have a dominant policy Hard to measure one option against another - need to establish commensurability Do economic analysis Do values analysis

Assemble the Evidence

Most time consuming step Think before begin collecting data Review available literature (don't reinvent the wheel) Make educated guesses Survey best practices Good to develop analogies (this problem is like... another problem/situation)

Reforms - some examples

National Service Frameworks Primary care led NHS Personal budgets NICE Public Health England

Data

National Survey of Children's Health (NSCH) Telephone sample administered by the Centers for Disease Control and Prevention Three waves: 2003, 2007 and 2011 Nationally and state-representative About 60,000 public school children aged 5-17 in each wave Logistic regression models account for NSCH's complex survey design

Cost-Benefit Analysis Overview

Net benefit = present value of benefits minus present value of costs, all measured in dollars Examples Hospital expansion Imaging machine Cost-benefit analysis is preferred, but it is sometimes difficult to assign a monetary value to a benefit

Insurance profits and surplusare a small contributor to health insurance premium growth, as compared to:

New health care technologies Dominance of the fee for service payment system Poorly coordinated delivery system High administrative costs Insurer Providers

2. Will the health reform law allow a government panel to make decisions about end-of-life care for people on Medicare?

No. No such panels exist. While early versions of the law did contain provisions that would allow Medicare to reimburse physicians for voluntary discussions with patients about end-of-life planning, these provisions were dropped from the final legislation.

3. Will the health reform law cut benefits that were previously provided to all people on Medicare?

No. The law reduces payments to the privately administered Medicare Advantage plans, but they will still be required to provide all benefits that are covered by traditional Medicare.

Who are non-physician health professionals?

Nurses Registered nurses (RNs) Licensed practical nurses, enrolled nurses, etc. Unlicensed aides Advanced Practice Nurses Nurse Practitioners Nurse Midwives Nurse Anesthetists Physician Assistants

Key Variables

Outcome variable Whether a doctor or other health care provider ever told the survey respondent (usually the child's parent or guardian) that the child had ADHD Key independent variables NCLB consequential accountability state Psychotropic medication law state Covariates Child's sex, age, race, and health insurance status Family parental structure, number of children in the household, household income, highest level of education attained in the household, and primary language spoken in the home Number of health care providers (and their ages) per capita by state

How does an issue / policy make its way onto (off of) the policy agenda?

Outside initiation model - initiation happens in the public, by an outside group, outside groups expand the issue to enough outside groups to get it onto the public agenda and these outside groups create enough pressure to get the issue onto the formal agenda... Mobilization model - issues initiated inside the government, have to be pushed down to the public agenda...initiated by political elites, need support of mass public, political elites specify the problem as well and clarify it so that the public can understand it, expansion is focused on key attention groups... Inside initiative model - an insider group w/ in the government initiates without trying to expand the issue to outside groups...try to convince political actors to get the issue onto the formal agenda...

A policy is a rule or heuristic used to make a decision

Prior authorization and utilization review policies seek to only pay for medically necessary care that is a covered benefit. But policies are infallible, so policies Will end up excluding some care that the insurer wished to include Will end up including some care that the insurer wished to exclude

Consequential accountability introduced via NCLB was associated with higher ADHD diagnostic prevalence increases among low-income children aged 8-13 from 2003-2007

Psychotropic medication laws were associated with eliminating ADHD diagnostic prevalence increases among children aged 5-13 from 2003-2011

Policies with incentives strive to only incent people who will change their behavior, but it is difficult to only target those people

Public and private policies often include eligibility criteria Compensation bonuses to incentivize workers to work harder Government welfare benefits Government-provided or subsidies for health insurance Determining eligibility for a public or private program involves a tradeoff between Including everyone program wants to include (i.e., target effectiveness) Excluding others that program wants to exclude (i.e., target efficiency) In the table below, assume a worker only receives a bonus if s/he works hard. A firm would like to only offer a bonus to the "switchers," but because the firm doesn't know, ex ante, who the switchers will be, and because the need for administrative efficiency and fairness, a bonus policy will inevitably include some workers who will work hard with or without a bonus

Coalitions reforms 2010

Public health NHS England Clinical Commissioning Groups Private sector

Two Theories of Government

Public interest theory -Improve efficiency -Redistribute income in a more equitable manner -Mechanisms: expenditures, taxation, regulation -Economic theory of regulation No distinction between political and economic markets (i.e., lobbyists significantly influence political decisions) -In reality, many government policies can be argued for using both theories

Not-for-Profit status for hospitals: Public Interest Theory of Government or Economic Theory of Regulation?

Public interest theory Service to community Stakeholders not shareholders Primary financial goal to ensure viability of organization, which makes their behavior often times look like a for-profit firm Economic theory of regulation where hospitals are controlled by physicians Non-profit status lowers input costs for physicians and physician groups (which are almost entirely for profit) Able to raise capital from community and donors

High level results

Public satisfaction almost doubled Patients returned from the private sector All political parties support the NHS Maximum waiting times fell by 3/4; the median by 2/3 Falls in deaths from CHD, cancer, suicides Staffing and infrastructure developed - facilities, equipment, technology Productivity fell then recovered

Health insurance reforms often occur at the state level and vary across states

Availability (underwriting reforms) Guaranteed renewability Restrictions on pre-existing conditions Guaranteed issue Affordability (rating reforms) Rating bands Modified community rating (age, location) Community rating Risk spreading High-risk pool Risk adjustment Reinsurance

Hospital length of stay significantly decreased immediately after introduction of PPS, but cost per case and up-coding DRGs are a concern

Average length of stay decreased from 9.3 days to 7.7 days during the first year (FY1984), and then increased slightly However, payments per case increased, primarily because of case mix (upcoding) Admission rates did not significantly increase (but concern over preventable re-admissions has increased) ACA penalizes hospitals for preventable re-admissions Quality of care evidence is lacking, but mortality rates did not increase

How do the so-called Sunshine Laws increase participation of citizens in government?

Providing citizens the right to sue the government Giving citizens the right to vote Increasing the transparency of governmental deliberations and policy decisions All of the above- true

Leadership intenal

Vision, appoint and support -100k Two handed - account and support Messages and values - a movement People and relationships Grit and perseverance

Supply-side (i.e., directed at providers) policies and incentives to reduce costs

Volume discounts Payment incentives Provides take on more risk: move from fee-for-service to capitation Step therapies, quantity limitations, coverage exclusions Prior authorization and utilization review

Risk Aversion

We expect that individuals will attach greater weights to losses than to equal size gains (diminishing marginal utility of wealth) We expect that consumers will not play fair games (i.e., expected value is $0) unless the game has some consumption value Holding constant the expected value of two games, consumers will generally prefer the game that is least risky (lower variance) Utility theory argues people make decisions based on expected utility and the most people are risk averse (diminishing returns to wealth) If you are fully insured, then you can know your healthcare costs with certainty, which would be the health insurance premium (assuming no cost sharing).

Predictions for the Future

Will the explosion continue Why ever-diagnosed rates may continue rising Stimulants work too well Push for performance and productivity will continue and intensify Affordable Care Act giving greater access to health care More preschoolers can be diagnosed because of changing professional standards Loss of patent exclusivity on long-acting stimulants will reduce prices If this happens, we may see ever-diagnosed rates reach 13% in the next 5 years (From the 2011-2012 rate of 11%)

5. Will the health reform law provide financial help to low and moderate income Americans who don't get insurance through their jobs to help them purchase coverage?

Yes. Individuals without access to affordable coverage who purchase coverage through the new insurance Exchanges and have incomes up to 400% of the federal poverty level will be eligible for premium tax credits based on their income.

4. Will the health reform law expand the existing Medicaid program to cover low-income, uninsured adults regardless of whether they have children?

Yes. Medicaid will be expanded to cover nearly all individuals under age 65 with incomes up to 133% of the federal poverty level ($14,400 for an individual or $29,300 for a family of four in 2010).

Will the health reform law require nearly all Americans to have health insurance by 2014 or else pay a fine?

Yes. Starting in 2014, most U.S. citizens and legal residents will be required to obtain health coverage, or pay a penalty. Some exemptions will be granted, for example, for those with religious objections or where insurance would cost more than 8% of their income.

What is Politics?

as a term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the corporate, academic and religious segments of society. It consists of "social relations involving authority or power" and to the methods and tactics used to formulate and apply policy. -Power -Authority -Control -Agenda -Presentation/Image/Frame

Opinion about ACA

unfavorable opinion of ACA has sharply increased since October 2013 -The parts of health reform legislation are viewed more favorably than the overall legislation

The United States spends more per capita on health care than any other country. Is this difference fully explained by higher income per capita in the United States?

yes

Will the health reform law require nearly all Americans to have health insurance by 2014 or else pay a fine?

yes

Governmental Hospitals

Federal - Veteran's Administration, Indian Health Service, military State - veteran's, psychiatric, medical schools County/City - general hospitals, long term care facilities

The share of outpatient (one-day) procedures has grown relative to inpatient (overnight) procedures

Fewer hospitals are providing SNF and home health services Majority of U.S. community hospitals are non-profit

Policies to Mitigate Moral Hazard

Financial -Cost sharing: deductibles, copayments, co-insurance -Tradeoff between reducing financial risk and limiting moral hazard (see Cutler and Zeckhauser article) -Tier-based formularies -Maximum lifetime or annual benefit (not allowed under ACA) -Reimburse providers on a capitated basis (per member per month) instead of fee for service Administrative -Prior authorization, step therapies, quantity limitations, coverage exclusions

Understand historical healthcare payment models, emerging payment models, and how financial risk is shifting

Financial Incentives - Risk Shifting

Accountable Care Organizations

Financial and clinical integration of providers Shared savings (upside) and potentially shared losses (downside) with a public or private payer ACOs are potentially different from historical HMOs because they: Focus on quality Use better information technology to coordinate patients' care and access their medical records Allow patients to more easily obtain care outside the ACO Whether ACOs will reduce healthcare expenditures is a key question One concern is provider consolidation will lead to an increase in prices

Derived /market supply

Firms generate a supply curve for each good or service based on maximizing profit Supply = function(price, input prices, technology) Firm supply curves are aggregated

Powers...reserved to the people"

First Amendment Free speech Freedom of assembly Increasing scope of suffrage Abolition of property qualifications , 1812-1860 15th, 19th, 26th Amendments (non-whites, women, 18-21 year olds) 1960s efforts to prohibit poll taxes, literacy tests, etc.

ACA and Medicare Part D

Medicare Part D coverage gap "doughnut hole" is being removed by the ACA Prescription Drug Expenditures Expected to Increase Sharply

Populations Measures of Health

Mortality Death rate Life expectancy at birth Morbidity Average self-reported health status Depression prevalence Population-level job absentee days Average BMI, heart rate, blood sugar, etc. Quality-adjusted life years (QALYs), a mix of the two - numbers of years of life remaining, accounting less-than-perfect health

The whole NHS changes

Opening provision to non NHS groups Devolution within the NHS Patients had greater choice More transparency Payment by results

According to the Grossman Model:

A. Health stock is transient B. Health stock carries over as one ages, and appreciates over time C. Health stock carries over as one ages, but depreciates over time

Democratization of American Policy Formation

"Sunshine" Laws Freedom of Information Act, 1966 Presumptive access to agency records Exemptions for national security and individual privacy Federal Advisory Committee Act, 1972 Federal advisory committee meetings open to the public Sunshine Act, 1976 Policy deliberations of federal agencies open to the public Citizen suit Provides citizens "standing" to sue for failure to follow federal statute

Health Care Expenditures by the Uninsured

$176.1 bn: health care expenditures by the uninsured in 2008 $69.4 bn full-year uninsured $1,686 average expenditure $106.7 bn part-year uninsured Sources $30 bn out of pocket $57.4 bn uncompensated care (75% govt) $88.7 bn insurance (for those partially insured)

Health care effect on determining population health

- 30% genetic - 15% social 5%- environmental -40% behavior - 10%- health care

A Pareto efficient allocation of resources (based on competitive prices) may not be desirable and may be difficult to achieve

- Equity not considered -Degree of equity that people advocate for often hinges on their belief about the source of inequality: Is it luck or choice? -Rawl's "veil of ignorance" can help define what is fair/equitable -Market distortions result in non-competitive prices -Health care is fraught with issues that distort markets, principally insurance, monopoly power of providers, and asymmetric information between and physician and a patient -Short-term labor market disruptions -At any given time, can have unemployment or underemployment above natural rate, because time to sort into well-matched job can take time

What is the trend of United States healthcare spending, and how does it compare to other developed countries?

- From 1960 to 2010, expenditures ($2010) have increased (13-fold); per capita expenditures ($2010) have increased (8-fold); expenditure share of GDP has increased (3.4-fold) - Government's share of expenditures has increased from 22% to 48%. -Out of pocket's share of expenditures has decreased, but in real terms ($2010), it has increased from $516 to $971 per capita. -Hospital's share of expenditures has decreased; -physician's share has remained steady; -nursing home/home health care's and prescription drugs' have increased -United States spends far more on health care than other developed countries -United States healthcare spending per capita is higher than what is predicted by GDP per capita -Private spending represents a greater share of healthcare spending in the United States, as compared to other developed countries

How does the United States perform on key health outcome and quality of care measures?

- US has low life expectancy -US has higher infant mortality rate -U.S. performs poorly on mortality amenable to health care -self-reported health status an objective measure?- no because U.S self reports highest healthcare satisfaction -U.S performs well on breast cancer survival rate -U.S has high number of diabetes linked amputation

5.prices per processes or device or drug -

- US physicians incomes are higher, -US hospital expenditures per discharge are higher, privately paid imaging fees are higher - US administrative costs are high, leading to higher prices -U.S.'s pluralistic healthcare system provides more choice, but results in higher administrative costs

Summary of Lecture 2

- United States spent 17.7% of its GDP on health care in 2011 almost double the OECD average of 9.3% - Concern is that U.S. is not getting significant value for the higher spending - U.S. households, federal government, and state governments will not be able to afford health care at current growth rates - U.S. has a higher disease burden, uses more technology, and has higher prices per unit of service, as compared to other developed countries -U.S. does not perform well against other developed countries on key health outcome and quality measures (e.g., life expectancy and infant mortality) -Health care is a small contributor to health outcomes, as compared to behaviors, genetics, and social circumstances

Forms of presenting

- a picture is worth 1000 words

4.processes and devices and drugs per service

- high because New medical technology contributed between 27% and 48% of healthcare expenditure increases. - Expenditures per capita increased approximately 9-fold in real terms, from $850 to $7,600 ($2007). -The US has more imaging equipment and the Use of imaging in the US has increased substantially.

2. episodes per condition,

- low hospital utilization and low physician visits

3.services per episode,

- mixed because medicare payments per enrollee substantially varies across the US

Efficiency types build on each other to incorporate more attributes

- technical- production function -productive- production function and input costs -allocative- production function, input costs, consumer preferences

Remedies: Imperfect/ Asymmetric Info

-"Health insurance adjuster" (aka, the physician) not only helps determine whether the insured has a potential covered benefit (i.e., has a diagnosis with a medically necessary treatment), the adjuster may provide the treatment -Market remedy: prior authorization/utilization review -Pharmaceutical, biotechnology and medical device firms -History of medicine fraught with unsafe treatments -Government remedy: Food and Drug Administration (FDA) approval required for new drugs and medical devices -FDA approval is based on safety and medical effectiveness (as compared to a placebo), not costs or cost effectiveness -Benefit of insurance to reduce wealth variation introduces moral hazard (aka "hidden actions") because people are less price sensitive, because they don't pay full costs of care -Market remedy: cost sharing, including value-based insurance design -Long-term insurance contracts do not exist, primarily because of uncertain future technological change -Government remedy: Medicare?

US spends a significant share of its GDP on health care

-$2.8 trillion spent on health care in 2012 -$8,915 per person -17.2% of GDP devoted to health care -Key trends include growth in total expenditures, GDP share devoted to health care, and per capita expenditures -most health care expenditures are for hospital care and physician service -private spending share (52.4) represents slightly more than public spending share (47.6) -85% of the U.S population had insurance in 2012, but almost 49 million were uninsured

Outcomes: Inequity

-Access allows the most powerful to exercise the greatest influence -Growing income inequality driven by powerful interest groups lobbying government to create benefits that accrue primarily to the wealthy (Pierson and Hacker, 2010)

Outcomes: Inefficiency

-Access encourages "rent seeking" -Effort to increase one's share of existing wealth without creating new goods or services -Lobbying for tariffs -Regulatory capture -Fragmentation and access lead to poorly designed bureaucratic agencies (Moe, 1989) -"Adversarial legalism" creates inefficiency without necessarily creating better policy outcomes (Kagan, 1991)

Define the Problem

-Assess the symptoms -Identify underlying causes -Think in terms of excess or deficit "there are too many homeless people" "there aren't enough respirators" -Don't define solution -Classes are too big versus students aren't learning enough -Be careful about how you frame the issue

Describe the key historical/political events that characterized the national health insurance debate prior to the Affordable Care Act.

-Attempts at health reform 1934 - 1939: NHI and the New Deal 1945 - 1950: NHI and the Fair Deal 1960 - 1965: The Great Society - Medicare and Medicaid 1970 - 1974: Competing NHI Proposals 1976 - 1979: Cost-Containment Trumps NHI 2010: Patient Protection and Affordable Care Act

Fundamental Theorem of Welfare Economics

-Correspondence between a Pareto allocatively efficient (no one can be made better off, without someone being made worse off) allocation of resources and the competitive pricing of those resources -Prices reflect an amalgamation of society's preferences and the cost to produce goods and services Problems: -Equity not considered -Market distortions result in non-competitive prices -Short-term labor market disruptions

1992 - 1994: The Health Security Act

-Hilary Clinton was the chair of a health care task force that put together the Health Security Act. This was a plan for universal coverage that included individual and employer mandates as well as managed competition between private health insurers for the business of "health-purchasing alliances" composed of businesses and individuals. President Clinton simply could not garner enough votes for this to pass, and the 1400 page bill had a reputation of being too complex.

2. Market Distortion: Imperfect/Asymmetric Information

-How is health different from other markets with respect to information? -Do you have sufficient information about a computer's inner-workings? Pre- versus post information -After you follow a doctor's advice, do you know if it worked or whether you would have been healed anyhow? -Doctor's advice is sometimes based on uncertain information -Supplier-induced demand

Diamond-Water Paradox: If competitive prices result in an efficient allocation of goods and services, why is the price a diamonds (a luxury good) so much higher than water (a necessity)?

-In long-run equilibrium, water has a low price because it has both a low marginal value and a low marginal cost of production -In long-run equilibrium, diamonds have a high marginal value and a high marginal cost of production -In the short-run, the situation could be reversed -Analogy for low-skilled versus high-skilled labor

Steps to reach a pareto allocativley efficient solution

-Individuals maximize utility subject to income constraints and generate demand schedules (i.e., quantities demanded at various prices) for different goods/services -Firms maximize profits and generate supply schedules (i.e., quantities supplied at various prices) for different goods/services -If competitive market assumptions (to be discussed in this lecture) were not violated in generating the above demand and supply schedules, then the equilibrium condition between market demand and supply for the different products/services results in competitive prices and leads to a Pareto allocatively efficient solution of goods and service output levels Although a Pareto optimal solution does not guarantee equity, it results in the highest level of utility (~output), which can then be theoretically re-distributed (e.g., progressive income taxes) An example of a Pareto sub-optimal solution was when workforce teams either consisted of all physicians or all nurses. Some people would be made better off (and no one theoretically would be made worse off) if the teams consisted of both physicians and nurses, because more services were produced with the exact same total workforce (see slides 19-20) It is very difficult for the government to set input and goods/service prices, because of lack of information about people's preferences and firms' production functions. Prices constantly adjust in the market to reflect changing preferences and production costs, which will then change output levels.

Criteria for covered treatments

-Is the treatment medically necessary? -Insurance generally covers medically necessary treatments -Professional association practice guidelines and evidence-based guidelines Is the treatment a covered benefit? -Experimental treatments, such as clinical trials, generally not covered -Insurance contracts can have other exclusions -For example, is autism's extensive educational, behavioral and vocational support covered?

3. Market Distortion: Externalities: A cost (negative externality) or benefit (positive externality) is imposed on people not involved in the transaction

-Negative externalities -Air pollution, water pollution -Often result in over-production -Positive externalities Vaccines, basic science research, consumer protection, others' health Externalities can result in either over- or under-production (see Q0), as compared to the Pareto allocatively efficient level (defined by Q1) Often result in under-production

Economic Efficiency Definitions -technical, productive, allocative, efficient, dynamic

-Technical efficiency: maximum output, given inputs -For example, optimally utilizing existing workforce cadres and equipment, such as a firm offering medical imaging services -Productive efficiency (extends efficiency to incorporate costs): maximum output for a given budget, or minimum cost for a given output -For example, hiring/purchasing optimal mix of workforce cadres and equipment, such as a firm offering medical imaging services -Allocative efficiency (extends efficiency to incorporate outputs' value to society): maximize economic social welfare (or utility), that is, price equals marginal cost (or average cost in long run) -For example, society producing optimal mix of imaging services versus all other goods and services -Dynamic efficiency: is the rate of technological advancement optimal? For example, society saving and investing in optimal amount of research to improve medical imaging machines

What creates politics

-What drives what? Politics drives policy: the stronger group creates the policy Policy drives politics: -Theodore Lowi Policy drives politics Classification based on perception by those impacted by policy... People react /organize/advocate differently depending on how the policy impact them

What is health economics

-application of economics to health and healthcare market -health care market significantly deviates from being perfectly competitive - 90% of expenditures paid by an insurer, not directly paid by the patient: 50% of expenditure paid by government -provider and insurer market power -physician consumer information asymmetry - inherent market failures in healthcare make it difficult to reach most efficient solution, so goal is to reach second best -Healthcare expenditures are approaching one-fifth of our economy, and are expected to continue growing because of new healthcare treatments -Current growth in healthcare spending is not sustainable for families, employers, and the government

What is policy

-laws, regulations, court decisions that stipulate rules or procedures -affordable care act enacted a policy goal to insure most Americans -public policy is based on both the economic theory of regulation and the public interest theory of government

Which is not a potential input in the health production function?

. Nutrition B. Environment C. Genetics D. Income E. None of the above- true

Company-affiliated physicians and prepaid (per-member per-month) practice groups were strongly opposed by the medical establishment during their early history, because they encroached on physician autonomy and potentially reduced wages

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Consumers do not maximize health stock,* but maximize utility, so they will produce health stock up to the point where MBhealth stock = MChealth stock

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Defining "Equity" or "Health Equity" isNot Easy and Depends on Many Factors

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Specialists earn almost double as compared to primary care physicians

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The U.S. pays physicians more than other countries do

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The majority of a hospital's costs is for labor (and physicians typically are not directly reimbursed by the hospital)

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Two medical school applicants for every medical school seat

...

Women now represent almost half of all medical school graduates

...

hospital have significant market power

...

What percentage of Medicare Part D is currently financed by Part D-related taxes, premiums and fees?

0-25% 26-50% 51-75% 76-100%

What percentage of Medicare is currently financed by Medicare-related taxes, premiums and fees?

0-25% 26-50% 51-75% 76-100%

Universal laws of healthcare impede obtaining a good value

1. Most health care is paid by someone else at the point of service. 2. Every dollar of health care spending equals someone else's dollar of health care income, including fraud, waste and abuse. 3. Providers have more information than patients

Some uninsured will remain

10% uinsured remain Who are they? -Immigrants who are not legal residents, and are therefore not eligible to participate in Medicaid or the health insurance exchanges (1/3) -Eligible for Medicaid but unenrolled (1/4) -Exempt from the mandate (most because can't find affordable coverage) -Choose to pay penalty in lieu of getting coverage Many remaining uninsured will be lw-income

Congress passes legislation governing FDA's regulation of the market-entry of drugs

1938 Pure Food and Drug Act (safety requirement) Kefauver-Harris Drug Amendments 1962 (effectiveness requirement) -FDA designs system of clinical trials for New Drug Approval -Congress delegates policymaking authority to the FDA -FDA shapes the private sector activities in this space -White House Influences FDA Decisions -Courts Review FDA position on access to pre-approved drugs -District Court rejection of plaintiff's claim: ...patients have no right to "a potentially toxic drug with no proven therapeutic benefit" (Abigail Alliance v. von Eschenbach) -George W. Bush appointees reject advisory committee recommendation to approve Plan B for over-the-counter sales

Medicare Legislative HIstory

1965: originally covered people aged 65+ 1972: include individuals under age 65 with permanent disabilities and people suffering from end-stage renal disease (ESRD) 2001: eligibility expanded further to cover people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig's disease) 2003: Medicare Modernization Act expanded benefits to prescription drug coverage

Medicare has used various methods to try to control physician expenditure increases, but it has not met its targets since 2003

1992 - Medicare Volume Performance Standard (MVPS) Expenditure targets were set and typically exceeded 1997 - Sustainable Growth Rate (SGR) Balanced Budget Act of 1997 tied expenditure increases to per capita GDP growth, using the RBRVS conversion factor Met SGR targets through 2002, because target allowed fees to increase However, in 2002, target required a 4.8% cut in fees 2003-2013 - Congress has passed legislation each year (15 total times) to override additional fee cuts These over-rides have cost $150 billion Because of history of overriding the fee cuts, in order to meet the target in 2014, a 24% fee cut is required 2014 - Congress is working on a long-term fix that will repeal the SGR, allowing 0.5% increases per year and tying a portion of payments to value and quality CBO estimates cost to repeal the SGR with a 0.5% update will cost about $136 billion from 2014-2023

Which professions require a license?

20 percent of workers required a license in 2000; up from 5 percent in 1950s

OECD Health Committee Survey on Health System Characteristics (2012)

32 OECD Countries filled out the survey Estonia and Turkey excluded since did not fill out survey Questions related to P4P Types of Providers: Whether country had bonus payments for primary care physicians, specialists, and acute care hospitals Types of performance targets: preventative care, management of chronic conditions, uptake of IT services, patient satisfaction, efficiency Measurement of performance targets: Absolute measure, change over time, relative ranking Payment mechanism: Payment flow, proportion who earn bonuses, and size of bonus

The Explosion in ADHD Diagnoses

6.4 million U.S. school-aged children have been diagnosed with ADHD at some point in their lives, as reported by parents (2011) That's a 42% increase from 2003 to 2011! 7.8% ever diagnosed in 2003 9.5% ever diagnosed in 2007 11.0% ever diagnosed in 2011

Diagnostic Prevalence

69% of children with current ADHD take medication for it (2011) From other sources: Largest medication increases among adolescents & adults Dramatic variation in diagnosis and medication prevalence among states

What is an Accountable Care Organization (ACO)?

A response to fragmented, poor quality, and high cost care Groups of providers responsible for providing a range of services and coordinating care Potential for shared savings and, if they choose, the risk for losses Choose risk, get a bigger portion of savings (or losses) Subject to performance measurement and quality standards

Lecture 4 summary

A key goal of an economic system is to improve society's standard of living: increasing productivity is an important component Requires specialization and trade However, people are generally self-interested A market-based economy's strengths are innovation and efficiency, and its weaknesses are lack of equity, non-competitive distortions, and labor market disruptions Correspondence between a Pareto allocatively efficient (no one can be made better off, without someone being made worse off) allocation of resources and the competitive pricing of those resources Technical efficiency, productive efficiency, allocative efficiency, and dynamic efficiency (the latter often requires government intervention) Competitive prices reflect an amalgamation of society's preferences (demand) and the cost to produce goods and services (supply) Equity Degree of equity that people advocate for often hinges on their belief about the source of inequality: Is it luck or choice? Rawl's "veil of ignorance" can help define what is fair/equitable

Monopoly

A monopolist can set its own price, so it faces a downward sloping demand curve The monopolist's analogous benefit is the marginal revenue To determine quantity that a profit-maximizing firm with monopoly power will produce, need: Demand function Cost function (Will review in section)

In P4P programs, a physician may be incentivized based on:

A. Absolute level of quality of care B. Change in quality of care C. Performance relative to other physicians D. Improved efficiency E. Any of the above

In OECD countries, P4P programs and incentives are most prevalent in:

A. Acute hospital care B. Primary care C. Specialist care D. Other

Why is cost-effectiveness analysis used instead of cost benefit analysis?

A. Costs are difficult to quantify in monetary terms. B. Benefits are uncertain. C. Benefits are difficult to quantify in monetary terms.: correct

The payment model under which providers bear the most financial risk is:

A. Fee-for-service (FFS) B. Capitation C. Per episode (bundled payment) D. Cost-based E. Per diem

what is the key to increase standard of living

A. Government setting prices to ensure firms do not overcharge consumers B. Government policies facilitating lower economic production costs of goods and services: i think C. Government setting minimum wage to ensure all workers are paid a living wage

ACA will reduce the number of uninsured for a number of reasons

ACA expected to reduce number of uninsured by 25 million by 2024, but 31 million will remain uninsured (e.g., immigrants and young/healthy) See next slide Expanded Medicaid eligibility Low-income individuals will be eligible for subsidized insurance through state-based exchanges Sliding-scale subsidies for insurance for individuals and families up to 400% of FPL Guaranteed issue, no pre-existing condition exclusions Individual mandate Approximately 25 million are expected to gain insurance by 2014 under the ACA, but 31 million will remain uninsured

There is ongoing debate on what benefits should be covered by health insurance

ACA introduced "minimum essential benefits," which include 10 categories that must be included in a health insurance plan: Ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Some benefits are mandated by the states, but plans can voluntarily include them if not mandated Types Providers: e.g., chiropractors, podiatrists, and social workers Services: mammograms, well-child care, drug and alcohol abuse treatment, acupuncture, and hair prostheses (wigs) Populations such as non-custodial children and grandchildren Most common include mammography screening, minimum maternity stay, breast reconstruction, mental health parity, and alcohol and substance abuse Average of 44 mandates per state in 2011, up from 36 in 2004 Ranges from 13 in Idaho to 70 in Rhode Island Each mandated benefit increases the health insurance premium, unless is substitutes for a higher-cost service

. The Global Explosion in ADHD Medications

ADHD medication sales- increasing rapidly US way more than other countries

Interest groups lobby Congress on behalf of the FDA

AIDS activists lobby the FDA which leads to fast track, accelerated, and priority drug review NRA lobbies congress to end CDCs funding of research on firearm ownership

Outcomes: More Responsive Government

AIDS activists push for fast-track drug approval -FDA acknowledges a subset of citizens who face terminal illness with no known effective treatment -Because this group is willing to take on more risk, FDA creates a special type of drug approval to respond to this need State and local-level influences on school curriculum -Community level opinion shapes actual curriculum on evolution/creationism in spite of both federal and state-level policy (Berkman and Plutzer, 2010)

American Policymaking is Porous

Access points allow citizens and interest groups to press their claims THROUGHOUT the policy process Access actually encourages formation of interest groups Activism on the part of senior citizens followed the creation of Medicare FOIA created incentive to argue for equitable distribution of NIH funds

Policy Goals(applies to prior authorization and utilization review policies and rules)

Achieve a desired outcome Fairness Administrative efficiency

Outcomes: Ineffective?

Affordable Care Act: political victory and policy failure? -Effort to reduce uninsurance and underinsurace in the US -Lack of real cost controls leave a sizable problem in place How do we assess this outcome -Failure of political institutions to overcome powerful interests in society? -Failure of strong consensus in the American public on either the need or mechanisms for cost controls

1970 - 1974: Competing NHI Proposals

After implementation of Medicare and Medicaid, health care costs began to rise. Senator Ted Kennedy introduced a plan for a universal single-payer system and President Richard Nixon championed his own plan for universal coverage. Other reform proposals were also on the table. Even with bipartisan support and willingness to compromise, no bill ever made it out of committee and on to the House floor.

The Policy process:

Agenda-setting - getting government to consider action on a problem or issue... 2. Policy Formulation - what is proposed to be done about the problem... 3. Policy Adoption - getting the government to accept a particular solution for the problem at issue... 4. Policy Implementation - applying the government's policy to the problem... 5. Policy Evaluation - did the policy work? Did we address the problem?

Supreme Court Decision, 2012National Federation of Independent Business v. Sebelius

Anti-injunction act - ACA labels individual mandate as a penalty but Supreme Court upheld mandate as a tax. Taxing authority - Congress has the ability to impose taxes. Spending power - Medicaid expansion became optional for states

Individual Market for Health Insurance

Approximately 5% of the population in 2012 Market forces and government policies favoring group market are not present in individual market High administration costs High adverse selection Premiums are paid for with after-tax income Denied coverage or rated up 13% applications rejected (AHIP) 34% applications rated up (AHIP) Premiums are lower in the individual market, primarily due to underwriting(i.e., healthy people obtain coverage)

As employer's demand for labor becomes more elastic (Panel A to Panel B), burden of the tax shifts to employees

As employee's supply of labor becomes more elastic (Panel A to Panel B), burden of the tax shifts to employers

Should costs be considered in medicine?

Assume limited 4-day extension contributed to Wikeline's amputation Assume 8-day extension would have saved Wikeline's leg What is the cost of an 8-day extension being approved for Wickline and all others in her situation? Is it worth the cost? What is the opportunity cost? For example, would more amputations be avoided if the additional expenditures incurred from moving from a 4-day to an 8-day extension policy was spent in another area of health care (e.g., prevention)?

. What is ADHD?

Attention Deficit / Hyperactivity Disorder One of the most common childhood behavioral disorders in the U.S. Makes it hard for a child to focus and pay attention. Some kids may be hyperactive or have trouble being patient. Can make it hard for a child to do well in school or behave at home. No definitive cause or cure, but there are treatments.

8 fold path to Problem Solving

Define the problem Assemble the evidence Construct alternatives Select the criteria Project the outcomes Confront the tradeoffs Decide Tell your story

Rwanda: Performance Based Financing (PBF)

Background PBF through the public health system: by May 2008, PBF in all 401 health centers (9.5 million population), also in all district hospitals PBF system as part of a larger health sector reform (CBHI; QA; Imihigo's) Motive was to increase use and quality of health services PBF budget: $200,000 in 2002 and $9.3 million in 2007 Large impact evaluation (quasi experimental study) Incentives Health center earnings calculated based on number and types of services (24), which is adjusted for a quality score (118 composite indicators) Examples: 2500 RWF for assisted deliveries; 1000 RWF per new patient who accepts family planning; 50 RWF for immunizations; 40 RWF per new consultation Majority of incentives were used to top-up salaries. In 2007, about 38% was spent towards the health facility Results (as compared to control facilities) Increase in institutional deliveries and child nutritional visits Increased quality of prenatal and U-5 clinic visits Increased provider performance and practice Children living in catchment area of facilities taller and less sick DHS (2005 vs. 2007): infant mortality 152 > 103; child mortality 82 > 62; contraceptive prevalence rate 10% > 27%

Haiti: Performance Based Initiative

Background Started in 1999 by a USAID funded Agency: subcontracting 3 NGOs Irregular results by implementing partners; focus on improved access to health services, especially maternal and child health Incentives 95% of negotiated budget was paid quarterly (output based budget) Up to additional 10% of the budget could be earned as bonus conditional on performance indicators NGOs also assumed some financial risk, as they would lose 5% if they did not attain targets Performance Indicators: percent of mothers using oral rehydration salts to treat children with diarrhea, immunization for kids, prenatal visits, family planning, reducing waiting time to care for children Results Increase in immunizations, prenatal & postnatal care; assisted deliveries

Medicaid Managed Care

Balanced Budget Act of 1997 gave state Medicaid programs new authority to mandate managed care enrollment without a waiver, except for children with special needs, Medicare beneficiaries, and American Indians 17 states had waivers to mandate managed care prior to 1997 Goals are to improve access and coordination of care Reimbursements already low Risked-based managed care and primary care case management (PCCM) Safety net providers were concerned with losing key source of financing Medicaid-dominated managed care organizations (e.g., safety net systems) have been replacing commercial insurers -Approximately 75% of Medicaid enrollees are in managed care plans

Why are hospital markets consolidated?

Barriers to entry High fixed costs State laws limiting entry Economies of scale - when long run average cost (LRAC) - e.g. average cost per admission over 10 years - is decreasing with output Have resulted in trend towards mergers and chains

Criticisms of Resource Based Relative Value Scale (RBRVS)

Based on supply-side factors only; not affected by the demand side factors (patient preferences, quality, outcomes, etc) Favors specialists--Relative Value Scale Update Committee (RUC) However, Affordable Care Act increased payments for primary care services by 10% from 2011-2015

Why do we study health insurance

Because 88% of healthcare expenditures are paid by a third party (often an insurer), not the patient. -Out of pocket share of national health expenditures has decreased from 48% to 12% between 1960 and 2011; however, OOP share of GDP has only decreased from 2.4% to 2.0% The top 5% of spenders in a given year account for approximately 50% of total healthcare expenditures in the United States The top 5% of spenders had healthcare expenditures that averaged $30,000 in 2003, or about 10 times the per capita average*

Key roles of a health insurance plan

Benefit design -Services covered -Cost sharing Network design -Physicians, hospitals, behavioral medicine -Payment methods Manage care -Prior authorizations, utilization review, disease and case management, wellness incentives

Demand-side (i.e., directed at consumers) policies and incentives to reduce costs

Benefit design Cost sharing Deductible: consumer pays this amount each year before any payment is made by the insurer (e.g., $500 - $5,000 per year) Copayment: consumer pays a fixed amount per service or product (e.g., $10 per visit or prescription), generally higher for specialist versus primary care visits or for brand-name versus generic medications Coinsurance: consumer pays a fixed percentage of the charge paid by the insurer (e.g., 20% of hospital-stay charge) Stop-loss limits cost sharing by limiting the out-of-pocket amount paid by the consumer Annual or lifetime limit: a limit on the amount that the insurer will pay. ACA has eliminated these limits. Tension between cost sharing to reduce unnecessary care and consumers bearing increased risk

What are the similarities and differences between an ACO and HMO?

Both aim to reduce costs HMOs are insurance companies; ACOs are not (ACOs get paid by insurers) ACOs get paid more for high quality

Who's affected?

Boys are more than two times more likely than girls to be diagnosed Male: 15.1% , Female 6.7% By race/ethnicity, percentage ever diagnosed: Race, White: 12.2% Race, Black: 11.9% Ethnicity, Hispanic or Latino: 5.6% By age, percentage ever diagnosed: Age 4-10: 7.7% Age 11-14: 14.3% Age 15-17: 14.0%

Pathways of interest group access to policy change

Bureaucratic/executive branch policymaking -AIDS activists convince FDA to uses its existing statutory authority to create a set of shorter drug approval processes Congressional policymaking -NRA activists go to Congress to change CDC's budget and research programs Judicial policymaking -Abigail Alliance seeks access to drugs available through clinical trial FDA resists Courts support FDA

Health reform will significantly increase the demand for health care services and workers

By 2019 - reduce number of uninsured by 32 million 23 million remain uninsured Expenditure increases estimated between 40-90% when uninsured gain insurance Concern that increase demand for health workers will result in higher prices and lower access

The future

Citizen and patient empowerment Health in all policies Leadership and services

Health Maintenance Organization (HMO)

Closed network of providers Primary care gatekeeper physician Physician group typically reimbursed based on capitation (fixed payment per patient per month) Individual physicians could be paid by the group based on salary, fee for service, or capitation Physician specialists typically paid fee for service Hospitals reimbursed in a variety of ways (per diem, DRGs, capitation) Pharmaceutical benefits managed by benefits management company Lowest premiums

Psychotropic Medication Laws

Concern that schools are too influential in diagnosis and medication decisions Between 2001 and 2009, 14 states passed laws limiting schools' influence, which prohibit school personnel from: Recommending a child take medication Requiring medication as a condition of enrollment Using parents' refusal to medicate as sole basis for neglect

Examples of shared powers

Congress passes legislation Presidential veto is possible Legal statutes are implemented by the bureaucracy with Oversight of the President and his appointees Review by the courts The President is the Commander in Chief Congress retains the right to declare war Presidents sign treaties and make executive and judicial appointments Both require approval by the Senate

What is the source of the FDA's legal authority in regulating the sale of drugs in the United States?

Congressional statute Presidential appointees to the FDA The Courts All of the above- correct

Conclusion

Consequences of fragmentation and access -Democracy and responsiveness Inefficiency, inequity, ineffectiveness Who benefits? -How might we assess the extent to which American political institutions are fairly allocating goods across society?

Hypotheses

Consequential accountability reforms introduced via NCLB increase ADHD diagnoses, particularly among low-income children Psychotropic medication laws decrease ADHD diagnoses

Grossman Model Implications

Consumer implications: Because it takes time and income to add to your capital stock of health, and because your health stock has diminishing returns to health (and utility), you should "optimize," not "maximize" health stock Policy implications: the model can help the government identify areas where to invest resources in order to improve population health For example, in some cases, the best investment may not even be in health sector. Education can increase the efficiency of the health production process, that is, more educated people may use less time and other inputs to produce the same amount of health than less educated people

How could cost effectiveness analysis inform how many extension days should be approved?

Cost effectiveness analysis is used to estimate the cost per "something-thing-you-care-about" Cost per avoided amputation Cost per patient to keep HbA1c at targeted level Cost effectiveness analysis is used when it is difficult to assign a monetary value to the benefit (e.g., avoided amputation) If that is possible, cost-benefit analysis is used

Cost Effectiveness Analysis Overview

Cost per "something-we-care-about" Cost per avoided amputation, cost per patient to keep HbA1c at targeted level Wide applications within and outside of health. For example, you could compare different policies to achieve the following: Public health education Cost to reduce smoking rate by 1% Public health Cost to increase vaccination rate by 1% Environmental health Cost to reduce CO2 emissions by 1%

Cost Utility Analysis Overview

Cost per quality-adjusted life year Quality-adjusted life year accounts for Years of life lived Quality of life 0 if dead 1 if fully healthy between 0 and 1 based on being able to perform activities of daily living, mental health, cognitive ability, social relationships, etc. Used extensively in Europe, particularly the United Kingdom's National Institute for Health and Clinical Excellence (NICE) Rule of thumb is cost of treatment per quality-adjusted life year (QALY) gained must be less than £20,000 to £30,000 (or $32,000 to $48,000). Source: McCabe et al., 2008.

RAND Health Insurance Experiment Findings

Cost sharing resulted in lower utilization, but health outcomes were not worsened, with a few exceptions Individuals with hypertension Low-income individuals Very sick individuals

Cost Analyses Approaches

Cost-benefit analysis -Net benefit = present value of benefits minus present value of costs, all measured in monetary units (e.g. dollars) Cost effectiveness analysis -Cost per "something-we-care-about" e.g., cost per avoided amputation, cost per patient to keep HbA1c at targeted level Used when it is difficult to assign a monetary value to a benefit (e.g., avoided amputation) Cost utility analysis -Type of cost effectiveness analysis, where effectiveness is based on a quality-adjusted life year (QALY), where "quality-adjusted" is based on utility or happiness of a particular state of health Cost per QALY is the key measure

Medicare Summary

Covered 52.3 million people in 2013 (17% of population) 83% aged 65+ 17% under 65 with permanent disabilities $553.9 billion (FY2012) About 15% of federal budget About 20% of total health care expenditures Cannot sustain current spending, given projected revenue levels Politically difficult to raise revenue from public or beneficiaries, reduce benefits, or reduce providers' total compensation Current focus is to improve efficiency (e.g., Accountable Care Organizations) Unless Medicare's fiscal path is fixed, it will crowd out spending on other federal priorities: Medicaid, defense, transportation, education, etc. Was/is "Medicare for all" a good idea?

Health Insurance Exchanges

Create state-based individual and small business Health Benefit Exchanges Individuals and small businesses can purchase coverage through Exchange Guaranteed Issue and Community Rating Income based subsidies for individuals and small businesses purchasing insurance through the Exchanges

Point of Service (POS)

Defined network of providers, but can go outside of network if primary care physician approves Primary care gatekeeper physicians Physicians typically paid capitation or fee-for-service Hospitals reimbursed in a variety of ways (per diem, DRGs), except capitation Lower premiums than PPOs

Summary measures - difficulties

Data collection methods not uniform across countries Measures are broad and reflect different underlying issues E.g. U.S. higher relative infant mortality reflects socioeconomic factors (teen pregnancy) more so than health care system Measures like life expectancy don't account for quality of life QALYs are methodologically challenging (must poll lots of people) and theoretically challenging (what is best way to determine them?)

Management

Day-to-day operations Fulfillment of mission Accountable to governing board

Which power listed below resides solely with the President and is not shared with another branch of government?

Declaring war Signing treaties Executive order- i think Judicial appointments

Some imaging regulation seems to be in accordance with the economic theory of government

Deficit Reduction Act of 2005 prohibits U.S. Department of Health & Human Services (which Medicare is under) from even studying whether prior authorization helps control costs and utilization Yet, private insurers often require prior-authorization for imaging 75 million people are enrolled in health plans that contract with radiology-management vendors (Iglehart, 2009)

Lecture 9 Summary

Demand for insurance exists because most individuals are risk averse and medical costs can be high -Risk averse people are willing to pay a health insurance premium that is higher than their expected healthcare costs Health insurance serves more than just an "insurance" function -Redistribute wealth from healthy to sick for events that occurred prior to insurance period (i.e., for pre-existing conditions) -Healthy pay higher than actuarially fair premiums Sick pay lower than actuarially fair premiums -Control costs -Encourage desirable care (e.g., preventative care) -Design benefits and provider network, and manage care -Insurance markets are hampered by -Moral hazard (hidden action) Adverse selection (hidden information)

Project Outcomes

Hardest step Be realistic Consider effects on key stakeholders Understand causes of identified problem and the effect the recommended alternative will have on it Estimate magnitudes

ACA's main impact on Medicaid is expanded eligibility

Eligibility expanded to include all individuals and families (including adults without children) up to 138% of FPL (after five percentage point income deduction) Mostly funded by federal government: 100% initially, then 90% States have option to not expand coverage, without losing federal funds for their existing Medicaid program: National Federation of Independent Business (NFIB) v. Sebelius, 2012 Standard benefits for new enrollees Simplified Medicaid and CHIP enrollment Increase drug rebate from pharmaceutical firms for brand-name drugs to 23.1% Demonstration projects on medical homes and bundled payments Medicaid/CHIP are expected to gain13 million enrollees under the ACA by 2024

Children's Health Insurance Plan

Established in 1997 under Title XXI of the Social Security Act State Children's Health Insurance Plan (SCHIP) Children's Health Insurance Program Reauthorization Act (CHIPRA) of 2009 Signed February 4, 2009 Approximately 5 million enrolled (10% adults) States have different family income eligibility requirements Number of Individuals Enrolled in CHIP 133% to 300% of FPL

Employer-paid health insurance premiums are mostly offset by a reduction in wage, but because the benefit is not taxed, it makes them beneficial to the employee

Employer often pays a majority of a health insurance premium (i.e., $11,786 of a $16,351 family premium) Both demand and supply curves for labor shift when health insurance is included in the compensation package Cost of insurance (demand shift) may be different than value of insurance to employee (supply shift): see next two slides Employer-paid health insurance premiums are mostly offset by a reduction in wages Additional $1 in health benefits was associated with an 83 cent reduction in teacher's salaries (see Blumberg, 1999) Aggregate supply of labor is believed to be quite inelastic However, nominal wages are sticky downward Even if health benefits resulted in dollar-for-dollar lower wages, they are still beneficial, because they are subsidized by federal and state governments because employer contribution is not treated as taxable income to employee (and employee's contribution is done with pre-tax income) Subsidy estimated to be $200 billion per year (KFF 2008) Subsidy benefits wealthy more than the poor

Employer-Sponsored Health Insurance

Employer-Sponsored Health Insurance 48% of the population had employer-sponsored insurance in 2012 Group markets Small (2-50 employees) Mid-market (51-500 employees) Large (>500 employees) Market forces Risk pooling Administrative costs Government policies World War II wage and price controls Tax treatment of employer-based health insurance premiums

Medicare Part B:Supplementary Medical Insurance Program

Enrollees: 47.6 million (91% of all enrollees) Expenditures: $248.4 billion (about 43% of total) Benefits Physicians, hospital outpatient, and home health care Financing and cost sharing (2014) General revenues subsidize about 75% of Part B's cost, remainder is: Monthly premium in 2014 (depends on income): $104.90 if income < $170,000 file joint ($85,000 individual) $146.20 - $272.70 if income $171,001-$428,000 file joint ($85,001-$214,000 individual): $335.70 if income >$428,000 file joint ($214,000 individual) Deductible: $147 Coinsurance: 20% No out of pocket maximum

Medicare Part A:Hospital Insurance Program

Enrollees: 51.5 million (98.5% of all enrollees) Expenditures: $264.5 billion (about 45% of total) Benefits Inpatient hospital, skill nursing facility, home health, hospice Financing and cost sharing (2014) 2.9% payroll tax (1.45% each from employer and employee) Started in 2013: additional 0.9% for employee if earnings > $250,000 joint filers or >$200,000 individual filers Deductible: $1,216 Coinsurance: $0 (days 1-60) $304/day (days 61-90), $608/day (days 91-150), then no coverage No out of pocket maximum

Benefit reforms

Ensure coverage of preventive services with no cost-sharing Establish minimum benefit standards Limit out-of-pocket spending for consumers

Medicaid Overview

Established in 1965 under Title XIX of the Social Security Act Health insurance for low-income families and disabled/blind individuals 62.6 million enrollees (FY09) (KFF) 57.4 million average monthly enrollees (2013) (CMS) Expenditures $414 billion (FY11) (KFF) $428.5 billion (2012) (CMS) Funded by federal (57%) and state (43%) governments Federal Medical Assistance Percentages (FMAP) range from 50% to 76% (prior to American Recovery and Reinvestment Act of 2009's FMAP enhancement of 6.2 percentage points plus additional increases to states with high unemployment rates)

Medicare Overview

Established in 1965 under Title XVIII of the Social Security Act Kaiser Family Foundation "Medicare at 40" video (2005), http://www.kff.org/medicaid/40yearsvideo.cfm Covered 52.3 million in 2013 (17% of population) 83% aged 65+ 17% under 65 with permanent disabilities $553.9 billion (FY2012, i.e., Sep 30, 2011 - Oct 1, 2012) About 15% of federal budget About 20% of national health expenditures Eligibility (primary) If eligible for social security and have made payroll tax contributions for 40 quarters (10 years) If disabled

Trade often results in large surpluses to society

Example: Health insurance can result in overuse of healthcare services, particularly if the provider does not have an incentive to control costs(QB is not allocatively efficient, while QC is)

Medicaid Expansion

Expand Medicaid to all individuals under age 65 with incomes up to 133% of the federal poverty level $15,382 for an individual $31,322 for a family of four Previously limited to children, elderly, and disabled Supreme Court made optional for states in 2012

Identify goals of the Affordable Care Act.

Expand health insurance coverage Improve coverage for those with health insurance Improve access to and quality of care Control rising health care costs -optional medicaid expansion- up to 133% FPL -exchanges (subsidies 133-400% FPL -employer sponsored coverage

Managed care attempts to only cover medically necessary care, but medical uncertainty results in a tradeoff between over- and under-treatment

Expanded definition of medical necessity will increase over-treatment (Quadrant A), but decrease under-treatment (Quadrant C) Narrow definition of medical necessity will decrease over-treatment (Quadrant A), but increase under-treatment (Quadrant C)

Payment Method #4:Per Episode (Bundled Payment)

Fixed payment for bundle of services or episode of care May bundle services of single provider or multiple Equalizes risk between payer and provider Example: In Germany, hospitals are paid per case on the basis of Diagnosis Related Groups (DRGs)

Payment Method #5:Capitation

Fixed payment per patient for a unit of time (per member per month), risk-adjusted Paid whether or not the person gets care Range in scope (sometimes hybrids of FFS and capitation) Shifts cost risk onto the provider Examples: U.K.'s NHS has historically paid General Practitioners via capitation (changed to P4P in 2004) Alzira model (Spain): Govt. pays private company a fixed amount per capita for primary and secondary care

If an employer pays a portion of an employee's health insurance premium, does the employer reduce the employee's wage by the amount of the benefit?

For example, in 2013, employers on average contributed $11,786 towards the average $16,351 family premium (source: Kaiser/HRET Employer Health Benefits 2013 Annual Survey) Does an employee in a firm that contributes $11,786 receive lower wages, as compared to a comparable employee working for a comparable employer that does not offer health insurance? The answer to this question can be informed by understanding the incidence of tax, for example, by studying how what fraction of payroll taxes are borne by the employer versus the employee

Specialty hospitals

For-profit, physician-owned, limited service inpatient & outpatient hospitals (usually no emergency room) Usually cardiac, orthopedic, or surgical Most profitable services Only about 100 exist But growing rapidly And locate in big markets

Framer's Intentions

Framers believed that state power should remain close to the people States were assumed to be the proper location for most policy making Concept of democracy for and by "the people" white male land owners Goal to limit the size and strength of the federal government Check power that might arise in government with another source of power

What the strengths and weaknesses of a free market economy versus a socialist economy?

Free Market - What is society going to produce: things people with income perfer - who is going to produce- people who are most cost efficient - who is going to consume it- people with income -what are key strength- efficiency innocation -what is weakness: equit, short run labor disruptions Socialist - what is society going to produce- things people need - what is going to produce it- poliical non-elite - who is going to consume it- political elite, political non elite - what are the key strengths- some equity - what are weaknesses- requires benevolent omniscient state, lack of efficiency innocation

Market Distortion: Public Goods and Free Rider Problem: Maket may not produce public goods because they are non-excludable

Free rider problem: individuals pay less and consume more than their fair share of a good (e.g., let others pay for national defense, but still consume it, because hard to make excludable)

Medicaid eligibility pre-Affordable Care Act: primarily covers low-income children, pregnant women, disabled persons, and the elderly

General criteria Income and assets Family status Adults with dependents Children Pregnant women, disabled, Medicare dual eligibles Long-term care Eligibility groups Categorically Needy (e.g., low-income families, children) Medically Needy (e.g., pregnant women, children, disabled persons); less-restrictive income and asset requirements Special Groups (e.g., certain Medicare beneficiaries, women with breast or cervical cancer) Federal government sets eligibility floor, after which eligibility varies by state

Many Factors Contribute to Premature Death

Genetic disposition- 10% social circumstances- 15% environmental exposure- 5% health care- 10% behavioral patterns- 40%

Common Symptoms

Get distracted easily, forget things often Switch quickly from one activity to another Have trouble with directions Daydream too much Problem finishing tasks like homework or chores Lose toys, books and school supplies often Fidget and squirm a lot Talk nonstop and interrupt people Run around a lot Touch and play with everything they see Be very impatient Blurt out inappropriate comments Have trouble controlling their emotions

"Three-legged stool"

Governing Board Management Physicians

Containing Health Care Costs

Greater oversight of health insurance premiums and insurer practices Increased competition and price transparency through Exchanges Provider payment reforms in Medicare Testing of new, more efficient delivery system models in Medicare and Medicaid

Grossman's Demand for Health Model

Grossman's model explains, in 4 parts, how the demand for health care is derived from (is based on) people's demand for health Health is the ultimate goal, not health care; health care is only a means to an end 2) Health is the goal because: Health is valued in and of itself, so health is a consumption good. If you are sick, you experience disutility. People use health to gain other things that they want in the market or non-market activities, such as better jobs and more leisure time. So, health is also an investment good. Another example of an investment good: education. That is, you invest in education to gain things such as better jobs and more leisure time. 3)People are born with a health endowment, which varies across people. People can add to their capital stock of health (i.e., consumers produce health) with inputs of market goods and their own time Consumers use income to change their environment, exert effort/use income to change their behaviors, and use income to purchase health care Hence, demand for health care is derived from people's demand for health 4)Health stock carries over from one time period to the next as one ages, but it depreciates over time

Summary of LEcture 14

Grossman's model for the demand for health emphasizes that people demand health, and demand for health care is derived from this demand for heatlh Health is both a consumption and investment good; we optimize health stock, not maximize it Health is produced by a number of factors; increasing education could improve the production process Unclear whether we are optimizing health - may depend on disease, treatments, population, etc.

Affordable Care ActMarket Reforms

Guaranteed issue and renewability in individual, small group, and exchange markets; risk adjustment Rating variation based only on age (limited to 3 to 1 ratio), premium rating area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in individual, small group, and exchange markets No differential rates by health status Individual mandate to have coverage Penalty greater of $695 (individual)/$2,085 (family) or 2.5% of income; maximum is bronze plan premium Employer (with 50+ employees) mandate to offer coverage Penalty $2,000-$3,000 per employee However, this mandate has been delayed to 2015 for larger firms and to 2016 for firms with 50-99 employees Medical loss ratio (medical claims/premiums) - provide consumer rebates if MLR < 85% (large group market) or MRL < 80% (small group and individual markets)

Implementation will be changing

Guidance and federal oversight needed Resources for infrastructure and capacity building Policy and political challenges

Society in England

HASAW Education Equalities Welfare Franchise Labour laws

1945 - 1950: NHI and the Fair Deal

Harry S. Truman's legislative agenda was called the Fair Deal focused on civil rights, national health insurance, and the repeal of the Taft-Hartley Act. -some thought that national health insurance did not gain much traction as it was viewed as "socialized medicine" by groups such as the American Medical Association and given fears that federal involvement in health care could lead to federal movement against segregation.

Payment Method #1: Cost

Health care provider is reimbursed the cost of services provided All cost risk on the payer Example: Retrospective cost-based reimbursement for hospital services used in early days of Medicare and private insurance sector in the U.S.

What are the key factors that drive healthcare expenditures?

Health expenditures per person is based on 5 factors: 1.conditions per person, 2. episodes per condition, 3.services per episode, 4.processes and devices and drugs per service, 5.prices per processes or device or drug

Health insurance'snon-insurance functions

Health insurance plans help control costs Managed care Bargaining power with providers Health insurance plans cover desirable, predictable, low-cost expenditures, in order to reduce future health care costs Examples: vaccines, cancer screenings

Employers and employees are becoming less able to afford health insurance

Health insurance premiums and workers' contribution to premiums have grown at a much higher rate than workers' earnings Over time, as compared to larger firms, smaller firms have been less likely to offer health insurance coverage, because their premiums are higher (risk selection and administrative costs per member) and because smaller firms tend to offer lower wages, making difficult to reduce wages further to pay for increasing health insurance premiums Hence, the percentage of adult workers under aged 65 covered through their employer has decreased over time, resulting in more workers (and their families) being covered by Medicaid or being uninsured Conventional/indemnity (i.e., non-manage care) employer-sponsored health insurance is almost non-existent today. High deductible health plans with a health savings account (HDHP/SO) have significantly increased their market share to 20% in the past few years. The savings account allows employees to contribute pre-tax dollars that can be used for medical expenses, but family deductibles average $4,079 and can be as high as $10,000.

Health insurance premiums

Health insurance premiums include healthcare expenditures (medical claims) and loading charges

Health insurance'snon-insurance functions

Health insurance's non-insurance function is to transfer wealth from those who had fewer adverse events prior to the policy period (e.g., pre-existing conditions) to those who had more adverse events Healthy pay higher than actuarially fair premiums Sick (those with pre-existing conditions) pay lower than actuarially fair premiums Many states and the ACA restrict underwriting for pre-existing conditions Guaranteed issue, pre-existing condition maximum exclusion periods, modified/community rating, rating bands This function is not universally agreed upon See Stone DA. The struggle for the soul of health insurance. Journal of Health Politics, Policy and Law 18(2); 1993: 287-317

Grossman summary

Health is something that you are born with and depreciates over time, but you can also produce health However, because it takes time to add to your capital stock of health, and because health depreciates and has diminishing returns, you should "optimize," not "maximize" health.

1. Market Distortion: Imperfect Competition

Hospitals/hospital systems Large physician groups Insurance firms Pharmaceutical firms -In the competitive model, the typical firm faces a perfectly elastic demand curve (i.e., is a price taker) from the industry's equilibrium price. The typical firm's equilibrium is Pareto allocatively efficient because price (or marginal revenue or marginal benefit) equals marginal costs (and long-run minimum average costs). Like price-taking firms, a firm with market power produces where MR=MC, but this results in an inefficient equilibrium (PB, QB), where price is greater than marginal cost, and quantity supplied is too low (QB)

Second Best

Healthcare markets include difficult-to-resolve tensions and distortions Only second-best solutions exist, which do not fully achieve allocative efficiency, but can improve upon the status quo

Understand the disparate nature of the healthcare safety net funding sources and healthcare access problems

Healthcare safety net financing originates from many sources As compared to being uninsured, Medicaid significantly improves access to care, but not to the same levels of private insurance Medicaid beneficiaries and the uninsured receive treatment, but access is poor and it is often not well coordinated

Value-based insurance design (VBID) better targets cost sharing to reduce unnecessary, low-value, or ineffective treatments

High deductible health plan cost sharing may reduce medically necessary and effective utilization VBID cost sharing amounts depend on cost and medical effectiveness of treatment May incorporate reference pricing, where insurer pays cost of knee replacement at a community hospital, but patient pays costs above that if s/he wants to go to a expensive private hospital or academic medical center Concern is that costs may not be quality adjusted

When the Federal Trade Commission/Department of Justice challenges mergers, they use a variant of the HHI

Hirschman-Herfindahl Index (HHI) Sum of squared market shares Range is from 0 to 10,000 1,000 firms at 0.1% each: 1,000*0.12 = 10 1 firm at 100%: 1002 = 10,000 In general, HHI>1800 considered consolidated (uncompetitive, anti-competitive) Examples Market A has 2 hospitals, 1 with 80% of admissions and the other with 20% HHI= 802 + 202 = 6,800 Market B has 5 hospitals, each with 20% of admissions HHI = 202 + 202 + 202 + 202 + 202 = 2,000

Hospital reimbursement has been moving from cost-based to diagnosis-based, but is trying to move to value-based, but face other reimbursement issues

Historic reimbursement Cost reimbursement (1970s) Prospective reimbursement on diagnosis (1980s to present), or bundled payment for e.g., knee replacement Per diem (per day cost; higher for intensive care unit) Trying to move to value-based reimbursement via Accountable Care Organizations Charity care, bad debts Must stabilize a patient per Emergency Medical Treatment and Active Labor Act (EMTALA) of 1983 In general Medicaid reimbursement < Medicare < private insurers It is clear that private insurers pay more than their proportionate share of a hospital's fixed costs However, evidence is mixed whether cost shifting occurs in an economic sense or is it just price discrimination?

If Value Equit

Horizontal: treats like things like Vertical: treats different things different Opportunity: everyone gets an equal shot at winning Process: the process of that decides the winners is fair and equitable Outcome: the actual outcomes of that process are equitable

Hospitals account for a third of health care spending

Hospital's share of expenditures has decreased since early 1980s

Summary

Hospitals have market power. Benefit is because of economies of scale. Disadvantage when they exercise market power Because hospitals' share of expenditures are one-third, they are under a lot of scrutiny for cost reductions But as re-admissions decrease, fix costs must be spread over fewer patients in the short run Most hospitals are non-profit, which confers financial advantages from the community, but question is whether sufficient benefits are returned Hospital governance is a complex among the Board, hospital management, and medical staff

Optimal consumption where MC=MB. Why

If MC>MB, society could be happier if replaced consumption for the subject good/service for another good/service If MB>MC, society could be better off if it increased its consumption of the subject good/service Consuming where MC=MB thus maximizes net benefit!

Medicaid has tried to moderate the impact of losing coverage once a person earns just enough to lose eligibility

If a Medicaid recipient works, there is a large disincentive to earn more than the income-eligibility threshold To remove disincentives, some states have spend-down programs, where low-income individuals can become eligible for Medicaid, once medical expenses reach a certain level To remove disincentives, most states have started programs for disabled workers Medicaid Buy-In Programs Allows disabled individuals to work and pay premiums (buy-into) Medicaid program 42 states; >100,000 individuals Ticket to Work Plan for Achieving Self Support (PASS) Typically for SSI and SSDI beneficiaries; expands eligibility

Assumptions for perfect competition in an industry:

If assumptions are violated, then often leads to non-competitive prices and output levels, which result in non-Pareto allocative efficiency; however, market-based model still has predictive power and can help identify inefficiencies. Large number of firms producing a homogenous product Price takers Free entry and exit Profit maximizers Perfect information (e.g., prices and product attributes known) No transaction costs No externalities

Demand and supply curve shift cheat sheet

If employers pay the tax (e.g., $2 per unit of labor), the demand curve shifts to the left, until the vertical shift in distance equals the tax Shift left: this is because at any given wage, employers will demand (i.e., hire) fewer units of labor Vertical distance: this is because a demand curve can be thought of as a "marginal benefit" curve, so the marginal benefit of each unit of labor is worth $2 less to employers If employees pay the tax (e.g., $2 per unit of labor), the supply curve shifts to the left, until the vertical shift in distance equals the tax Shift left: this is because at any given wage, employees will supply (i.e., work) fewer units of labor Vertical distance: this is because a supply curve can be thought of as a "marginal cost" curve, so the marginal cost of each unit of labor is $2 more

Market distortions result in prices that lead to output levels that do not generate Pareto allocative efficiency

Imperfect competition Firm faces a downward sloping demand 2. Imperfect/asymmetric information 3. Externalities 4. Public goods/dynamic efficiency 5. Ethics of certain markets

HMO Act of 1973

In 1973, Congress passed the HMO Act, which promoted the expansion of HMOs in a number of ways Provided grants and loans to start and expand HMOs Removed state barriers to HMOs AMA generally opposed prepaid practice groups and were able to pass legislation in several states banning them Required employers with over 25 employees to offer HMOs as an option (if they were offering health insurance to their employees) Goal was to start to contain the costs that had begun to increase with the introduction of Medicare and Medicaid, as well as new health care technologies Growth in managed care plans skyrocketed over the next decades

Shared Powers

In practice, "shared powers" is a better description of US political system than "separation of powers" Result of multiple veto points? Creates need for strong majorities before creating or reforming policy at the congressional level Status quo is likely Pressures for policy change at the bureaucratic level ("bureaucratic policy making")

Health reform provides funding to expand primary care...

Increases Medicaid payments for primary care to 100% of Medicare rates in 2013 and 2014 Primary care residency slots - $168 mn Physician assistant training in primary care - $32 mn Nurse practitioners - $30 mn Accountable care organizations ...But it is likely to be insufficient to accommodate the increase in demand

A government policy to provide free or subsidized insurance will end up covering both uninsured and currently insured people

In the table below, the government would like to minimize the number of "I. Never Insured," while also minimizing the number of "III. Always Insured," because under the policy, people in Group III switch from being privately insured to becoming publicly insured (known as "crowd out"), which costs the government money

Employees bear most payroll taxes, including the employer-paid portion, through a reduction in wages

Incidence of a tax (i.e., who bears the tax) is independent of whether employer or employee pays the tax As supply of labor becomes more inelastic (i.e., not sensitive to wage changes), employees bear more of the tax through reduced wages As demand for labor becomes more inelastic (i.e., not sensitive to wage changes), employers bear more of the tax Incidence of tax summary: employee bears most of the payroll tax through reduced wages, because aggregate supply of labor is believed to be quite inelastic For firms with low-wage workers, part of the reason many of these firms do not offer health insurance is that minimum wage does not allow wages to decrease to absorb cost of health insurance premiums

Policies oriented toward the economic theory of regulation, but there is a public interest component

Increase demand (e.g., subsidize care for specific populations) Dental insurance; oppose excludable-income caps on employee benefits Minimum staffing levels (e.g., nurses in hospitals) Increase reimbursement (reduce competition e.g., by limiting advertising; price discriminate) Decrease demand for substitutes and increase the demand for complements Nurse practitioners' authority/scope of practice Limit supply Licensure

Promoting Primary and Preventive Care

Increased Medicare and Medicaid payments for primary care providers Incentives for new doctors and other health professionals to practice primary care No cost-sharing in Medicare and new private plans for certain preventive services and incentives for states to do same in Medicaid Funding for population-based prevention activities

Private Health Insurance Market Summary

Insurance industry has consolidated during the past 20 years and many Blue Cross Blue Shield firms changed from non-profit to for-profit status Profits and surplus are small part of health care costs; however, underwriting increased Employer-based plans are the majority of private market Subsidized because health insurance premium benefits are not taxed Lack portability Incidence of a tax (i.e., who bears the tax) is independent of whether employer or employee pays the tax Most of an employer's contribution to health insurance premiums is borne by the employee through lower wages However, employees benefit from employer-sponsored insurance, because the employer's contribution is not considered taxable income and the employee's contribution is from pre-tax income (thus reducing their taxable income) Individual market not well functioning, because poor risk pooling State reforms during the 1990s had been partial Partial availability and affordability Affordable Care Act reforms are more complete Available (guaranteed issue) Affordable: expand Medicaid and provide subsidies in the exchanges Risk spreading: individual mandate (but low penalty) and risk adjustment Can federal and state governments can afford it?

What is a health system?

Integration of health services Continuum Control When you have seen one, you have seen one Ownership model Providers Payer

Investor owned/For-profit

Investors own common stock Publicly held Privately held Stockholders have: Right of control Claim on residual earnings and proceeds Primary goal is shareholder wealth (stock price) maximization

Medicaid Benefits

Key federally mandated benefits include physician services, hospital services, laboratory services, and nursing home services Optional benefits vary by state, including prescription drugs, dental care, and eyeglasses Some states have introduced small copayments

Coalitions reforms - problems

Lack of vision, focus and planning Re-organisation blight Conflicts of interest Mixed messages

Employer Requirements and Incentives

Larger employers (>50 employees) that don't offer affordable coverage will face penalties of up to $2,000 per full-time worker per year beginning in 2014 Small employers with up to 50 employees will be exempt from penalties Tax credits available for some small businesses (<25 employees and average annual wage <$50,000) that offer health benefits; credit covers a portion of employer's payments for premiums

60 years of reform

Leadership and organisation Service delivery Finance and provision Regulation Public health

Mix of all three: The ACA

Learn from Political Science Clinton's reform experience Partisanship Tension between ideologies: MARKET v SOCIAL JUSTICE Make Policy What problem? Uninsured, Cost of Care How Address? market v government Incremental v radical Politics What can pass? How Pass?

Medical necessity example #1

Margaret Gilhooley, early 50s, broke her back New Year's Day 1994 Had surgery to insert rods to support the spine Rehabilitation included wearing an uncomfortable brace Insurer covered 10 days of inpatient care at the hospital Day 11: Doctor received fax from insurer notifying that Gilhooley's continued stay was "medically inappropriate" Doctor's request for additional days was denied Gilhooley contacted insurer's utilization review officer, who stated that insurer was not saying she did not need medical care, but that hospital care was unnecessary, and a semi-skilled nursing facility was more appropriate and would be covered Gilhooley recovered well in skilled nursing facility

Policy making/advocacy

Legislative Influence passage of legislation Work with legislative staff Testify Mobilize letters/call/testimony Lobbying Administrative Working with administration Regulatory Devil in Details Relationships

Quality is attempted to be enhanced by licensing and certification, but only certification is voluntary

License Issued by state agencies e.g., Medical Board of California Mandatory Certification Issued by entities such as professional organizations (e.g., American Board of Anesthesiology) or firms (e.g., Microsoft Certified IT Professional) Voluntary

Public SchoolConsequential Accountability Reforms

Link standards and assessments of achievement to rewards and sanctions 30 states enacted these reforms prior to No Child Left Behind (NCLB) NCLB enacted in 2002-2003, effectively resulting in remaining 20 states and District of Columbia having consequential accountability Accountability Laws: Most Prevalent in the South

Physicians are considered "medical staff" but are not typically employees of the hospital

Medical staff members Contracted providers Individual practitioners Leadership Competitors

Medical necessity example #2(Wickline v. State of California, 1986)

Lois Wickline, mid-40s, married, was diagnosed with arteriosclerosis obliterans (hardening of the arteries) by Dr. Polonsky Polonsky recommended vascular surgery to remove artery and replace with synthetic graft Medi-Cal authorized treatment and 10 days hospitalization January 6, 1977: Wickline was admitted to Van Nuys Community Hospital near Los Angeles January 7: Wickline had vascular surgery by Drs. Polonsky and Kovner Complications arose and had additional follow-up surgeries January 7 and 11 January 16: Wickline was scheduled to be discharged. Dr. Polonsky requested 8-day extension, but was approved for 4 days Wickline sues the State of California, but California Court of Appeals found in favor of the defendant, stating while "it is essential that cost limitation programs not be permitted to corrupt medical judgment. We have concluded...that in this case it did not" (p. 144). Dr. Polonsky gave the discharge order and all the medical witnesses who testified at trial agreed they he was acting within the standard of practice of the medical community

Decide and Tell your story

Make yourself the decision-maker Convince yourself? Can you explain why? Formulate your recommendations Make sure you can tell you grandma your recommendation Know your audience Be prepared to raise and rebut possible objections Consider medium for telling story should have logical narrative flow

Lecture 6 summary

Managed care was primarily introduced to reduce healthcare costs and now has 99% market penetration, but there was a backlash against HMOs for real and perceived reductions in care quality, so PPO/EPO/POS market share has increased relative to HMOs. Managed care uses supply-side (e.g., prior authorization and utilization review) and demand-side (e.g., cost sharing) policies to reduce costs Medical decision making often occurs under uncertainty Cost analyses can help compare various treatment policies Cost effectiveness analysis is used when it is difficult to assign a monetary value to a benefit (e.g., avoided amputation) Cost effectiveness of a policy can be greatly improved if a better screen can be established that only selects patients needing care, while not selecting patients not needing care. This is tough to do

Cost effectiveness of various workforce skill mixes should be compared

Many studies do not find a quality of care differences between anesthesiologists and CRNAs If they did, the cost effectiveness of different workforce types should be compared What is the cost per avoided anesthesiology-related death by using anesthesiologists versus CRNAs? What is the cost per avoided anesthesiology-related death by using anesthesiologists with >10 years experience versus <= 10 years? Should those with <=10 years experience be supervised? Would these cost differences be better spent in other areas of health care or society?

Current Population Survey (CPS) is the primary survey used to estimate number of uninsured, and it only counts someone as uninsured if s/he lacked insurance for the whole year

March Annual Social and Economic (ASEC) Supplement (formerly Annual Demographic Survey) to the Current Population Survey Asks whether respondent had various types of health insurance coverage at any point in time during the previous year. If answer no to all, then asks if was uninsured (verification question added in 2000) That is, a person is only counted as uninsured if s/he lacked insurance for the whole year Timely release (September) and state-level estimates Current Population Survey (CPS) Monthly survey of 50,000 households in the U.S. to primarily obtain employment and earnings estimates Conducted by the Bureau of the Census for the Bureau of Labor Statistics

Lecture 5 Summary

Market distortions result in non-competitive pricing, producing goods and service output levels that result in a non-Pareto allocatively efficient outcome Health care is fraught with issues that distort markets, principally insurance, monopoly power of providers, and asymmetric information between a physician and a patient The role of government is the remedy market distortions and increase equity Public interest theory of regulation is the ideal, but economic theory of regulation often encroaches and special interests heavily influence laws and regulations

Market Distortion: Ethics

Market for Organs - 62,367 people died waiting for organs between 1995 and 2005. Should the government allow healthy people to sell their organs?

Remedies to imperfect competition

Market remedy Insurers grow in size to offset provider power Government remedy Antitrust enforcement Rate (price) setting for hospitals, physicians, and insurance premiums Certificate of need laws (particularly for cost-reimbursement payment models) It is difficult to design a remedy to achieve allocative efficiency, particularly over time as preferences, substitutes, and technology change Judge rules St. Lukes must give up Saltzer Medical Group: anti trust because salzer medical would send patients to st. lukes but that was unfair to other hospitals

Remedies: Externality

Market remedy: assign property rights (see Coase Theorem), but sometimes not feasible Government remedy: provide subsidies or impose taxes equivalent to the externality

Remedies: Public Goods

Market solutions -Try to make the product excludable (e.g., scramble satellite television channel) -Creatively find a buyer (e.g., charge port merchants for a lighthouse to attract ships to port) Government role -Provide subsidies to produce the good (basic science knowledge for health) -Produce the good itself (e.g., police force) -Free rider problem and dynamic efficiency: patent rights (government assigned monopoly) used to help achieve dynamic efficiency (technological innovation)

Understand the key attributes of pay-for-performance (P4P) programs

Measures Quality Structure: investment in technology, facilities, and equipment Process: vaccination rates, cancer screening, disease management, treatment guidelines Outcomes: chronic care measures, patient satisfaction Efficiency Cost savings or productivity improvements Basis for reward Absolute level of measure: target or continuum Change in measure Relative ranking Reward Bonus payment Publicize measures and ranking

Current status of implementation

Medicaid About 1.5m new enrollments so far (includes non-expansion states) CBO projected 9m new enrollees in 2014 Exchanges 2.2m enrolled CBO projected 7m by end of March 2014 -A Majority of Adults Potentially Eligible for Coverage Who Have Not Yet Enrolled Say They Are Likely to Shop for Coverage by March 31, 2014

Examples of public interest oriented laws and regulation

Medicaid Hospitals cannot turn away a patient needing emergency care Medicare (today?) State and county mental health services

Medicaid's physician reimbursement is lower than private's and Medicare's, resulting in reduced access, particularly to specialists

Medicaid physician services as a percent of Medicare (source: Zuckerman et al., 2009, Health Affairs) All services: 72% Primary care: 66% Obstetric care: 93% Other services: 72% Half of physicians accept new Medicaid patients vs. 70% accept new privately insured and Medicare patients

Medicaid finances

Medicaid/Children's Health Insurance Program accounts for one-sixth of healthcare spending Medicaid's share of national health expenditures has doubled since 1970

Major Income-Based GovernmentBenefit Programs

Medical Aid Medicaid (1965) State/Children's Health Insurance Program (SCHIP) (1997) American Health Benefit Exchanges (tax credit subsidy) (2014) Cash Aid Aid to Families with Dependent Children (AFDC) (1935) Temporary Assistance for Needy Families (TANF) (1996) Supplemental Security Income (1972) Earned Income Tax Credit (1975) Food Aid Supplemental Nutrition Assistance Program (Food Stamp Program) (1939) National School Lunch Program (1946) Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (1972) Housing, education, jobs/training, energy, other

Medicaid and uninsured summary

Medical spending is over half of income-based government benefit programs, and it is crowding out other government spending Medicaid - covers approximately 57 million low-income and/or disabled and aged individuals; annual expenditures $429 billion CHIP - provides insurance to mostly children who do not qualify for Medicaid Government program to target uninsured trades-off between target effectiveness (share of uninsured it reaches) and target efficiency (concerned about over-reach to privately insured/crowd out) Safety net financing is from disparate sources As compared to being uninsured, Medicaid significantly improves access to care, but not to the same levels of private insurance 48.0 million uninsured in the U.S. for all of 2012 Most of the uninsured are the "working poor" Younger adults and minorities more likely to be uninsured Uninsured less likely to have a usual source of care and more likely to experience financial hardship because of health care costs ACA expected to reduce number of uninsured by 25 million by 2024, but 31 million will remain uninsured (e.g., immigrants and young/healthy) Moderately high target effectiveness, but concern that cost per newly insured will be high, because people with private insurance may switch to Medicaid or subsidized insurance from the Exchanges (i.e., concern about target efficiency)

Resource based relative value scale example

More to less relative value physician work, physician expense, professional liability insurance

Medicare Part D: Prescription Drug Benefit

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Added $8 trillion to an already $15-$20 trillion underfunding of Medicare Benefits Prescription drugs Formularies/costs vary by plans (plans must offer standard Part D benefit or actuarially equivalent design) Enrollees: 38.5 million (73.6% of all Medicare enrollees) Expenditures: $69.2 billion (about 12% of total) Cost sharing Premium: $38.14/month (weighted average); higher income pays more Deductible: $310 Coinsurance (see upcoming figure)

1960 - 1965: The Great SocietyMedicare and Medicaid

Medicare and Medicaid were passed as part of the 1965 Social Security Act. Medicare was set up to provide health insurance coverage to those individuals 65 and older, and Medicaid was initially established to cover low-income children and their adult caregivers. It's important to note that adults without children could not, at that point in time, receive coverage through Medicaid. Lydon Johnson

Medicare growth/expenditure

Medicare enrollment has grown approximately 2.5-fold since 1966 Expenditures have increased at a higher rate than enrollment growth

Actual changes in physician fees have exceeded sustainable growth rate allowed changes to the RBRVS "conversion factor"

Medicare physician fee updates have actually been less than relevant inflation, but spending per beneficiary has increased because of higher volume. Therefore, it is not clear whether lower fee updates would have significantly reduced spending (aka physician induced demand).

Medicare Convulted Financing

Medicare revenues only fund 60% of Medicare expenditures Medicare revenues will account for less than half of projected Medicare expenditures by 2020 Medicare Part A (hospitals) spending has grown the most...yet Medicare Part A's revenues have not kept pace, and CBO estimates Medicare Part A payroll tax would need to be 6.2% (instead of 2.9%) to balance the present value of expected revenues and costs over the next 75 years Medicare is financed in several ways (sales,income, payroll tax), with different levels of visibility and equity Medicare beneficiaries pay less into Medicareas compared their benefits(but end up paying for it in general taxes)

Use of costs in coverage decisions differs between the United States and the United Kingdom

Medicare, Medicaid, and U.S. private health plans do not explicitly use cost as a criterion to make coverage decisions, but more expensive treatments are subject to supply- and demand-side managed care controls United Kingdom's National Health Services uses cost as one criterion to make coverage decisions

Public interest Theory of government

Objectives of Government - redistriubtion: assist those with lo income -imporve efficiency- remove and prevent monopoly abuses and protext environment (externalities)

Your opinion about a government's benevolence and fairness will influence what you think its role should be....

Of course, a government staffed by angels could undoubtedly do a better job than markets run by humans

Moral Hazard

On the way to class, you drop your bag and a bunch of blue marbles fall in the mud. Change behavior after becoming insured e.g., more risky behavior Change preferences once become sick (after becoming insured) e.g., seek over-treatment E.g., end of life care Exacerbated if provider is paid fee for service

aca medicaid

Only about half the states have decided to expand Medicaid under the ACA Some argue that dislike of the ACA is driving states' Medicaid expansion decisions, but what are the other factors?

Who bears the burden of payroll taxes?

Payroll taxes, employer and employee each pay one-half Social security tax: 12.4% (6.2% from employer and employee) Up to $117,000 in earnings for 2014 Medicare: 2.9% (1.45% from employer and employee) Starting in 2013: additional 0.9% for employee if earnings > $250,000 joint filers or >$200,000 individual filers Both taxes are regressive Answer: incidence of a tax (i.e., who bears the tax) is independent of whether employer or employee pays the tax Method to calculate burden: compare the equilibrium wage before the tax (point E1 in two slides) to the equilibrium wage after the tax (point E2 in two slides), accounting for whether the employer or employee pays the tax (see following slides)

Even when expected medical costs are less than the health insurance premium, demand for health insurance exists because

People generally are risk averse Medical care is costly Many costly medical events have a random component, and that risk can be pooled

Are we optimizing health?

Perhaps. Recall: last half century decline in mortality largely due to medical advances in cardiovascular disease and treatment for low birth weight infants These conditions are very expensive to treat, but have a high return on investment... Heart attack care, 1984-1998 Cost increase: $10,000 (medical advances) Benefit increase: $25,000 (1 quality-adjusted year of life) NET BENEFIT: $15,000 Low birth weight infant care, 1950-1990 Cost increase: $70,000 Benefit increase: $350,000 (13 quality-adjusted years of life) NET BENEFIT: $280,000

There were more options than either keeping Wickline in the hospital versus discharging her, but reimbursements drive services

Physician calls Wickline at home after discharge Nurse visits Wickline at home after discharge However, the above services cannot be provided if they are not reimbursable, which has historically been the case However, just beginning January 1, 2013, Medicare established two CPT (billing) codes for Transitional Care Management, including by email or telephone Depending on complexity, reimbursement is either $163.88 or $230.86 CMS is expecting 2.17 million claims under these codes for total payments of $600 million (including cost sharing) Out of the 2.17 million, many will have no improvement in health, because they were healthy at discharge and did not need this follow-up Some will have a dramatic improvement in health and avoid a re-admission Cost effectiveness is greatly determined on ability of the screen to determine who needs transitional care management

Summary of Lecture 15

Physicians comprise a small portion (approx. 5%) of the health workforce, but affect 90% of the spending. Supply of physicians in U.S. has increased in past 50 years, particularly specialists, due in part to higher reimbursement rates. Supply and content of medical education is heavily influenced American Medical Association (historically) and states. Licensure and scope of practice laws likely improve quality in some settings, but not in all settings. They result in higher cost and lower access, so key question is whether potential higher quality is worth the cost (i.e., use cost effectiveness analysis). Certification is a voluntary alternative, which could have similar effects. Difficult to estimate number of needed health workers, but estimates are important for planning. ACA will significantly increase demand for health workers', particularly primary care; could result in short-run price increases, because supply is fairly inelastic in the short run.

Really 3 P's

Policy Rules, Goals, Procedures, Recommendations, Directions Politics The "art" of running the state Political Science The Study of Policy/Policy Making and Politics

Policy Making

Policy making is a relatively stable, purposive course of action followed by an actor or set of actors in dealing with a problem or matter of concern." Heineman et. al. Need to start with a problem Finish with a course of action

Construct the Alternatives

Policy options or alternatives Include "take no action" or status quo as an alternative Innovate, be creative... put as many options on table as possible... brainstorm Narrow as approach recommendation Include divergent options (options you may not like) Don't worry about getting it all; impossible Bounded rationality Incrementalism

Direct-to-Consumer Ads

Policy shift in 1997 and 1999: Pharmaceutical companies can advertise directly to consumers Only U.S. and New Zealand currently allow such ads Rose from 2000-2006, timed with release of patented, high-price, long-acting medications May explain 10% or so of increase in sales

What is Policy?

Policy: "A course of action, guiding principle, or procedure considered to be expedient, prudent, or advantageous." (Webster Dictionary) We all make/follow/determine policy Work policy Administrative policy Project policy We make policy to address a problem, solve an issue, improve upon a process...

Changing environment

Post war re-building Health gain Changing epidemiology

Problems of NHS

Pressure and politics A "rush for delivery" Reorganisation(s) Specifics - IT, NHSU, staff contracts Over-focus on targets Health and social care

Understand the relationship between production of healthcare services and production of health

Preston Curve: live expectancy v. GDP per capita of all countries

Physician reimbursement by Medicare is fee for service and is based on supply-side (cost) factors

Prior to 1992: usual, customary, and reasonable (UCR) charges Medicare version: customary, prevailing, and reasonable 1992: Resource Based Relative Value Scale (RBRVS) Developed by Professor William Hsiao, Harvard University Values for 7,000 services Based on physician work, practice expense and professional liability insurance Initially budget neutral; now attempting sustainable growth rate Reimbursement level averages 78% of private insurance (Fox & Pickering, 2008)

The NHS Plan 2000 - 2010

Priorities and targets for improvement Investment and reform Accountability and performance management Support for innovation

Private Health Insurance

Private health insurance accounts for one-third of healthcare spending Private health insurance's share of national health expenditures has increased by 50% since 1960

Private Insurance Plans' Benefits

Private health insurance covers just under half the U.S. population Commonly covered benefits Physicians, physical or occupational therapists, mental health providers Hospital (inpatient and outpatient), emergency services Pharmaceuticals and medical devices Not covered Long term care Cosmetic surgery Cover what is "medically necessary" Physician determines, but sometimes subject to prior authorization or utilization review New treatments decided by technology assessment committees as well as pharmacy and therapeutics committees Typically do not cover experimental treatments

Brazil: Pay for Performance-Cardiovascular Disease

Private health insurer (UNIMED-Belo Horizonte) Objective Improve treatment and outcomes for patients with diabetes, pediatrics, asthma, OB/GYN, cardiovascular disease Cardio Incentives Process $7.50 (U.S. dollar) per patient attending cardiac rehabilitation or tobacco cessation course referred by physician Outcomes (annual) $13 (U.S. dollar) per patient with blood pressure <140/90mm if 75% reach target $13 (U.S. dollar) per patient with HgLDL <130mg/dL if 50% reach target Cardio Results (preliminary) Lower blood pressure, cholesterol

How/When does it happen?

Problem Streams - the flow of issues that might merit public attention... Policy Streams - the flow of policy proposals that might address some pressing issue... Political Streams - swings of public mood, election results, ideological concerns...

A key goal of an economic system is to improve society's standard of living: increasing productivity is an important component

Productivity: outputs/inputs -Specialization increases productivity -Specialization necessitates trade -Who is going to specialize in what? Key questions... -What is society going to produce? -Who is going to produce it? -Who is going to consume it? But, people are mostly self interested (Key issue)

Market Reforms

Prohibit pre-existing condition exclusions: insurers cannot deny coverage or charge people more because they are sick Prohibit insurers from rescinding coverage or placing annual or lifetime limits on coverage

Delivery System Changes

Promoting primary care and prevention Improving provider supply Developing new models for coordinating and delivering care Making use of information technology Reforming provider payments to promote quality

Payment Method #3: Per Diem

Provider is paid a fixed amount per day (not per service) Generally used for inpatient care More risk shifting from payer to provider Example: Per diem hospital payments based on diagnosis were introduced in Japan in 2003 (physicians continued with FFS)

Payment Method #2: Fee-For-Service (FFS)

Provider paid for each service based on usual and customary charges of local providers Fixed amount for each service Slight risk shifting from payer to provider Example: Most physicians in Canada (primary care and specialists) are paid FFS

Health insurance's"insurance" function

Pure insurance transfers wealth from those have fewer adverse events during the policy period to those who had more adverse events Health, life, property, automobile insurance Pooling occurs within a risk class, not across risk classes (see Stone article) Pure insurance function would only cover unpredictable, high-cost events Health insurance plans would have a high deductible and would exclude pre-existing conditions Auto collision insurance generally has a high deductible and excludes existing automobile damage

Is approach realistic

Rational policy making Step by step, in order Consider all options Weigh options Decide on best Reality: IS MESSY Drive by different values/goals/ideology Can't perceive of all options Don't know all stakeholders Timing/consideration is NOT systematic and orderly Power play Get what can get: incremental*

Individual Mandate

Rationale Helps to prevent adverse selection Spreads costs among whole population Require U.S. citizens and legal residents to purchase coverage Those without coverage pay a tax Exemptions granted for certain groups of people and income constraints

Framing the issue

Rats Bite Infant: Mother Away Rats Bite Infant: Landlord, Tenants Dispute Blame Rat Bites Rising in City's 'Zone of death"

Target Effectiveness and Target Efficiency

Reading to more fully discuss target effectiveness and target efficiency Ferry DH, Garrett B, Glied S, Greenman EK, Nichols LM. Health insurance expansions for working families: a comparison of targeting strategies. Health Affairs 21(4); 2002: 246-254

Benefits and requirement of non-profit status

Receive tax subsidies/benefits No corporate income tax Tax-exempt financing Contributions tax deductible to contributor Real estate tax exempt Stringent requirements to qualify Operate exclusively for charitable, scientific or educational reasons Serve public rather than private interests

Why ever-diagnosed rates may level off

Recent negative press attention about medication-related neuroenhancement Potential for reduced stimulant quotas If more thorough and accurate diagnosis practices are enforced and reimbursed Either way, ADHD (and medication) is here to stay

Economic Theory of Regulation

Redistribution- provide benefits to those able to deliver political support and finance from those having little political support Improve Efficiancy: efficiency objective unimportant, more likley to protext industries in order to provide them with redistributive benefits

Types of Polcy: redistributive

Redistributive Policy: Definition: Involve a deliberate effort by the government to reallocate wealth, income, property or rights among broad social classes. Benefits: broadly defined social classes (the elderly, the poor...) Cost: Broadly defined social classes (workers, the wealthy...) Political conflict: Because the "haves" are not likely willing to give up what they have, usually characterized by high degree of conflict. Examples: Tax Code, Medicaid, and Welfare programs..

ACA's hospital payment reforms limit payments on avoidable care

Reduce Medicare payments that would otherwise be made to hospitals by specified percentages to account for excess (preventable) hospital readmissions. (Effective October 1, 2012) Concern about patients' behavior outside hospital's control as well as additional costs borne by hospitals for post-discharge care transition (see http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_102.pdf) Reduce Medicare payments to certain hospitals for hospital-acquired conditions by 1%. (Effective October 1, 2014)

Hospitals and Health Reform

Reduce Medicare spending Share Medicare cost savings with accountable care organizations (ACO) that: assume overall accountability for care provide adequate participation of primary care physicians define processes to promote evidence-based medicine report on quality and costs coordinate care

Health reform provides opportunities to improve our health care system

Reduce the number of people who are uninsured Make the health insurance system work better for all consumers Transform delivery and payment systems to get better value Reorient health care to focus on prevention and primary care

Today, the Mortality Rate is about Half the 1900 Rate

Reduction in infectious diseases through the use of antibiotics and vaccines Lower mortality rate from accidents Environmental factors (e.g., worker safety improvements) Behavior change (e.g., use of seat belts in latter half century) Heart disease and cancers now dominate - behavioral, environmental, and genetic components U.S. Lags Behind other OECD Countries on Key Health Status Measures

Types of public policy- Distributive

Regulatory Policy: Definition: Limits the discretion of individuals or agencies or otherwise attempts to compel certain types of behavior... Political conflict: Stems from the conflict between two groups and results in clear winners and losers. Examples: Social Regulatory Policies - industrial pollution, gun control, school prayer...

Part A reimbursement has shifted from cost-based to diagnosis-based

Retrospective "reasonable" cost-based reimbursement (prior to 1983) Followed Blue Cross payment levels Price controls - 1970s Certificate of Need (CON) laws Inpatient Prospective Payment System (Oct. 1, 1983-) Labor and non-labor payment Diagnosis Related Groups (DRG), 746 in FY2010 Location Procedures Severity Outlier payments Issues Readmissions Up-code DRGs

Affordable Care Act's Impact on Medicare

Revenue increases Increase payroll tax to 2.35% in 2013 (>$200,000 earnings) Costs increases Gradual elimination of Part D doughnut hole (but reduce subsidy for >$85,000 earnings) Cost decreases Recognition of accountable care organizations Bundled payments for Medicare services Center for Medicare and Medicaid Innovation Reduce payments to Part C plans Reduce payments for preventable hospital admissions Medicare revenues will account for less than half of projected Medicare expenditures by 2020

Study Conclusions

School accountability reforms were associated with increases in ADHD diagnostic prevalence among low-income children Consistent with increased pressures for academic performance Psychotropic medication laws were associated with eliminating increases in diagnostic prevalence Laws reduce schools' ability to recommend psychotropic medication, a situation typically preceded by a diagnosis. Future research should investigate which children are most affected by the reforms and laws, to determine whether children are receiving an appropriate and careful diagnosis

Scope of practice laws

Scope of practice laws define the procedures, actions, and processes that are permitted for the licensed individual; e.g.: The Pennsylvania State Board of Medicine defines the practice of medicine as, "any professional contact, which results in a documented medical opinion, and which affects the diagnosis or treatment of a patient. The Pennsylvania Nursing Practice Act defines the "professional practice of nursing" as the "diagnosing and treating of human responses to actual or potential health problems through such services as case findings, health teaching, health counseling, provision of care supportive to or restorative of life well-being, and executing medical regimes as prescribed by a licensed physician or dentist...." (emphasis mine) Attempting to expand a profession's scope of practice is often resisted by other professions. Nurse practitioners ability to practice independent of a physician varies across the states:15 states and DC do not require a physician's involvement.

Individual Measures of Health

Self-reported health status Self-reported depression Individual job absentee days Blood pressure Heart rate Blood sugar levels Cholesterol levels

Function of News

Setting the Agenda what we think about Shaping the Debate how we think about it Influencing Opinion Leaders changing what we do about it

Private Insurance History

Sickness funds Blue Cross and Blue Shield history Traditional for-profit insurers (life, property/casualty) offering health insurance Blue Cross/Blue Shield non-profit to for-profit transition in many states For example, see Consumers Union Blue Cross Blue Shield A Historical Companion For-profit firms have grown their market share in the health insurance industry sector over time Managed care stocks have outperformed the stock market by 2.5-fold during past 10 years

Children's Health Insurance Program Reauthorization Act (CHIPRA) of 2009

Signed February 4, 2009 $33 billion federal funds over 4.5 years Estimated to cover an additional 6.5 million children Estimated to cover 4.1 million children who otherwise would have been uninsured by 2013

President Johnson's War on Poverty

Since 1970, the U.S. poverty rate has fluctuated between 10% and 15% Income-based federal government program expenditures have significantly increased since 1962, outpacing GDP growth Medical spending share of income-based federal government programs has significantly increased includes both federal (73%) and state and local (27%) expenditures Medicaids share of state general funds have increased

Equity

Source of inequity: -Person's bad luck -Person's choice Definition of equity or fairness or morality? Religion -Philosophers e.g., Rawls "veil of ignorance"

Abraham Flexner"Flexner Report" (1910)

Sponsored by the American Medical Association's Council on Medical Education Visited 155 medical schools in the United States and Canada and found both high- and low-quality schools Recommended more stringent applicant qualifications and medical school be 4 years, preferably attached to a university By 1935, many sub-standard medical schools had closed, leaving 66 schools remaining in the United States

Leadership - external

Stakeholders and vested interests Power analysis Politics and government People and media Personal contribution

Governing Board

Stewards of the community Financial stability Quality of care Strategic direction Meeting identified needs of community Ultimate accountability

The United States has mostly adopted free market principles with some regulation, including a social safety net

Strengths - Innovation and efficiency, induced by competition -Information that is included in market-based prices (next slide) Weaknesses -Market distortions result in non-competitive prices -Short-term labor market disruptions -Potential for social safety net to be inadequately funded (equity) -Concerned about government failures -Government inadequately and inefficiently regulates market failures Government regulation influenced more by special interests, not market failures

Medigap

Supplemental insurance 12 standardized plans (A - L) Various benefit packages to cover deductibles and coinsurance Issues Reduces cost sharing's benefits to reduce un-needed care Some advocate taxing Medigap policies

Target Effectiveness and Efficiency Definitions and Examples for Reducing the Number of Uninsured

Target effectiveness: # uninsured who become eligible / # uninsured Target efficiency: # uninsured who become eligible / # who become eligible measures "crowd out" where people drop private insurance for public insurance Hypothetical examples (assume 50 million uninsured, 300 million population) #1 Affordable Care Act eligibility <400% FPL (federal poverty level), legal residency status (approximations) effectiveness: 35/50 = 70% efficiency: 35/45 = 78% #2 Narrow eligibility: eligible if < 300% FPL, age<6, 3 chronic conditions, single-parent household, etc. effectiveness: 5/50 = 10% efficiency: 5/5.5 = 91% #3 Wide eligibility: eligible if you have resided in the U.S. six months effectiveness: 49/50 = 98% efficiency: 49/298 = 16%

Individual measures - difficulties

Tendency to report good or poor health may differ systematically across groups of interest (age, sex, race) Biological measures differ throughout the day - must capture at same time of day for entire population Imperfect recall (e.g. of mood, absenteeism, etc., in past 2 weeks)

1934 - 1939: NHI and the New Deal

The Social Security Act was passed during Roosevelt's first term as part of the New Deal to provide support for many in need. While national health insurance was discussed in the preliminary report, it was left out of the final Social Security bill, perhaps due to more pressing priorities at that time.

The incremental cost effectiveness ratio (ICER) estimates the cost per avoided amputation

The cost per avoided amputation can be greatly reduced with a better screening mechanism, that is, only keep patients who would benefit from additional days in the hospital, but medical uncertainty results in a tradeoff between over- and under-staying

Elderly and diabled MEdicaid

The elderly and disabled are 25% of Medicaid enrollees but account for 65% of the expenditures Nearly one-third of Medicaid expenditures are for long-term care

uninsured

The majority of the uninsured are the "working poor Rates are higher for the following groups States (South and West, high-immigration states) Race (minorities, particularly Hispanics) Household income (low-income) Age (adults) 56% of uninsured have been uninsured more than 3 years Work status 63% have one or more full-time workers in family 16% part-time workers in family 21% have no workers in family 55% have no usual source of care, 29% went without needed care due to cost Being uninsured and having high healthcare costs is a significant contributor to personal bankruptcies Some argue health reform should have been more narrowly focused on covering the "remaining uninsured

HMO Managed Backlash

The managed care backlash was primarily a backlash towards HMOs, the most restrictive type of managed care organization Backlash against prior authorization and utilization review Although enrollment in managed care organizations in general has continued to grow, enrollment in HMOs in particular has declined since the late 1990s Backlash against HMOs resulted PPOs/EPOs/POSs gaining a larger share of the managed care market

Public Policy

The result of government activities, whether acting directly or through agents, as it has an influence on the life of citizens What government does (or doesn't) do Doing nothing can be a policy Laws, regulations, court decisions, etc. that reflect the negotiated preferences between parties. A course of action followed by actors or a set of actors in dealing with a problem or matter of public concern A policy is public if -Made by the government and subject to the political process -Is carried out by agencies or officials backed by political authority -It affects the public E.g., the population/community/group

Political Science

The study of: -Institutions: Legislature/Congress, Executive Branch (Presidency and Agencies), Courts -Actors Governmental: elected officials, appointed/hired, judges Non-Governmental: interest groups, lobbyist, media, academia, public -Other Institutions Constitutional separation of power (Legislative, Executive, Judicial) Federalism (Federal State County City) -Political culture Partisanship Ideology -Environmental/temporal events Socio-economic conditions Major events... (elections, wars, natural disasters, etc.)

Indemnity v. Service Benefit

There are two broad types of insurance: Indemnity - pays a fixed amount per episode (e.g. illness, hospital day, physician visit) to the patient; does not coordinate care Service benefit - pays a fee per visit/procedure or a fee per patient per month to the provider; coordinates care/establishes a provider network Traditional health insurance was indemnity and usually came in the form of a fixed payment per hospital day. Today, 99% of health insurance is a service benefit

Describe the U.S. and global health workforce

There are ~11.5 Million healthcare practitioners, technicians, and allied workers in the U.S. Trend towards more doctors...but faster rate of growth of specialists In U.S., specialists make up a greater proportion of physicians than almost any other OECD country Trend towards more foreign-trained physicians Wide variation in global supply of physicians per capita Many African and Southeast Asian countries have critical provider shortages

Equity vs. Efficiency (REcipients versus donors preferences)

There is typically a trade-off between generating an efficient market outcome (i.e., generating the biggest economic "pie" possible) and increasing equity (i.e., giving everyone a more equal "slice" of the pie) Supply- and demand-side subsidies and taxes distort market prices For example, imagine that there are two government programs: Program 1: low-income families receive $10,000 in cash Program 2: low-income families receive $10,000 to purchase health insurance coverage ("in kind" subsidy). Efficiency (see Feldstein pp. 43-44) If utility is defined from the recipients' perspective, Program 1 is more efficient: low-income families can spend the money on what they most value If utility is defined from the donors' perspective, Program 2 is more efficient Often times Program 2 is instituted, because society concerned about low-income families making bad choices; however, it is sometimes hard to know tradeoffs low-income families face or what they value, because not homogenous

In 2012, 48 million people were uninsured in the United States.What does this mean?

There were 48 million people who lacked insurance: For all of 2012?(21-31%) On the day the survey question was asked in 2012? (40-50%) At any time in 2012? (56-59%) The estimated number of uninsured significantly depends on how you ask the question.

Tension Between Healthcare Quality versus Cost and Access

Throughout much of history, medical treatments were at best ineffective, and at worst harmed the patient Thus, in modern times, physicians felt it was necessary for the state to highly regulate medicine (e.g., licensure, education requirements, and scope of practice) However, these regulations inherently limit entry into the profession, thus raising costs and reducing patient access Therefore, the appropriate balance must be struck between quality versus cost and access

Tuition subsidies

Tuition for medical school is heavily subsidized increased demand for medical education increased supply of doctors This is okay if there is a sufficient positive externality of production of doctors to offset the subsidy

US is high for many of the factos that influence expenditures per person

US compared to other OECD countries 1.conditions per person,- higher because prevalence of major disease conditions (heart disease, blood pressure, cholesterol, obesity) 2. episodes per condition, - low hospital utilization and low physician visits 3.services per episode, 4.processes and devices and drugs per service 5.prices per processes or device or drug - high

Policies to Mitigate Adverse Selection

Underwriting and marketing methods Exclude pre-existing conditions (not allowed under ACA) Waiting period for pre-existing conditions (not allowed under ACA) Only provide a narrow network of providers, avoiding expensive specialists Offer plans that attract low-risk individuals (e.g., advertise at fitness clubs) Incorporate risk adjustment and reinsurance Enroll people as part of a group (employer) plan to ensure a better risk pool Mandate health insurance coverage (required under ACA)

net funding sources and healthcare access problems Understand how the number of uninsured are estimated, their employment status, their healthcare spending, and the ACA impact on reducing the number of uninsured

Uninsured share of U.S. population has been fairly constant at approximately 15%, but latest recession has added 5 million to total 48 million uninsured

The NHS in England

Universal and comprehensive Tax based and free at point of need Funds and provides most services and employs hospital doctors Major role for primary care 54 million population,1.4 million employees, $175 Bn

Target Effectiveness and Efficiency of Reducing the Number of Uninsured

What policy is best? One key criterion is the lowest cost per newly insured person (which must include the cost for insured persons who switch to the program), subject to a minimum target effectiveness.

Medicare's authorizing statute makes it difficult to for administrators to control costs. Moreover, Medicare beneficiaries do not want benefits cut (and they vote) and providers seek to protect their revenues.

When Congress enacted Medicare in 1965, it enshrined in statute the following relationship between government power and medical professionalism: "Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided" [42 U.S. Code §1395]. Every dollar of health care spending equals someone else's dollar of health care income, including fraud, waste and abuse.

Many policies involve a test that tries to reveal the truth

When Managed care finds whats medically necessary medically necessary- appropriate coverage for treatment when they deem whats not medically necessary, medically necessary- over treatment when they deem whats medically necessary, unecessary- under treatment when they deem whats medically uncessary, uneceessry- appropriate lack of treatment

1976 - 1979: Cost-Containment Trumps NHI

While Jimmy Carter had championed national health insurance as a presidential candidate, once elected he thought reform had to wait until costs were under control and the economy was stronger. Senator Ted Kennedy drew up another national health insurance plan, but national health insurance was no longer seen as as much of a central issue and reform efforts were not successful.

Medicare Spending

accounts for 1/5 of health care spending Medicare's share of national health expenditures has doubled since 1970 At current growth rates, non-discretionary spending, particularly Medicare & Medicaid, will overwhelm the federal budget And the Affordable Care Act does not significantly change the bleak outlook...

Physician medical education in U.S.

bachelors- med school (4 years)- internship (1 year)- Residency for specialty (3-8 years)- fellowship for specialty (1-3 years)

Status of state medicaid expansion decisions, as of december 11, 2013

implementing expansion- 26 states seeking to move toward it- 2 states not moving forward- 23 states

1.conditions per person,

higher because prevalence of major disease conditions (heart disease, blood pressure, cholesterol, obesity)

What accounts for the largest share of health care expenditures

hosptials

Producing health

how does one produce health Health care Environment (physical and social, such as work/home environment, social status, education) Lifestyle (behaviors, such as diet, exercise, habits) Genetics We can incorporate these health inputs into an equation, the health production function: Health = f(health care, environment, lifestyle, genetics)

Number of Hospitals in Systems(1)2001 - 2011

increasing

wealth in England

minimum wage liberalization consumerism employment pensions industry

Statewide Variation in Diagnosis and Medication Use

most in the south medcated in midwest

The figure below shows increasing performance (clinical) risk under different payment systems

no of conditions per person no of episodes per condition no/type of service per episode of care no of processes per service cost per process

Will the health reform law require all businesses, even the smallest ones, to provide health insurance for their employees?

no- but small businesses incentivized Will the health reform law require nearly all Americans to have health insurance by 2014 or else pay a fine? Yes. Starting in 2014, most U.S. citizens and legal residents will be required to obtain health coverage, or pay a penalty. Some exemptions will be granted, for example, for those with religious objections or where insurance would cost more than 8% of their income.

Health

nw drugs surgery clean air access anaesthetics professions Non-communicable disease

Medicaid eligibility pre-Affordable Care Act:

primarily covers low-income children, pregnant women, disabled persons, and the elderly Medicaid financed just under half (45%) of U.S. births in 2010 Children and pregnant women can qualify for Medicaid at higher incomes, but the threshold varies by state. The ACA will increase the maximum income threshold for others in states that decide to expand Medicaid.California Pre-ACA Income Eligibility Levels for Medi-Cal Programs: More Generous than National Average

Medical Board of California Mission Statement

protecct health care consumer promote access to quality medical care

Behavior is a Major Factor of Health Status

sex alcohol motor vehicle guns drug induced obesity smoking

What is Economics

social science that analyzes the production distribution, and consumption of goods and services - studies human behavior as a relationship between ends and scarce means which have alternative uses -helps inform policy-makers, firms, and other stakeholders on how to achieve their goals

Culture and Values

social solidarity equity free at the point of need

Marginal cost

the added cost of consuming one additional unit of a good Correspondents to supply

Marginal Benefit

the added utility (happiness) of consuming one additional unit of a good Corresponds to demand