Comparing Health Insurance Reform Models Cliff Gagnier June

Comparing Health Insurance Reform Models Cliff Gagnier June 6, 2007

Problems with the Current Health Care Model n Tens of Millions lack insurance n High cost of employer based health insurance disadvantaging U. S companies abroad n Poor consumer information n Equity issues n System based on willingness to pay, not need

Market Competition Model n Market Competition thought to be most efficient by proponents n Government involvement limited to a carrot approach with the private sector n Most strict example would be the elimination of Medicare and Medicaid n Generally does not solve the problems of the current system; information, equity and need n Maintains consumer choice

Economic Analysis of the Market Competition Model n Health care market suffers from a distortion known as moral hazard n Raises the prices of health care costs and premiums without equivalent increases in health care outcomes n Marginal utility is less than marginal cost

Managed Competition Model n An insurance union for collective bargaining n Results in increased competition and access to information for the group n Model has been shown to lower premiums

Economic Analysis of the Managed Competition Model n Case study: Federal Employees Health Benefit Plan (FEHBP) Lower premium rate increases compared to the private insurance industry - 5. 0% to 3. 5% n Low administrative costs under the Office of Personnel Management but at the expense of negotiating for lower prices n Considered a possible model for national universal health care n

Compulsory Insurance Model n Two Forms n Compulsory Individual n n Each individual required to have insurance Similar to laws mandating car or unemployment insurance Often single payer systems - Switzerland Compulsory Employer n n Employers required to provide insurance or pay higher tax rate to fund government program Usually coupled with tax breaks for small businesses

Single Payer Model n A single government program that provides insurance n Examples include Medicare or the Canadian health system n Reduced administrative costs due to economies of scale and non-profit status n Provides based on need rather than willingness to pay n Decreases in premium costs somewhat offset by increases in taxes

Economic Analysis of the Single Payer Model n Common criticism of single payer model - Increased wait times decreases health care outcomes n Comparing wait time effects on mortality – Quebec and Massachusetts Quebec has longer wait times and increased mortality rates for hip surgeries n Study finds increased mortality due to longer after surgery stay and not due to longer wait times n

Conclusion n No health insurance model will satisfy all interested parties n Society will need to determine which groups are favored over others but also how to do justice to those that will be worse of under a new model n None of the health insurance models will significantly lower actual health care costs n Additional reform is needed to correct the disparity between health care costs and outcomes; other nations pay significantly less