what economic model of a health care system favors private insurance course hero

What is the economics of healthcare?

The economics of healThcare 3 Healthcare is not the only good or service in the economy that departs from the standard model of supply, demand, and the invisible hand. (Recall our dis- cussions of externalities and monopoly.) But healthcare may be the most import- ant good or service that departs so radically from this benchmark.

How does the market for healthcare differ from the market model?

Yet, as we will see, the market for healthcare deviates from this model in many ways. These deviations often call for government policies to ensure that healthcare resources are allocated efficiently and equitably. And, indeed, in most nations, governments are deeply involved in healthcare markets.

What are the core topics in health care economics?

You will cover core topics in health care economics, such as moral hazard and adverse selection, and examine how these forces, as well as the actions of patients, providers, and other key stakeholders, shape outcomes in the health care market.

How is health-care financing shaped by public policy?

Thus, even when the financing of health- care occurs between a patient and a private insurer, it is still shaped by public policy. The second set of rules determines a patient’s access to healthcare. As we have discussed, because insured patients do not pay the marginal cost of each medical service they consume, there is the possibility of overuse.

What is the health care market?

The health care market and especially the health care insurance market, need to be understood if we are to come up with a viable health care reform. Health care services are obtained from, and are paid through, such markets, but these markets have particular characteristics which set them apart from what might be considered an ordinary market. Because of these characteristics, the health care market does not lead to what economists would call an efficient outcome. Rather, they lead to limited competition in local markets, high administrative and other costs, where the most efficient providers are not rewarded, and where there is little market pressure to move the system to those who provide the highest value to those in need of health care services.

Why did the cost of the firms offering more generous plans rise?

The costs of the firms offering the more generous plans would then rise, as spouses switched to the better plans. The incentive, then, was for employers to offer less and less generous plans, in the hope that employees would choose to enroll in the health plan of the employer of the other spouse.

What is Obamacare reform?

The Obamacare reforms, with effective access for those with pre-existing conditions as well as minimum standards on other aspects of health insurance plans (such as no annual or lifetime limits, and requirements on what will be covered), will be a major step to resolving the time inconsistency problem.

What is insurance contract?

1) Insurance: Insurance is a contractual agreement between two parties: The insurer providing the insurance, and the insured party (or insuree, or client, or customer, or patient) purchasing the insurance. The insured party makes a regular payment (often monthly) to the insurer (the payment is called the premium), ...

Why are health insurance costs so high?

Health insurance costs are high also because of the high salaries and other compensation paid to the CEOs and other senior management of the insurance companies, as documented in a previous post in this series on health care, as well as their high profitability.

What is risk pool insurance?

2) Risk pool: An insurance company is a financial institution, with sufficient capital (monitored by regulators) to allow it to pay claims that may come due, and with a high degree of statistical confidence that the capital they have on hand or have access to will indeed suffice.

What happens if a sub-group has higher health care claims than the broader group?

If that sub-group tends to have higher health care claims than the broader group, then the health care characteristics of that broader group will underestimate the costs that will in fact be incurred by the group being insured.

Why is healthcare unpredictable?

Because people don’t know when they are going to get sick or what kind of med-ical treatments they will need, spending on healthcare is unpredictable. This uncertainty, and how people respond to it, is a key reason why we have the health institutions that we do.

Why are market outcomes inefficient?

If the impact on the bystander is adverse, it is called a negative externality. If it is beneficial, it is called a positive externality. In the presence of externalities, society’s interest in a market outcome extends beyond the well-being of buyers and sellers who participate in the market to include the well-being of bystanders who are affected indirectly. Because buy-ers and sellers neglect the external effects of their actions when deciding how much to demand or supply , the externality can render the unregulated market outcome inefficient.

What You'll Learn

What are the primary drivers of health care incentives? Does money shape your decision-making as a patient? As a provider? As a payer?

Your Instructor

Michael Chernew, PhD, is the Leonard D. Schaeffer Professor of Health Care Policy at Harvard Medical School. Dr.

Who Will Benefit

Develop a comprehensive understanding of the health care landscape, including the key drivers of rising US health care spending.

Still Have Questions?

What are the learning requirements? How do I list my certificate on my resume? Learn the answers to these and more in our FAQs.

About this Course

In this course, you’ll learn about the key components of health care, and the economics behind their principles and pricing strategies. Professors Ezekiel Emanuel of Penn Medicine and Guy David of the Wharton School have designed this course to help you understand the complex structure of the health care system and health insurance.

Offered by

The University of Pennsylvania (commonly referred to as Penn) is a private university, located in Philadelphia, Pennsylvania, United States.

Module 1

This module was designed to give you a deeper understanding of the history and structure of the American health care system. You’ll begin by examining the history of health care providers and improvements in health care technology throughout the years.

Module 2

In this module, you’ll be introduced to the concept of insurance, and focus more closely on the structure and components of insurance. You’ll also learn what determines the size of an insurance premium and why people demand health insurance.

Module 3

In this module, you’ll examine the role of the physicians and hospitals in the health care ecosystem. You’ll explore the different types and payment methods for both physicians and hospitals, and how hospitals utilize these methods to maximize profit.

Module 4

In this module, you’ll explore a range of other health care providers outside of physicians and hospitals. Through the examination of different examples of post-acute care such as hospices, you’ll develop a better understanding of the shift toward holistic care and support in post-acute care providers.

About the The Business of Health Care Specialization

This Specialization was designed to help you keep pace with the rapidly changing world of health and health care.

What is the health insurance system called?

It uses an insurance system — the insurers are called “sickness funds ” — usually financed jointly by employers and employees through payroll deduction.

How many countries have health care?

Only the developed, industrialized countries — perhaps 40 of the world’s 200 countries — have established health care systems. Most of the nations on the planet are too poor and too disorganized to provide any kind of mass medical care. The basic rule in such countries is that the rich get medical care; the poor stay sick or die.

What countries have NHI?

The classic NHI system is found in Canada, but some newly industrialized countries — Taiwan and South Korea, for example — have also adopted the NHI model.

How is the Beveridge system funded?

In this system, health care is provided and financed by the government through tax payments, just like the police force or the public library. Many, but not all, hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government. In Britain, you never get a doctor bill. These systems tend to have low costs per capita, because the government, as the sole payer, controls what doctors can do and what they can charge. Countries using the Beveridge plan or variations on it include its birthplace Great Britain, Spain, most of Scandinavia and New Zealand. Hong Kong still has its own Beveridge-style health care, because the populace simply refused to give it up when the Chinese took over that former British colony in 1997. Cuba represents the extreme application of the Beveridge approach; it is probably the world’s purest example of total government control.

What is the basic rule in such countries?

The basic rule in such countries is that the rich get medical care; the poor stay sick or die. In rural regions of Africa, India, China and South America, hundreds of millions of people go their whole lives without ever seeing a doctor.

Does single payer have market power?

The single payer tends to have considerable market power to negotiate for lower prices; Canada’s system, for example, has negotiated such low prices from pharmaceutical companies that Americans have spurned their own drug stores to buy pills north of the border.

Does Hong Kong have Beveridge health care?

Hong Kong still has its own Beveridge-style health care, because the populace simply refused to give it up when the Chinese took over that former British colony in 1997. Cuba represents the extreme application of the Beveridge approach; it is probably the world’s purest example of total government control.

What is the purpose of insurance?

So one purpose of insurance is to protect against large financial losses. A second purpose of insurance is to reduce the barrier to people using services. If you have to pay to go to the doctor, pay to fill a prescription, pay to get a particular test, you might think too much and you might not do those things.

What is the first problem with insurance?

The first problem is called adverse selection . If you allow people to voluntarily decide whether they're going to buy insurance or not insurance, we know that people who are sick or who have a high likelihood of getting sick are more likely to buy health insurance. That has a problem.

What is the problem with adverse selection?

That is the problem of adverse selection. It's inherent in any voluntary system for buying health insurance. A second problem is called moral hazard. By providing people with insurance, you're actually reducing the price they see. If I go to the doctor and I need a test, insurance lowers the price of that test.

What is coinsurance in healthcare?

Coinsurance is like a copay, but it's a fixed percentage. So say you go into the hospital and you have a 20 percent coinsurance, you're responsible for 20 percent of the hospital bill. Out-of-pocket expenses are all of those combined. They're the premium, with the deductible, with the copay and coinsurance.

How much does a copay cost for a doctor visit?

Similarly, every time you go to the doctor, or every time you fill a prescription, there could be a copay, that is a set amount that you pay for going to the doctor say $20 for a doctor visit or $5 to get a prescription filled. That is a copay each time you use a service.