What is health insurance (good) for

Robert D. Lieberthal What Is Health Insurance (Good) For? An Examination of Who Gets It, Who Pays for It, and How to Improve It What Is Health Insurance (Good) For? Robert D Lieberthal What Is Health Insurance (Good) For? An Examination of Who Gets It, Who Pays for It, and How to Improve It 123 Robert D Lieberthal Department of Public Health College of Education, Health, and Human Sciences, University of Tennessee Knoxville, TN, USA ISBN 978-3-319-43795-8 DOI 10.1007/978-3-319-43796-5 ISBN 978-3-319-43796-5 (eBook) Library of Congress Control Number: 2016947399 © Springer International Publishing Switzerland 2016 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG Switzerland This book is dedicated to Thomas Jefferson University, which gave me the time, space, and resources I needed to complete this work Acknowledgments I could only have written this book with an incredible amount of help from many supportive people and institutions in my life My family provided me with an incredible amount of encouragement and faith, and was extremely patient in listening to me talk about health insurance, and this book, at great length They also taught me how to survive, and to thrive, in an academic environment, and provided me with a great deal of my fine education This book is in many ways the capstone and extension of my doctoral program and dissertation work I received amazing training at the University of Pennsylvania, principally at Wharton I appreciate the resources the university devoted to my training Especially important were the guidance of my advisor and dissertation chair, Mark Pauly, along with my dissertation committee, Scott Harrington, Greg Nini, and Jessica Wachter, as well as Joanne Levy, the “den mother” for all the doctoral students I also want to thank the Agency for Healthcare Research and Quality (AHRQ) for funding through a T32 training grant (5-T32-HS000009) and R36 dissertation grant (1-R36-HS018835-01) Several colleagues also provided support in the development and writing of this book Juan Leon provided feedback on the idea and a number of early drafts Rob Field reviewed my proposal as well as sharing his experience with publishing academic books Richard Derrig, Cassandra Cole, and Sandy Barth all provided excellent feedback on my proposal Mohammadreza Hojat connected me with Springer and helped me learn how to work with them The staff at Springer including Janet Kim and Christina Tuballes helped to shepherd my book through the proposal, contract, and publication process The administration at Jefferson, including David Nash, Caroline Golab, and David Glatter, helped me develop the book from an idea to a reality, understand how to fit it into my busy academic schedule, and how to negotiate with the publisher for the best deal I could get A number of books on writing and academic life were particularly useful While I never met any of the authors, they all helped me immensely Paul Silvia’s “How to write a lot” and William Germano’s “Getting it published” helped me get the book written and published Robert Boice’s “Advice for new faculty members” vii viii Acknowledgments facilitated my gradual approach to the book, which I wrote in “brief repeated sessions” as he suggested C Wright Mills’ “The sociological imagination” showed me how to take a social science approach to writing a book, layering each successive piece of the manuscript one on top of the other until, somehow, it was suddenly done Special praise is due to three special people who helped me “get it done.” Jen Wilson, the scientific editor at Jefferson helped me at every stage along the way, editing the proposal as well as every chapter of the book I, and the book, benefitted from her editorial perspective and ability to gently deliver constructive criticism along the way Two of my friends, Bill and Victoria, were also important in encouraging me to finish, reading me the “riot act” as needed If not for them, I would probably still be writing Chap again, and again, and again Instead, the book is complete, and I am glad for it Finally, while others deserve credit for helping me, all errors and omissions are my sole responsibility as the author I will maintain a list of updates and corrections at my personal website, www.lieberthal.us Contents Part I The Importance of Health Insurance Defining Health Insurance 1.1 Healthcare Finance 1.1.1 Defining Healthcare Finance 1.1.2 Demand and Supply of Healthcare Finance 1.1.3 The Subjectivity of Healthcare Finance 1.1.4 Alternative Forms of Healthcare Finance 1.2 The Growth of Health Insurance 1.2.1 Diverse Beginnings of Health Insurance 1.2.2 Policy and the Growth of Health Insurance 1.2.3 Professionalizing Health Insurance 1.3 The Health Insurance Literatures 1.3.1 Health Insurance Policy 1.3.2 Health Economics 1.3.3 Risk Management and Insurance 1.3.4 Health Services Research References 3 11 12 13 16 19 20 20 22 24 26 29 Insuring Health Capital 2.1 The Economic Value of Health 2.1.1 Consuming and Investing in Health 2.1.2 Health Investments 2.1.3 The Health Capital Model 2.2 Risk Aversion and Health Risks 2.2.1 Changes in Health Capital 2.2.2 Valuing Health Capital 2.2.3 Health Risk Aversion 2.2.4 Health Insurance Choices 33 33 33 35 36 37 37 38 40 42 ix x Contents 2.3 Financial Intermediation of Healthcare Spending 2.3.1 Insuring Health Indirectly 2.3.2 Monetizing the Value of Health 2.3.3 Challenges in Monetizing Health Capital 2.3.4 Health Insurance Pricing 2.3.5 Scale and Scope in Third-Party Payment References 44 44 46 47 49 51 53 The Scope of Health Insurance 3.1 Measuring the Degree of Protection 3.1.1 Defining Quantity 3.1.2 Measuring Quality 3.1.3 Determining Prices 3.2 Optimizing Health Insurance 3.2.1 Health Insurance Trade-offs 3.2.2 Optimal Health Insurance as a Benchmark 3.2.3 Determining the Optimal Policy 3.3 Constraints on the Scope of Insurance 3.3.1 Insurer Constraints 3.3.2 Asymmetry of Information 3.3.3 Moral Hazard 3.3.4 Adverse Selection 3.3.5 Other Economic Externalities 3.3.6 Irrationality of Consumers and Producers References 55 55 55 58 62 63 63 66 67 70 70 71 73 75 77 80 81 Demand for Health Insurance 4.1 Health Insurance Demand Functions 4.1.1 The Demand Side of Markets 4.1.2 Demand as a Function of Price 4.1.3 Constrained Willingness to Pay 4.1.4 Diminishing Marginal Benefit of Health Insurance 4.1.5 Different Types of Demand Functions 4.2 Individual Demand 4.2.1 Direct Purchase of Insurance 4.2.2 Explaining Individual Demand 4.2.3 The Services Individuals Purchase 4.3 Group Demand 4.3.1 Employer-Provided Coverage 4.3.2 Explaining Employer-Provided Coverage 4.3.3 Social Insurance 4.3.4 Explaining Social Insurance References 87 87 87 89 91 94 95 96 96 98 100 102 103 105 108 110 113 Part II Health Insurance Markets Contents xi Producing Health Insurance 5.1 Health Insurance Supply Functions 5.1.1 The Supply Side of Markets 5.1.2 Supply as a Function of Price 5.1.3 Production of Health Insurance 5.1.4 Bundling Versus Disintermediation 5.2 Health Insurance Companies 5.2.1 Organizational Forms 5.2.2 Markets for Health Insurance Companies 5.2.3 Diversity of Health Insurance Companies 5.2.4 Competition and Partnerships 5.3 Healthcare Providers as Insurers 5.3.1 Providers’ Provision of Financial Intermediation 5.3.2 Direct Contracting Versus Third-Party Payment 5.3.3 Features and Drawbacks of Provider-Supplied Insurance 5.4 Employers and Governments 5.4.1 Health Insurance as an Instrumental Good 5.4.2 Self-insurance by Governments and Employers 5.4.3 Features and Drawbacks of Self-insurance References 117 117 117 119 120 122 124 124 126 127 129 130 130 133 135 136 136 137 140 142 Matching Supply and Demand 6.1 Equilibrium Health Insurance 6.1.1 Economics of Equilibrium 6.1.2 Optimality Under Equilibrium 6.1.3 Health Insurance Subsidies and Taxes 6.2 Health Insurance Choices 6.2.1 Individual Choices 6.2.2 Employer Choices 6.2.3 Government Choices 6.3 The Uninsured 6.3.1 Defining the Uninsured 6.3.2 Explaining the Uninsured 6.3.3 Alternatives to Health Insurance 6.3.4 Consequences of Uninsurance References Part III 145 145 145 148 150 152 152 153 155 158 158 159 162 164 168 175 175 175 176 177 Health Insurance Policy Group Purchasing 7.1 Group Pricing 7.1.1 Actuarially Fair Group Insurance 7.1.2 The Role of Community Rating 7.1.3 Taxation and Regulation Considerations 9.4 The Future of Health Insurance 257 have private actuaries working for health insurance companies and consultants, or better to have actuaries working for government plans and actuaries or other financial analysts working “in house” at provider organizations? Is it better to have actuarially unfair insurance with a loading factor that includes the cost of marketing and underwriting insurance, or to have a mandate or automatic opt-into a more homogeneous form of insurance in order to reduce or eliminate marketing costs? While there are no definitive answers to these questions, the diversity of U.S health insurance continued by the structure of the ACA will generate more data to explore and answer these questions Ultimately, the insourcing versus outsourcing issue is a question of value—is the value provided by splitting up responsibility for the administration of health insurance worth the cost? 9.4.3 Unpicked Fruit This book has discussed how the vast majority of the funding for healthcare is channeled through the third-party payment system The major trends in health insurance over time lean toward an increasing share of payments from the third-party payment system and for an increasing share of health insurance from public (government funded) sources These trends may produce positive or negative economic effects—the literature on moral hazard suggests that decreased exposure to risk may be a net negative, while the literature on the uninsured and externalities suggests that there are substantial societal welfare gains in increasing the insurance rate for many groups The fact that so much more of the funding comes from government sources means that it will be the provenance of public policy to make these more optimal allocations In other words, the future success or failure of health insurance depends greatly on the health insurance choices of government at the federal and state levels Opportunities to improve health insurance through improved public policy choices will grow as ACA insurance transfer healthcare spending from individual, out-of-pocket payments to public budgets Initial evidence suggests that the health insurance subsidies and Medicaid expansion have significantly reduced the number of uninsured (McMorrow et al 2015) It is less clear whether these expansions will continue the downward trend in the proportion of out-of-pocket spending, especially since the share of out-of-pocket spending cannot get much lower It is also less clear whether the wealthier members of the middle class will take up less subsidized insurance—this likely depends on the extent to which the individual mandate “bites” as well as on future trends in health insurance premiums The success of the ACA and the health insurance system likely depends on increased spending and coverage, which again argues for a strong performance by public agencies and a critical appraisal of how to run and regulate health insurance markets Focusing policy on proven policy interventions that can improve health insurance could have a very attractive return on investment (ROI) A large number of 258 Public Policy Choices health destroying conditions have effects that can be delayed or even reversed both through new medical technology and through targeted preventative activities For example, new treatments for hepatitis C with fewer adverse side effects can improve the health of individuals with the condition, reduce the prevalence of the disease, and save some costs related to the care for those with a chronic, severe disease (Liu et al 2012) As another example, the so-called “non-communicable diseases,” such as diabetes, heart disease, and cancer, have a behavioral component that is amenable to change (Ezzati and Riboli 2013) Health insurance that finances effective healthcare technologies and that supports healthier behavior would reduce the burdens of these diseases on society The return on investment of these health insurance improvements would also include nonmonetary outcomes such as better health and satisfaction, which are valuable in and of themselves even if they not financially “repay” the costs of these treatments The investment perspective implied by ROI is explicitly motivated by the application of the health capital framework The investment perspective implies that not all treatments or preventative behaviors will have a positive return Reduction in the quantity and quality of health insurance may facilitate the expansion of insurance through the greater coverage of other higher value investments Where individuals have coverage that is inefficiently high, the best policy solution is to reduce value of any tax subsidies Such individuals can then choose additional investment in health capital through personal purchases of insurance or healthcare, without the welfare distorting effect of the tax-subsidized spending Conversely, for those with an inefficiently low amount of health insurance, providing subsidies either directly, such as in the form of vouchers or in the form of social insurance, increases value in health insurance 9.4.4 Better Meals, Better Lives Improving health is a goal of health insurance that makes it unusual, perhaps even unique, among all the lines of insurance Health insurance is clearly useful in terms of protecting health; in contrast, homeowner’s insurance would be little different if houses were assets that depreciated faster (e.g., more like cars)—that depreciation would simply be priced into the insurance policy Health insurance, in contrast, should be judged in part by the evolution of the portion of societal wealth that is contained in health capital, and the ability of health insurance to maintain the value of health A health insurance system is better if it leads to more retention and improvement of this wealth Judging health insurance in part on its effect on health also provides a unique challenge to health insurance In order to affect any desired change in health, health insurance ultimately only has financial levers at its disposal Since the majority of health is the responsibility of the individual as the producer of his or her own health capital, health insurance is limited in what it can achieve, regardless of the amount of incentives based on health insurance coverage 9.4 The Future of Health Insurance 259 Health insurance is concerned with the management of a risk that is large both on the societal and individual levels Health capital is an incredibly a valuable asset for the macroeconomy and healthcare spending is a large proportion of total economic production Similarly, many individuals experience large fluctuations in health and in healthcare spending—even those with large claims due to newly diagnosed chronic conditions may see their healthcare spending return to a lower level after the period of acute spending (Herring and Pauly 2006) There is currently no foreseeable limit to healthcare cost growth, and a great deal of room between its current level at 20 % of the economy and a future where healthcare constitutes the entire economy Healthcare could continue to grow as part of the economy for the foreseeable future Health insurance will grow with it, absorbing and spreading risks along the way if well designed Health insurance is also unusual to the extent that it covers a subjective, irreplaceable loss In some ways, the best model for health insurance is the Cook and Graham (1977) model of insurance for an irreplaceable commodity (Cook and Graham 1977) This implies that much heath capital may be subject to idiosyncratic risks that are poorly managed or unmanageable through insurance While health insurance could simply be seen as a financing vehicle—a quid pro quo where members of society covers each others’ healthcare spending—it is worth asking whether and why insurance would be the best vehicle to finance such spending Health insurance could also be seen as more of a public health program where all pay in and the objective is maximizing societal health rather than allowing individuals to manage individual risks The major question here will be the extent to which people would be better off with a more public system—after all, if health is intensely personal, to what extent people want to subject it to the commoditization of the marketplace or the homogeneity of government policy? Optimizing health insurance is also likely to be a dynamic problem that will require constant attention and adjustment As the level of wealth, distribution of wealth across the population, and medical progress continue into the future, getting health insurance “right,” and maintaining the value of health insurance is crucial to society’s economic well-being Health insurance policy that is informed by a more objective sense of the costs and benefits of health insurance will lead to a more realistic set of policies toward health insurance, allowing individuals, policymakers, and society to allocate scarce insurance dollars to achieving the goal of improved human health Health insurance is not cost-free, and the benefits of health insurance are not limitless Rather, health insurance is an important tool for addressing the importance of health to individuals and society Using health insurance mainly to help individuals manage their health risks, with a secondary effect of financing the cost of healthcare, will allow health insurance to achieve its optimal benefit 260 Public Policy Choices References Baicker, K., Congdon, W J., & Mullainathan, S (2012) Health insurance coverage and take-up: Lessons from behavioral economics Milbank Quarterly, 90(1), 107–134 Baicker, K., Taubman, S L., Allen, H L., Bernstein, M., Gruber, J H., Newhouse, J P., et al (2013) The Oregon experiment—Effects of Medicaid on clinical outcomes The New England Journal of Medicine, 368(18), 1713–1722 Barnhill, A (2011) Impact and ethics of excluding sweetened beverages from the SNAP program American Journal of Public Health, 101(11), 2037–2043 Berwick, D M., & Hackbarth, A D (2012) Eliminating waste in US health care Journal of the American Medical Association, 307(14), 1513–1516 Bhattacharya, J., Goldman, D., & Sood, N (2003) The link between public and private insurance and HIV-related mortality Journal of Health Economics, 22(6), 1105–1122 Bodenheimer, T (1996) The HMO backlash—Righteous or reactionary? 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Himmelstein, D U (2003) Costs of health care administration in the United States and Canada The New England Journal of Medicine, 349(8), 768–775 Index A Access, 60 proxy measures, 61 Access to care, 164 Access to healthcare, 27 Accident and disability policies, 13 Accountable care organizations (ACOs), 180, 255 private, 255 Actuarial favorability, 245 Actuarially fair, 43, 63, 68, 109, 140, 175, 177, 214, 228, 229, 246 Actuarially favorable, 43, 63, 90, 109, 175, 177, 228, 229 Actuarially unfair, 42, 63, 96, 110, 120, 125, 160, 177, 228 Actuarial pricing, 13 Actuarial principles, 218 Actuarial value, 57, 255 Actuaries, underwriters, marketers, 256 Acute illness, 166 Adherence, 27 Administrative complexity, 241 Administrative services contract (ASC), 184 Adverse selection, 10, 13, 99, 137, 140, 215, 217 death spiral, 76 durational, 75 external, 75 internal, 75 Adverse selection death spiral, 203 Adverse selection problem, 107 Affordability, 26, 194, 215, 226 Affordable Care Act (ACA), 5, 21, 25, 26, 213, 239, 242–244, 247, 248, 257 Age-based coverage, 108 Agent See Provider Antibiotics, 20 Antiselection See Adverse selection Arrow–Pratt model, 94 Asymmetric information, 10, 23, 71, 135, 206 Automobile insurance, 24 B Bankruptcy, 162, 164, 240 Basis risk, 48, 60 Baylor hospital, 14 Baylor plan, 179 Behavioral economics, 80, 166 Behavioral insurance, 80 Benefit mandates, 97, 140 Benefits basis, Blue Cross and Blue Shield, 14, 15, 125 Blue Medicare, 126 Budget set, 64 Bundled payment, 255 C Cadillac tax, 204, 216 Canada, 195, 216 Cancer, Capitated basis, 58, 180 Capitation, 183 Catastrophic coverage, 239 Catastrophic policy, 100 Centers for Medicare and Medicaid Services (CMS), 131 Chargemaster, 162 Cherry picking, 228 Children’s Health Insurance Program (CHIP), 4, 5, 108, 159, 166 Chronic conditions, 93, 221 Chronic disease, 166 Churn, 192 Claims cost, 49, 151 Claims lag, 121 Closed panel HMO, 179 Coinsurance, 15, 94, 178, 207, 227 © Springer International Publishing Switzerland 2016 R.D Lieberthal, What Is Health Insurance (Good) For?, DOI 10.1007/978-3-319-43796-5 263 264 Coinsurance rate, 56, 237, 244, 255 Commercial insurers, 17 Community rated, 90, 17, 156, 176, 220 Community rated coverage, 140 Community uninsurance, 167 Compensated price change, 90 Competition, 251 benefits of, 210 Complementary goods, 12 Complete information, 71 Complex security, 38 Compressed rates, 228 Compulsory universal insurance, 216 Concierge medicine, 134, 250 Consumer directed health plans (CDHP), 240 Consumer welfare, 210 Consumption choices, 33 Consumption decisions, 34 Consumption of health, 33 Consumption smoothing, 45 Contingent claims, 38, 42, 46, 118, 148 Contract of adhesion, 96 Cooperative health insurance, 120 Cooperative societies, 13, 182 Copayment, 56, 74, 178, 240 Corner solution, 92 Cost based reimbursement, 185 Cost–benefit analysis (CBA), 236 Cost/benefit test, 37 Cost containment, 242, 249 Cost control, 10 Cost-effective, 238, 244, 247, 251, 255 Cost-effective care, 186 Cost-effectiveness, 21, 27, 70, 211 Cost-effectiveness analysis (CEA), 237 Cost of administration, 175 Cost of claims, 175 Cost of healthcare claims, The, 181 Cost-plus, 133 Cost plus reimbursement, 101 Cost-plus system, 186 Costs of administration, 218 Coverage limits, 56, 226 Cream skimming, 228 Cross-state sales, 222 Cross-subsidy, 90, 151, 154, 158, 214, 215 Crowding out, 189, 192 Crowd out, 211, 225, 243, 244 Medicare, 211 Current procedural terminology (CPT), 131, 255 Customary and reasonable, 101 Customary charges, 242 Customary practice of their peers, 182 Index D Deadweight cost, 212 Deadweight loss, 12, 127, 208, 223 Deductibles, 15, 56, 178 Demand indirect versus direct, 22 Demand and supply functions, 145, 146 Demand and supply side factors, 158 Demand for health insurance heterogeneity, 88 Demand function convexity, 146 Demand-side constraints, 205 Demand-side factors, 159 Demographic changes, 190 Demographic characteristics, 229 Depreciation, 37 Depression, 241 Diabetes, 7, 25 Diagnosis-related groups (DRGs), 133, 255 Diminishing marginal returns, 94, 146 Direct contracting, 133, 134 Direct demand, 44 Direct pay practices, 134 Direct primary care, 250 Disability income (DI), 13 Disability insurance, 182 Diseconomies of scope, 181 Diseconomies of scope and scale, 210, 218 Disparities, 237, 248 Disposal of bad debt, 163 Distortions tax system, 212 Diversity, 53 Diversity of individuals, 64 DRG-based prospective payment system, 187 Dual eligible, 4, 25, 109 E Economic agent, 95 Economic externalities, 187 Economic price of insurance, 176 Economics of choice, 34 Economies of scale, 12, 51–53, 107, 111, 112, 118, 137, 159, 177, 180, 181, 218, 228, 240, 246, 247, 251 Economies of scope, 12, 51, 53, 112, 119, 123, 177, 181, 218, 228, 240, 246, 247, 251, 252 Education, 248 as a form of wealth, 28 Effectiveness, 21, 26 Efficacy, 27 Efficiency, 239, 247, 256 Index Elasticity of demand, 36, 165 Emergency department, 240, 241 Emergency Medical Treatment and Active Labor Act (EMTALA), 78, 161 Employee contribution, 175 Employee Retirement Income Security Act (ERISA), 138, 189 Employer generosity, 154 Employer mandate, 157, 216, 222 Employer premium share, 153 Employer-provided health insurance, 4, 244, 245 self-insured, subsidy for, 204 tax deductibility of, 204 tax exemption, 159 tax exemption for, 20 tax subsidy, 106 Employer-provided insurance, 95 Employer-provided market, 151 Employer shared responsibility, 248 Endowment, 91, 117 Endowment of wealth, 99 End-stage renal disease (ESRD or kidney failure), 108, 112, 193 Environmental programs, 235 Equilibrium, 201 Equity, 112, 215, 237, 244 ERISA-qualified plans, 157 Essential health benefits, 157, 191 Ex ante, 57 Ex ante moral hazard, 75 Excise tax (Cadillac tax), 244, 226 Excise tax See Cadillac tax Expected loss, 49, 50 build up approach, 50 density approach, 50 Expected losses, 96 Expected return, 41, 236 Expected utility, 39 Expected value, 42 Expected value method, 39 Experience rating, 17 Ex post, 57 Extensive margin, 64 Externalities, 77, 79, 110, 166, 257 Externality, 11, 213 F Federal government budget, Federally qualified health centers (FHQCs), 251 Federal poverty level (FPL), 225 Fee-for-service, 133, 242, 252 265 File-and-use, 156 Financial intermediation, 58, 130 Financial viability, 70 First best welfare economics, 205 First Welfare Theorem, 149 Fixed-case rate, 185 Fixed cost of writing insurance, 187 Fixed costs, 52, 118, 123 Fixed fee, 134 Flexible spending account (FSA), 250 Floor, 239 Flow of funds, Flu vaccine, 93, 131 Focused factories, 122 For profit, 125 Fragmentation, 124 Fraud and abuse, 182 Full coverage, 155, 207 Full insurance, 56, 65, 209 Full protection, 19 Fully insured, 138 Fundamental theorems of welfare economics, 149 G Generosity, 244 Geographic variation health insurance and healthcare markets, 229 Germany, 176, 194, 245 Government market, 126 Government-provided, 95 Government regulations, 202 Grandfathered plans, 192 Group purchasers, 7, 21, 254 Guaranteed issue, 151, 156, 221 Guaranteed renewability, 214, 221, 245 H HAART regimens, 108 Health contingencies, 39 depreciation, 46 fungibility, 35 investment in, 35 markets for, 48 shock, 46, 50 Health capital, 8, 24, 29, 55, 93, 99, 117, 130, 147, 215, 235, 237, 238, 247, 248, 253, 254, 258 fungibility, 238, 255 subjectivity of, 58, 182 tax on, 179 Health capital model, 166 266 Health capital risks, 221 Healthcare, 65 as a human right, effectiveness, 94 price, 49 utilization, 49 Healthcare reimbursement system, 49, 111 Healthcare spending, 49 skew, 45 Healthcare technology, 27 Health-contingent wellness incentives, 176 Health economics, 21 Health finance convergence, 195 Health insurance as pass-through, choice of, 165 churn, 244 direct consumer purchasing, 95 group demand, 87 individual demand, 87 noncash compensation as, optimal, 53 procyclical, 141 scope, 43 take-up, 248 Health insurance arrangements political acceptability, 203 Health insurance benefits, 16 Health insurance companies, 228 competitors to, 130 industrial organization, 129 Health insurance exchange (marketplace), 5, 97, 110, 153, 176, 223, 225, 228, 243, 247 qualified health plans, 192 Health insurance mandates, 104 Health insurance market, 201 demand side, 247 supply side, 247 Health insurance plans, Health insurance plan type, 154 Health insurance regulation, 253 Health insurance subsidies, 97 Health insurance taxes, 150 Health insurers healthcare providers as, managed care, 123 Health maintenance organization (HMO), 175, 242 Health policy, 247 Health promotion, 35, 238, 239, 254 Health risks, 93 Health services research, 7, 21 Index Health shocks, 176, 240, 243, 254, 255 Health states, 201 Health status, 109, 153, 229 Health status insurance, 214 Hepatitis C, 258 Heterogeneity of employees, 107 Heterogeneous preferences, 215 High deductible health plan (HDHP), 175, 240 Highly active antiretroviral therapy (HAART), 250 High-risk pools, 224 HMO backlash, 188 Homeowner’s insurance, 24, 258 Homogeneity of plan design, 219 Household preferences, 210 Human capital, 36, 132 Human immunodeficiency virus (HIV), 108, 250 Human life market value or replacement value of, I Idiosyncratic risks, 259 Imperfect mobility, 106 Implicit health insurance, 160, 167 Implicit subsidy, 152, 218 Income-based subsidies, 176 Income inequality, 191 Incomplete markets, 43 Indemnity, 25, 242, 253 Indemnity based insurance, 15 Indemnity basis, 148 Indemnity insurance, 58 Independence of wealth, 100 Indifference curves, 92 Indirect choice, 23 Indirect demand, 6, 44 Individual decision problem, 88 Individual health insurance market, 96 Individual mandate, 97, 223, 248, 257 Industrial sickness funds, 13 Inefficiency, 228 Inequalities in price, 218 Inequality, 219, 244 Inequitable, 228 Informational advantage, 79, 181 providers, 132 Informational asymmetries, 13, 205 Information constraints, 210 In-kind benefits, 148 In network, 59 Insourcing, 19, 136, 184, 210 Insurance choices marginal, 94 Index Insurance expansion cost effectiveness of, 211 Insurance premiums employee share, 103 employer share, 103 Insurer viability, 13 Integrated delivery systems (IDSs), 125, 139, 180 Intensive margin, 64 Intertemporal utility, 34 Irreplaceable commodities, 24, 48 IRS (Internal Revenue Service), 16 Italy, J Japan, 216 Job lock, 106, 167, 178, 194, 220 K Kaiser Permanente, 179 L Large group market, 126 Laser-eye surgery (LASIK), 134 Law of demand, 87 Law of large numbers, 52, 122, 137 diminishing marginal returns, 210 Length of stay, 79 Level coverage, 221 Life year saved (LYS), 237 Limitations on payouts, 25 Liquidity constraints, 45, 160 List price, 162 Loading cost, 11, 90, 125, 202, 212, 241, 244, 247, 250, 251, 256 costs of administration, reserves, and profits, 124 Loading factor, 51, 63, 125, 160 Long-term care, 109 Loss modeling, 24, 49 Low quality health insurance, 209 Lump-sum transfer, 149 M Maine versus Vermont, 28 Malpractice insurance, 24 Managed care, 10, 14, 127, 185, 252 Medicare managed care, 186 Managed care company, 111 Managed care payment, 242 Managed care plans, 155, 242, 243 Managed competition, 110 Managed health care companies, 128 Managed Medicaid, 139, 178 267 Managed Medicare, 139, 178 Mandate, 21, 225, 226, 257 Mandatory benefits, 227 Marginal basis, 236 Marginal benefit, 34, 135, 148, 212, 235, 236, 240, 242–244, 246, 249 Marginal choice, 41 Marginal cost, 123, 135, 148, 212, 235, 236, 240, 242–244, 246 Marginal tax rates, 17, 106 Market clearing, 145 Market failure, 22, 23, 78, 211, 216 Markets demand side, 22 supply side, 22 Market thickness, 213 Medicaid, 4, 18, 43, 108, 141, 163, 166, 176, 205, 219, 239, 241–244, 246–248, 250, 251, 257 income-based eligibility, 239 mental illness, 108 pregnancy, 108 Medicaid for all, 239 Medicaid waivers, 108 Medical debt, 163 Medical examinations, 13 Medical loss ratio, 58 Medically necessary, 182 Medically needy, 18, 250 Medical malpractice case, 182 Medical need, Medical underwriting, 21, 51, 151, 192, 221 Medicare, 4, 18, 27, 43, 108, 141, 159, 175, 180, 185, 204, 239, 241, 242, 245–247, 251 Part A, 112, 176, 185 Part B, 112, 176 Part C, 186 Part D, 189 Medicare Administrative Contractor (MAC), 128 Medicare Advantage, 186, 216, 228, 245, 246 Medicare for all, 220 Medigap, 217, 227, 239, 246 Mental Health Parity Act (MHPA), 140, 190 Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), 190 Metal levels, 166 Mexico, 28, 196, 203 Microfoundations, 87 Microinsurance, 42 Minimum essential coverage requirements, 226 Mitigation, 28, 253 Modified community rating, 176 268 Monopoly, 210, 212 Monopoly pricing, 181 Monopsony, 217 Moral hazard, 13, 50, 69, 130, 135, 205, 212, 218, 219, 255, 257 Morbidity, 12 Mortality, 12, 240, 241 Mortality gains, 164 Mutual aid societies See Cooperative societies Mutuality, 26 Mutuality principle, 161 N Narrow networks, 7, 59, 242 National Flood Insurance Program (NFIP), 29 National health insurance, 217, 238, 240, 241, 256 National Health Service (NHS), 181, 195, 256 National health service systems, 216 Non-communicable diseases, 258 Non-economic damages, 25 Non-excludable, 187 Nongroup, 205 Nongroup coverage, 243 Nongroup health insurance, 96, 152, 176, 243–245, 247 Nongroup market, 4, 21, 90, 126, 128, 151, 156, 183, 222 coverage expansion, 191 Non-healthcare interventions public health services, education, higher quality food, or housing, 208 Nonmonetary intervention, 248 Non-pecuniary risk, 235 Non-rivalrous, 187 Nonsatiation, 34 Not-for-profit, 125 O Occupational illness, 105 Occupation-rated health insurance, 16 Opportunity cost, 119 Optimal benefit, 259 Optimal decision, 95 Optimal health insurance, 101, 201 Optimal health insurance systems, 196 Optimal insurance literature, 209 Optimal solution allocation of economic resources, 147 Optimizing health insurance, 259 Opt out, 195 Oregon Health Insurance Experiment, 241 Oregon Medicaid Experiment, 164 Outcomes, 21 Index Out of network, 59 Out-of-pocket, 6, 19, 189 Out-of-pocket costs, 162, 212 Out-of-pocket maximum, 226 Out-of-pocket payments, 57 Out-of-pocket spending, 188, 238, 257 Outsource, 5, 19, 111, 136, 187, 195 Outsourced benefits, 155 Overinsured, 193, 207, 216, 244 Overutilization, 188 P Pareto efficiency, 149 Pareto-improvement, 177, 207 Pareto-improving solution, 206 Pareto optimal, 149 Pareto optimality, 205 Partial information, 71 Partial insurance, 56, 146, 214 Pass-through insurance as, 26 insurer as, 70 Path dependence, 204 Patient reported outcomes, 100 Per beneficiary per year (PBPY) costs, 180 Per case payment systems, 193 Perfect agent, 46 Per member per month (PMPM), 14 Persistence, 62, 96, 179 Pharmaceutical and therapeutics (P&T) committees, 182 Pharmacological interventions, 236 Planning problem, 201 Pooling equilibrium, 203 Poor information, 215 Postcode lottery, 219 Precaution, 40 Precautionary savings, 8, 11, 28, 65, 100, 122, 130, 160, 162, 215, 228, 238, 240, 250, 253 Pre-existing condition, 61 Preference for insurance, 243 Preferences, 88, 201 Preferred providers, 180 Premium growth, 248 Prepaid, 20 Prepaid benefit, 101 Pre-paid healthcare, 249 Prescription drug costs, 189 Prescription drugs, 20 Preventative activities, 215 Preventative care, 163 Prevention, 8, 28, 35, 40, 65, 93, 130, 160, 228, 238, 240, 247, 253 Index Preventive care, 166 Price effect, 166, 205 Price elasticity, 89, 165 Price of health insurance, 201 Price-reducing effects of health insurance, 219 Price-setter, 189 Price signals, 215 Price smoothing, 214 Price system, 201 Price taker, 189 Price-taking behavior, 62 Pricing failures, 241 Principal–agent, 252 Principal-agent model, 23 Principle of mutuality, 118 Principles of insurance, 24 contribution, 24 indemnity, 24 insurable interest, 24 proximate cause, 24 subrogation, 24 uberrimae fidei (i.e., “utmost good faith” ), 24 Prior approval, 156 Prior authorization, 131 Private health insurance, 4, 249 Private information, 206 Private insurance, 195 Production function, 117 Productivity of employees, 107 Profit margin, 51 Profit-maximizing behavior, 120 Profit motivation, 107 Propitious selection, 77 Prospective payment system (PPS), 27, 129, 133, 185, 240 Provider/insurer organizations, 181 Provider-based health insurance, 183 Provider choice, 227 Preferred Provider organization (PPO), 175 Public good, 110, 118, 186, 210 Public health, 12, 28, 259 Public health insurance, 5, 213, 224 Public insurance, 245, 247, 249, 251 Publicly funded providers, 28 Public policy, 17, 235, 236, 257 Pure indemnity, 127 Pure public good, 210 Q Quality, 227 Quality-adjusted life year (QALY), 26, 207, 235, 237 Quality of health plans, 269 Quantity floor on health insurance, 192 Quantity of coverage, 154 Quantity of health insurance, 201 Quantity of insurance, 89, 177, 242, 244–246 Quotas regulation as a form of, 209 R RAND Health Insurance Experiment, 98, 166 Randomized controlled trial, 186 Rate banding, 151, 156, 221 Rate compression, 158, 214, 228 Rate regulation, 209 Redistributive good, 111 Regulation, 148, 209 Reinsurance, 138, 201, 220 Reinsurance, Risk Corridors, and Risk Adjustment (3Rs), 225 Relative value, 236 Religious institutions, 167 Reserve, 52, 121 Residual claimant, 125 Resource Based Relative Value System (RBRVS), 131 Return on investment (ROI), 42, 206, 207, 257, 258 Reunderwriting, 221 Revelation mechanism, 206 Risk, 40 Risk averse, 55, 124 Risk averse individuals, 213 Risk aversion, 18, 22, 40, 42, 55, 63, 88, 146, 147, 160, 219, 236, 243, 254 degree of, 215 heterogeneity, 88 variation, 47 Risk based contracting, 60 Risk bearing, 137 Risk management, 7, 61, 88, 100, 117, 118, 135, 148, 183, 213, 235, 237, 239, 240, 249, 250, 253–255 price of, 63 Risk management and insurance, 21 Risk management services, 132 Risk neutrality, 41 Risk pool, 17, 49, 51, 167 Risk premium, 125 Risk selection, 186, 217 Risky assets, 40 Rothschild-Stiglitz model, 203 S Safety net, 19 Scope and scale of insurance, 190 270 Scope of benefits, 44 Scope of health insurance, 20 Second best, 69 Second best health insurance, 81 Second-best welfare economics, 205 Second Welfare Theorem, 149 Selection bias, 186 Self-funded, 138 Self-funded plans, 220 Self-insurance, 56, 126, 137, 215 Self-pay, 134 Separating equilibrium, 76, 177 Service basis, 14 Shocks, 37 SHOP exchange, 225 Sickness funds, 176 Single payer, 203, 238, 241, 252, 256 health insurance, 216 insurance, 190 system, 206, 218 third-party payment system, 187 Skin in the game, 79 Small area variations, 97, 126 Small group market, 183, 222 Social determinants of health, 28 Social health insurance, 165 Social insurance, 19, 26, 43, 155, 159, 175, 204, 238, 249, 254, 258 Social insurance benefits phase out, 179 Social insurance programs, Social insurance systems, 104, 222 Social planner, 147, 150, 201 Social planner’s problem, 218 Social Security Act, 18 Social welfare functions, 207 Solidarity, 26 Solvency, 26, 70 Sophistication of medical technology, 7, 190 Spill over, 11 Spillover effects, 166, 187 Standard gamble (SG), 26 Standard portfolio problem, 55, 99 State benefit mandates, 157 State health insurance regulation, 222 State insurance regulation, 97 Status quo bias, 80 Step-therapies, 131 Stop-loss, 102, 138 Subsidies, 148, 150, 208, 214, 235, 244–248, 257, 258 distortions resulting from, 205 public, 245 tax and premium, 223 Index Subsidies for health insurance, 191 Subsidy basis income, wealth, or health status, 176 Substitutability of commodities, 55 Supplemental insurance, 239 Supplemental Nutrition Assistance Program (SNAP), 251 Supplier induced demand, 72, 181 Supply function, 119 Supply side constraint, 70 Swaps health insurance as a form of, 16 Switzerland, 216 Symmetric information, 71 T Take-up rate, 194 Taxes, 148, 150, 209 Tax policy, 16 Tax subsidy, 250 Technological change, 190 Term of protection, 227 Thin markets, 205 Third-party payer, 6, 19, 23, 217 Third-party payment, 5, 51, 58, 79, 88, 118, 148, 183, 216, 235, 240 claims processing, 20 price negotiation, 20 price setting, 20 Third-party payment system, 235, 249, 257 Tiebout-type model, 106 Time inconsistency problem, 131 Time preference, rate of, 160 Time trade off (TTO), 26 Tonsillectomies, 28 Trade-off, 91, 94, 99, 236, 242, 247, 249 Traditional fee-for-service Medicare, 137 Traditional Medicaid, 178 Traditional Medicare, 5, 139, 178, 227, 245 Tragedy of the commons, 187 Transaction costs, 43 Translational science HSR as, 27 Two part price, 250 U Unaffordable, 224 Uncompensated charity care, 163 Underinsured, 207 Underwriting, 26, 90, 122 Uninsurable risks, 14, 165, 224, 235 Uninsurance rate, 196, 203 Uninsured, 23, 28, 56, 92, 94, 213, 225, 239, 241, 243, 244, 247–249, 251, 257 Index behavioral explanations, 248 United Kingdom, 216, 256 United States, 196, 203 Universal coverage, 215, 224 Universal health insurance, 176, 213 Universal health insurance coverage, 22 Universal insurance, 60 Unused observables, 152 Upcoding, 79 Usual and customary charges, 10, 128 Utilitarian, 207 Utility, 64, 93 Utility maximization, 33 Utilization review, 121, 130 V Value, 46 Value based insurance design, 60, 240 Value of health, 254 Value of life, 8, 24, 38, 46, 47, 160, 235 Variable costs, 74 271 Variation in price, 238 Variations in care, 28 Vermont than in Maine See Maine versus Vermont Veterans Administration (VA), 139 Viability, 13, 26 Vouchers, 218, 251 W Waiting periods, 13 Waste, 237, 241 Waste, fraud, or abuse, 131 Wealth, 229 Welfare economics, 149 Welfare Theorems, 201 Wellness visit, 7, 101 Who Shall Live?, 12 Willingness to accept, 119, 120, 146, 147 Willingness to pay, 12, 26, 46–48, 63, 91, 98, 105, 147, 153, 205, 215, 237 World War II, 16 .. .What Is Health Insurance (Good) For? Robert D Lieberthal What Is Health Insurance (Good) For? An Examination of Who Gets It, Who Pays for It, and How to Improve It... Springer International Publishing Switzerland 2016 R.D Lieberthal, What Is Health Insurance (Good) For? , DOI 10.1007/978-3-319-43796-5_1 Defining Health Insurance receive health insurance through their... as health insurers For example, many employers run “self-insured” health plans where the employer is responsible for risk management, while a health insurance company is responsible for administration