Healthcare Final

What is a Diagnoses Related Group (DRG) system and what role does it play in Medicare?

A DRG system is a system in which Medicare pays a fixed amount to hospitals based on the diagnoses a patient has when they are admitted to the hospital, rather than paying based on the length of the stay or the extent of the care that was given. It is a cost control measure for Medicare that transfers risk from the government to hospitals, and eliminates the incentives for hospitals to provide unnecessarily expensive care to patients.

What is a person's Quality Adjusted Life Expectancy (QALE) and what is its formula?

A person's QALE is the number of quality adjusted life years he expects to live, incorporating his patience/discount factor. The formula is: QALE = ∑((delta)^t-t0)qtPt

What is a "tax expenditure" and how do tax-exempt insurance premiums influence it?

A tax expenditure is a revenue loss that is attributable to provisions of federal tax laws that special exclusion, exemption, or deductions from gross revenue. Tax-exempt insurance premiums are exemptions that end up totaling roughly $143 billion dollars in lost government tax revenues per year.

What are ACO's

ACO's are groups of providers who agree to share the accountability for QL and cost of care to patients under their care. They share savings and losses.

What are bundled payments? What are the 4 models of bundled payments?

Bundled payments are payments for an episode of care. The 4 models include: 1) Inpatient hospital services 2) Inpatient hospital, physician, and post-acute services 3) Post-acute services 4) Inpatient hospital and physician services

What policies can be used to decrease demand and reduce queues? What policies can be used to increase supply and reduce queues?

Decrease Demand: Increased used of gatekeepers, stricter eligibility thresholds for care, and prioritizing patients so it isn't just first come first-serve. Increase Supply: Hire more doctors and build more hospitals, higher salaries for medical staff, outsource care to private providers.

What is gatekeeping and queueing and how do they help control moral hazard? What drawbacks are there to using these to control moral hazard?

Gate-keeping entails a tiered system of doctors that patients must visit in a specific order in order to keep costs down by eliminating frivolous appointments and focusing limited resources on patients who really need care. However, when demand is larger than supply, queues result. The non-financial cost of having to wait in a queue may limit moral hazard and increase equity, but it also means sicker individuals may wait in line too long.

How can adverse selection play a role in differential wage pass-through?

Generally, employee sponsored health insurance provides a nice venue for consumers of differing health statuses to pool together and mitigate adverse selection. However, with differential wage pass through, even if people pay the same employee premium for coverage, they are not necessarily in the same insurance pool because of differential wage pass-through.

What are dominated treatments?

If one treatment is both cheaper AND more effective than a second treatment, then the second treatment is said to be dominated by the first treatment. You never want to use a dominated treatment.

What mechanisms in Medicare are designed to mitigate moral hazard and control costs?

In parts A and B, patients face some cost sharing requirements, including deductibles and copayments for outpatient visits and long hospital stays (however private supplemental insurance purchased by Medicare enrollees undercuts moral hazard mitigation effects of cost sharing).

How can an increase in healthcare spending be seen as a good thing?

It can be seen as a good thing because it may suggest that people live longer, leading to a growing elderly population, which dramatically increases costs for nursing homes, heart disease treatment, etc.

What is Health Technology Assessment?

It is a form of cost-effectiveness analysis that determines which services are available and which are not in Bismarck systems. Controversial because they can determine who gets treatment and who doesn't (and as a result who lives and who dies).

What is the Independent Payment Advisory Board? What is its purpose? What can it do/suggest?

It is a group composed by the president and confirmed by the senate. Its purpose is to develop proposals to reduce growth in Medicare spending. The dept. of Human Services is required to implement the board's suggestions unless Congress can come up with an alternative that saves as much money. The board can reduce reimbursements to providers (including Medicare pt. C and D insurers), but it can't ration care, increase taxes, change benefits/eligibility, increase premiums/cost sharing, or target hospitals/hospices.

What is the Children's Health Insurance Program (CHIP)? Did it work? What issues come with it?

It is a join federal state program to extend coverage beyond Medicaid to low income children. It was successful in terms of increasing coverage of children and adults in states with expansions. Some problems that come with it are crowd-out and a lack of access and quality treatment.

What is managed care? What tactics does managed care employ?

It is a philosophy of health insurance that employs tactics intended to reduce moral hazard, physician-induced demand, and premiums. The tactics that managed care employs are gatekeeping, coverage networks & vertical integration, monitoring, salaries and fixed payments (instead of fee-for-service payments), and denials of coverage if what would be covered is not cost-effective.

What is Medicaid? How do state governments play a role in it?

It is a public insurance program that provides highly subsidized insurance coverage to low-income families who have no insurance. It is run jointly by state and federal governments. State governments have a wide latitude to set budgets, determine eligibility rules, and decide how general their local Medicaid program is, which leads to a lot of variation in coverage between states.

What is MACRA (Medical Access and CHIP Reauthorization Act of 2015)?

It is a quality payment system that is intended to replace the fee-for service system. It pays physicians based on value rather than volume, and is determined by factors including: clinical care, safety, care coordination, patient and caregiver experience, population health and prevention, and affordable care.

What is an Incremental Cost Effectiveness Ratio (ICER) and how do you calculate it?

It is a ratio of the difference between two treatments' costs and their effectivenesses that tells the cost for avoiding negative health outcomes. The formula for it is: ICER 1,2=(C1-C2)/(E1-E2)

What is the Cost Effectiveness Frontier?

It is a subset of treatments for a given condition that are not dominated by any other treatments. Any treatment on the CEF is potentially cost effective.

What is Arrow's impossibility theorem?

It is a theorem that suggests that it doesn't make sense to speak of an "optimal" health policy for a country because societies may not have preferences (not transitive) that can be optimized in a traditional sense.

How difficult is forecasting future technology? Why?

It is an almost impossible task because it can either increase expenditures, due to high costs, or it can lower costs if incentives are aligned and doctors can provide healthcare at lower costs to patients.

What is risk selection and why is it bad (Bismarck model)?

It is effort that is put in by insurers to screen in healthy patients and screen out sick patients. Its bad because it puts sick customers in a bad position, and it can be socially wasteful because someone will have to insure sick customers.

What is the health policy trilemma and what are its 3 components?

It is the idea that nations have three broad goals in mind when designing health policies, and any attempt by a nation to move closer to one of these goals necessarily involves a tradeoff that moves that nation further away from another goal. The three components/goals are health, wealth, and equity.

What is Cost-Benefit Analysis (CBA)?

It is the process of choosing an optimal treatment among all cost-effective ones, given a certain monetary value for each unit of health effect.

What is cost-effectiveness analysis and how does it help control moral hazard? What drawbacks are there to using this to control moral hazard?

It is the process of gathering all of the information about treatment options and determining which options produce the most additional health for the least cost. It limits moral hazard by reducing spending on inefficient and costly treatments. It can also make the entire system cheaper. However, it also makes insurance contracts less full for patients.

What is cost sharing and how does it help control moral hazard? What drawbacks are there to using this to control moral hazard?

It is when patients pay some amount the cost for treatment, and the rest of it is then covered by insurers/gov't. It may be accomplished through deductibles, copayments, or coinsurance. It can make patients more careful so that they have to avoid paying cost sharing fees, but it makes healthcare less affordable to patients.

What is differential wage pass-through? (Don't confuse with "wage pass-through")

It is when some employees' wages are changed differently relative to others because of some characteristic, perhaps their different intrinsic health costs (leading to higher firm costs of insurance). This is technically illegal in the US, but it is hard to detect wage discrimination so this happens quite often on average.

How does Medicaid provide a work disincentive?

It provides a work disincentive because you lose Medicaid benefits as your income increases, so individuals will work just enough to keep Medicaid benefits but not any more than that because they would lose those benefits if they did.

What is job lock? What are its 2 ingredients? What does it do to the labor market?

Job lock is the negative effect of restricting the movement of sick people away from current firms because they might receive a lower wage at the new firm due to wage pass through. The two main ingredients of job lock are wage pass through and sticky wages. Job lock distorts the labor market and reduces social welfare.

LOOK AT SLIDE SHOW 9A AND REVIEW SLIDES 12-20

LOOK AT SLIDE SHOW 9A AND REVIEW SLIDES 12-20

What are some of the benefits and drawbacks of publicly provided health insurance?

Pros: reduced costs of medical care, improve quality of care by banishing oligopoly power and medical arms races. Cons: less efficient than private markets because workers have less incentive to see hospitals succeed, and gov't systems lack feedback mechanisms to correct them if they aren't succeeding.

What are prospective payments and how do they control moral hazard? What drawbacks are there to using these to control moral hazard?

Prospective payments are payments that are made to a hospital or doctor before health care is administered, which reduces physician-induced-demand and moral hazard. However, it turns the patient-doctor relationship to be adversarial, and providers might try to avoid treating more costly patients.

What is rationing and how is it used in healthcare?

Rationing is any method for allocating a scarce resource other than prices. An example of how it is used in healthcare is that an Insurance company may decline to pay for certain treatments that aren't cost effective.

What would need to happen in order for Big Medicine to be beneficial for consumers and the government instead of just for healthcare providers?

Regulations and incentives for medical systems play a large role in whether or not these systems will deliver for consumers/gov't because these systems can scale and gain market power which could potentially be used to only benefit medical companies.

What are the benefits and drawbacks of CHCs?

Some of the benefits include reduced infant mortality & low birth rate, they are more up to date on cancer screenings than comparable women, more pediatric patients have recommended preventative care, and it has lower costs than comparable care. Some of the drawbacks are that there is insufficient funding to serve the population, they are understaffed, and there is limited access to specialty services.

Why have there been such rapid increases in life expectancy?

Some of the reasons include better sanitation, improved nutrition, medical advances, and reductions in crime.

What are types of demand side and supply side public subsidies?

Some types of demand side public subsidies include: subsidized insurance via the tax system, Medicare for the elderly and disabled, and Medicaid for certain low income groups. Some types of supply side public subsidies include: Community health centers, the VA system, subsidies to educate providers, and subsidies to build facilities.

What are the benefits of the insurance rating rules (no pricing on pre-existing conditions & guaranteed issue of insurance) included in the ACA? Why might they be bad?

The benefits to these rules are that insurance is for the long run instead of being a year-to-year thing, you can't be dropped from coverage/denied coverage. The insurance rating rules might be bad because younger adults will have higher premiums because they are being (partially) pooled with older consumers, and if the mandate isn't effective then the rules will lead to substantial adverse selection.

What are the core problems with Medicaid?

The core problems are that there is a negative labor market incentive, a negative private coverage incentive (people will try to get Medicaid instead of privately insuring), there is inequality because of how coverage can vary by state, there is a crowd-out of private coverage, low reimbursement rates limits access for enrollees, and there are costs to the state from the program.

What are the economic and legal arguments against the individual mandate component of the ACA?

The economic arguments against it are that some people value insurance less than the total cost of it so making them purchase insurance isn't efficient, the mandate is difficult to enforce and therefore won't prevent adverse selection, and that the mandate with the current tax penalty won't be enough to compel people to join which will not prevent adverse selection. The legal arguments are that its a personal liberty issue since you are requiring people to buy something, and it could be seen as federal regulation of interstate commerce instead of a tax (even though congress ruled it to be a tax).

Why don't we see the same kind of investment in IT and management in health care that we do in other sectors?

The first main reason is that there is a lack of payments for quality, since physicians are typically paid fee for service instead of quality. So, it might not be in the best interest of health care facilities to undertake large fixed investments that improve quality. The other main reason is that there is a lack of good information. The benefits of developing a system to determine good information for insurers might be too costly for a "first mover" since it would just provide every other insurer with the benefits without having them share some of the costs (public goods problem).

What are the 4 parts of Medicare?

The four parts are: Part A) pays for enrollee's hospital care, skilled nursing care, and hospice care Part B) pays for enrollee's outpatient care and physician services Part C aka Medicare Advantage) provides the option for a Medicare enrollee to receive health insurance from a private HMO plan Part D) pays for enrollees' prescription drugs, via private insurance company subject to regulations.

What is the hardest part of healthcare standardization?

The hardest part is not determining what the best people were doing and standardizing it. Instead, it was getting doctors to participate and follow the efficient process that was the problem.

What are the main traits associated with the Bismarck model of national health policy? What does it emphasize?

The main traits are: Compulsory private insurance, private hospitals and doctors, and strict price controls that are set by the government. It emphasizes a balance between equity and liberty.

What are the main traits associated with the American model of national health policy? What does it emphasize?

The main traits are: Private markets in a central role, limited mandate for universal insurance, no price controls, and public insurance for selected groups (elderly and poor). It emphasizes liberty.

What are the main traits associated with the Beverage model of national health policy? What does it emphasize?

The main traits are: Single-payer insurance, public provision of healthcare (physicians are gov't employees), and there is very little cost sharing at the point of service (free care initially). Based on NEED rather than ABILITY TO PAY. It emphasizes equity.

What are the primary reasons for the inclusion of Insurance Exchanges in the ACA?

The primary reasons are that it reduces costs through competition between insurers, having the savings from reduced costs passed onto consumers, and helping people to easily compare and purchase insurance plans.

What are the major characteristics of the American Model?

The three major characteristics are: 1) Private health insurance markets 2) Partial universal health insurance 3) Private health care provision

What is the three-pronged plan that the ACA and Massachusetts insurance reform used?

The three pronged plan was: 1) Ban the exclusion of preexisting conditions 2) Individual mandate to eliminate adverse selection 3) Subsidies to make sure people can afford insurance

What are the two key issues that motivated the Affordable Care Act (ACA)?

The two main issues were the rising costs of healthcare, and the growing number of uninsured people

Why are so many people reluctant to adopt checklists in hospitals? (2 main reasons)

The two main reasons are: 1) physicians are offended by suggestions that they need a checklist 2) There are legitimate doubts about the evidence presented about checklists working.

What are the two parts of health technology assessment? Why is health technology assessment so controversial?

The two parts of health technology assessment are: 1) Cost-effectiveness analysis = the science of comparing costs and benefits of different medical treatments. AND... 2) Cost-benefit analysis = The process of choosing an optimal treatment by creating a tradeoff between money and health

If healthy workers could find a desirable new job elsewhere where they don't subsidize unhealthy colleagues, then they have an incentive to leave their current job. Considering this, why isn't there rampant adverse selection in employer-sponsored insurance? (2 main reasons)

There are two main reasons: 1) Firm-specific human capital=knowledge and experienced gained from working at a particular firm that is highly relevant there, but irrelevant at other companies. 2) Transaction costs of finding a new job

What are risk corridors?

They are a system that shares savings and losses between plans and the federal government, which reduced financial uncertainty for insurers. It only applies to plans in individual and small group markets.

What are risk adjustments?

They are actuarial adjustments that help ensure that health plans are appropriately compensated for the risks they enroll. It utilizes reinsurance to allow insurance companies to protect themselves against individuals with high medical cost claims.

What are neighborhood health centers?

They are healthcare centers that provide health and social services in poor and medically underserved areas and promote community empowerment. They serve many Medicaid beneficiaries, uninsured patients, and impoverished individuals.

What are the Insurance Exchanges that the ACA set up?

They are individual markets set up and regulated by states to aggregate and ease the purchase of individual market insurance plans.

What are negotiated fee schedules and what is there importance in the Bismarck system?

They are prices negotiated by the gov't/insurers and providers for services, and private and public providers are typically bound by these prices. They are the centerpiece of cost control in the Bismarck system as they are the primary mechanism for the government to regulate the supply of medical services, use of care, and aggregate spending level.

What lies behind a role for government subsidies?

1) Externalities in consumption 2) Public Health 3) Equity

What are the 4 features of managed competition that are important in the Bismarck model?

1) Minimum standards: each insurance contract is required to meet a minimal standard of care. Also, restrictions on deductibles, copayments, and financial exposure. 2) Open Enrollment (Guaranteed issue): Insurers may not reject any eligible customers, even if they are unhealthy. 3) Compulsory participation: customers are mandated to have insurance coverage at all times. 4) Community rating: Insurers can't set risk premiums using risk rating, instead they must be community rated.

What are some policy responses to population aging? Would they solve the budget problem?

1) Raise the Medicare age from 65 to 67. This wouldn't solve the budget problem because it would just shift the cost from individuals to employers, it would shift people onto Medicaid & exchanges, and many people would have exemptions and qualify anyway. 2) Chronic Disease Prevention. It would be hard for this to fix the budget problem because policymakers would need to be able to effectively target the interventions, and even if intervention is successful its unclear if the surviving population would develop even more expensive to treat chronic conditions. 3) Reinventing end of life care. Promoting hospice care or getting patients to state their end of life care preferences can be effective, but they don't seem to solve a large extent of the wasteful care. 4) Incentives to have kids.

What 2 main things might influence survey methods and distort them?

1) projection bias 2) relative preferences

Does managed care work in reducing moral hazard, physician-induced demand, and premiums?

Managed care organizations do tend to keep costs lower, but they don't result in a change in health outcomes, and they also tend to attract healthier consumers due to adverse selection.

What are medical homes?

Medical homes are team-based models of care that require added payments for management or coordination. They are multi-payer primary care practices that provide comprehensive primary care. They are federally qualified advanced primary care practices and they allow for independence at home.

What is Medicare?

Medicare is a government program that provides health insurance to all US citizens who are 65 years or older, as well as severely disabled americans who have been out of work for two years or more.

What are minimum loss ratios (from ACA) and what do they do?

Minimum loss ratios are essentially profit caps that require insurers to pay out at least 80% of premiums for medical losses. This means that insurer profits added to insurer administrative costs can't be any more than 20% of total medical expenditures.

What are mobile I.C.U.s and what are the benefits of using them? How to physicians and nurses feel about them?

Mobiel I.C.U.s are centralized command centers that can order things to be done if physicians are missing something or aren't with a patient. If the physician is present they can overrule the ICU command, otherwise the ICU can authorize care. They are beneficial because it is a step towards standardized care, and because allow for monitoring/reallocation for cases where good doctors/nurses are busy and can't monitor all cases at once. Some physicians don't like it because they don't like being told how to do things.

What is morbidity and how has it changed in the U.S. over time?

Morbidity is the phenomenon of disability and illness being delayed or "compressed" into the end of life. Morbidity has become more compressed in the U.S. since the 80s because disability rates among the elderly in the U.S. have improved in recent decades due largely to improved care for those with chronic diseases. HOWEVER, increasing obesity now appears to be offsetting these trends and leading to higher morbidity.

In what ways can uninsured people impose costs on others?

One way is through the $50-60 billion in uncompensated care that hospitals, insurers, and primary consumers (paying health insurance premiums) have to pay for. Another way is through the increased disease burden on the rest of society from infectious diseases that uninsured people get. Finally, uninsured lose productivity in work and other productive activities.

What are tactics that are used to eliminate risk selection and adverse selection in the Bismarck model (2 mentioned in slides)? What are the pros and cons of each?

Option 1: Ex post cost based compensation erases risk selection, but it also removes incentives to reduce costs. Option 2: Ex ante risk adjustment can reduce cream-skimming while still maintaining efficiency motives, but if the risk adjustment is wrong then it can still lead to risk selection.

What are the pros and cons of using price rationing to influence queues?

Pro: It would reduce the number of patients who don't actually need care but would join queue if there was no cost. Con: It would also deter some people who actually need treatment but can't afford it.

What are some of the benefits and drawbacks of privately provided health insurance?

Pros: Competition lowers costs Cons: Too little competition can lead to mkt power, too much competition can lead to medical arms races and higher healthcare costs, and poor and uninsured may lack access to care.

What are some of the benefits and drawbacks of government-set prices for health insurance?

Pros: Government can prevent private providers from exercising market power and can keep costs low. Cons: Prices must be set correctly or else treatments with prices below marginal cost would not be offered, and most profitable treatments might be overprescribed.

What are the pros and cons of using gatekeeping to influence queues?

Pros: It would eliminate the number of people who don't actually need care but would join queue without gatekeeping. Cons: If gatekeeping is successful, there is still a social welfare loss because long lines would consist of people who are all deemed to need care by a general practitioner.

What are the (3) different ways of determining quality weights for QALE calculations?

They are: 1) Visual Analogue Scale (VAS) asks respondents to rate health outcomes between 0 and 100. It is simple to administer, but it doesn't require respondents to think about the different health states so it may not reflect the intensity of respondents' preferences. 2) Standard Gamble (SG) has respondents choose between having health full health H with certainty (probability p) and probability (1-p) of death, and the point of indifference between the two is used as the quality weight of H. This way reflects the intensity of preferences better than VAS, but it could be influenced by risk aversion. 3) Time Trade-Off (TTO) has respondents choose between living for t years with health H before dying, or living a shorter amount of time t* in full health before dying. The quality weight is determined by t*/t. This way reflects intensity of preferences better than VAS but may be biased if t* is a function of age.

Why do queues arise? What are the benefits and costs of queues.

They arise because physician salaries are set by the government, which limits supply and makes is so that high demand doesn't equilibrate with supply, leading to long lines. Costs: patients desperately needing quick care aren't receiving it, can be inefficient because care is free for everyone. Benefits: limit morale hazard when price cannot, treats rich and poor equally, and long wait times deter people who don't actually need "costly" care.

How do Medicaid programs control costs and curb moral hazard?

They do so through a combination of eligibility and coverage restrictions. One way is that states set the reimbursement rates really low, which lowers expenditures but may lead to doctors choosing not to treat enrollees. States also restrict the prescription drugs that are available to enrollees to control costs. Cost effectiveness analysis has also been used by some states.

What were the individual market regulations that were included in the ACA?

They were: no pricing on pre-existing conditions, every insurer that offered plans has to allow consumers to enroll (i.e. no coverage denials), minimum benefits standards that specify a minimum "thing" that counts as insurance, and contract regulations with respect to cost sharing plans.

What is "wage pass-through"?

When an employer reduces employee wages as a result of providing more expensive health insurance benefits to employees. This happens because insurance is included as part of an employees total compensation package.

How did implementing a checklist for standardization in ICUs affect patient outcomes? What are the two main benefits of checklists?

When the checklist was implemented for line infections, it led to dramatic decreases in line infections, saving multiple lives and millions of dollars. The two main benefits of checklists are that it helped with memory recall for mundane things in strenuous cases, and it made an explicit minimum expected steps in a complex process, which led to a higher standard of baseline performance.

What role does adverse selection play in the managed competition component of the Bismarck model?

With the mandate of the Bismarck model, there isn't adverse selection into or out of the insurance market, but there still can be adverse selection within plans in the insurance market. This means market can unravel to the cheapest/minimum option, which is why regulation of minimum insurance option is crucial.