The Contributions of Health
Economics to Health Care
Reform
Sherry Glied
Columbia University
Six Lessons for President Obama
from President Lyndon Johnson
•
•
•
•
•
Speed
Master the Congressional Process
Give Congress the Credit
Go Public and Build Momentum
Passion
• Keep the Economists Quiet
Morone, NY Times, September 2009
Rubinow, JPE, 1904
Fisher, AER, 1919
Walton Hamilton, CCMC, 1932
Hayek, Road to Serfdom, 1944
Where, as in the case of sickness and accident,
neither the desire to avoid such calamities nor
the efforts to overcome their consequences are
as a rule weakened by the provision of
assistance …the case for the state’s helping to
organize a comprehensive system of social
insurance is very strong.
…Those wishing to preserve the
competitive system and those wishing
to supercede it…will disagree on the
details of such schemes…
Three Features
80
Nearly two million families in the
United States, whose incomes are
less than $1,200 a year, "receive no
professional medical or dental
attention of any kind, curative or
preventive” – CCMC, 1929
70
60
50
40
30
% Paid by Insurance
8%
20
10
5%
0
1900 1910 1920 1930 1940 1950
Life Expectancy
3%
0%
1929 1935 1940 1948
Growth in Insurance Coverage
1945-1980
220
200
180
160
140
120
100
80
60
40
20
0
1945
1950
1955
1960
1965
1970
1975
1980
Ricardo-Campbell &Campbell, QJE, 1952
The health of the United States population ..is
not the best of any country in the world; but
only a few countries with relatively small and
homogeneous populations have better records
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Years
Male Life Expectancy at 65 -- 1965
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
Ricardo-Campbell &Campbell, QJE, 1952
At present, those who want health insurance
can buy it as they buy any other good or
service…
The major arguments against compulsory health
insurance are: (a) that the government should
not compel people to spend money on any
particular service unless that service cannot be
obtained in any other way…
Data!
Kenneth Arrow, AER, 1963
We may briefly note that, at any rate to date,
insurances against the cost of medical care are far
from universal. Certain groups-the unemployed, the
institutionalized, and the aged-are almost
completely uncovered. …it must be assumed that
the insurance mechanism is still very far from
achieving the full coverage of which it is capable.
Lyndon Johnson
A health program yesterday runs $300 million, but the fools
had to go projecting it down the road five or six years. And
when you project it, the first year it runs $900 million... But
the first thing, Dick Russell [a Democrat senator from
Georgia] comes running in saying, ‘My God, you’ve got a
one billion-dollar program for next year on health; therefore
I’m against any of it now.’
Can the Private Market do it?
Number Privately Insured
220
200
180
160
140
120
100
80
60
40
20
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Health Reform was Not Inevitable
(1) Some people have said that it would be a miracle if we
passed health care reform. But I believe we live in a
time of great change when miracles do happen.
(2) The cost of our health care has weighed down our
economy and the conscience of our nation long
enough. So let there be no doubt: health care reform
cannot wait, it must not wait, and it will not wait another
year
(3) I believe that comprehensive health insurance is an
idea whose time has come. I believe that some kind of
program will be enacted this year.
Keynes
“The ideas of economists and political
philosophers, both when they are right and when
they are wrong, are more powerful than is
commonly understood. Indeed the world is ruled
by little else. Practical men, who believe
themselves to be quite exempt from any
intellectual influence, are usually the slaves of
some defunct economist.”
Health Economics Big Three
•
•
•
•
Moral hazard
Adverse selection
Externalities of healthy behavior
(and one more)
Moral Hazard
• Moral hazard in health insurance (Arrow)
• Policy implications – 1970s
– Coverage for catastrophic risks
– Cost-sharing related to income
– Effects on health – preventive care
• Benefit design
PPACA and Benefit Design
100
90
80
70
60
50
40
Bronze Plan
Silver Plan
HSA - $1500/3000
FEHBP-BC-Standard
ESI-HMO
30
20
10
0
Actuarial Value
Actuarial values from Peterson 2009
Adverse Selection
• Public strongly favors limits on ratings
• Health economist consensus 1995, 2007
– 86-91% favor no rating on genetic risks
• Impossibility of community rating absent a
mandate – 1970s
• Policy – rating and coverage requirements
PPACA and Community Rating
• Insurance reform and market regulation
occur in 2014
• Mandate is concurrent with these reforms
Externalities of Health Behavior
• Taxation as strategy for addressing health
externalities
• Increased premium charges as incentive
for changing behavior
– Health economist consensus 1995, 2007 –
71-74% favor higher premiums
• Policy – treatment of unhealthy behavior
PPACA and Unhealthy Behaviors
• Tobacco users can be assessed a $200
annual surcharge on their premiums
• Soda tax
One extra: Tax Treatment of ESI
• Friedman and Savage, fn. 32:
On the other hand, if the premium is deductible (as a healthinsurance premium may be), while an uninsured loss is not (as
the excess of medical bills over $2,500 for a family is not), the
net premium to the consumer unit is less than the premium
received by the insurance company.
• Nobody except economists cares about
this!
PPACA High cost plan excise tax – 40%
CBO
• Return of Johnson’s dreaded bean
counters
• Key Issues in Analyzing Major Health
Reform Proposals December 2008
• Health Insurance Simulation Model
October 2007
• Generously larded with citations to the
empirical health economics literature
Impact of Health Economics
THEORY  POLICY DESIGN
+
ESTIMATES  SCORING
=
POLICY POTENCY
Looking Forward
• Assume 30-40 year germination
• What will health economics contribute to
health policy reform in 2040-2050?
Health as an Outcome of the
Health System
Quality – Male LE at 65, 1985/2005
19
18
17
16
15
14
13
12
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rali anada ranc rman r land ealan weden er lan ngdom State
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Ki
Ge
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w
ited
d
e
S
n
e
Net
N
t
i
U
Un
Delivery System
Committee on the Costs of Medical Care, 1932
HMO Enrollment, by Model Type,
1984-2006
Enrollees (in millions)
90
80.1
80
0.4
70
63.3
60
3.3
38.8
40
31.4
30
10
0
7.1
0.8
7.2
0.2 74.2
7.4
6.9
8.3
8.7
50
20
7.0
78.0
4.3
15.1
6.6
2.9
1984
2.1
3.5
3.9
5.6
16.2
1988
Mixed
70.0
71.4
66.1
7.3
0.2
7.8
7.2
8.3
0.2
7.4
0.6
11.3
0.2
11.3
31.9
29.9
2.4 27.5
23.1
72.7
8.2
25.4
21.5
26.6
18.1
9.7
8.0
13.5
33.5
0.2
32.1
31.8
28.5
29.3
28.9
2000
2001
2002
2003
2004
24.0
24.8
2005
2006
6.7
1992
1996
IPA
Network
Group
Staff
Note: HMO enrollment includes enrollees in both traditional HMOs and point-of-service (POS) plans through: group/commercial plans, Medicare,
Medicaid, the Federal Employees Health Benefits Program, direct pay plans, and unidentified HMO products. Enrollment by model type may not equal
total enrollment because some plans did not report these characteristics. Data are as of June 30 or July 1 of respective year.
Source: Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace, 2002, May 2002, Exhibit 2.5, p.20, at
http://www.kff.org/insurance/3161-index.cfm, based on July 1 data from InterStudy Publications, updated most recently with data from
HealthLeaders-InterStudy, The Competitive Edge, Part II: Managed Care Industry Report , March 2007, Table 10, p.25.
Competition vs. Integration
• Vertical integration and quality
improvement vs. price competition
• Accountable care organizations
• Hospital consolidation
Health Reform and Beyond
• New era for research
– Evaluating health reform
– Much left to regulations – room for input
• Future oriented agenda
– 30 year payoff!
Thank you