ECON 440 Lecture Notes - Lecture 9: Doughnut, Patient Protection And Affordable Care Act, Medicare Advantage
13 Jun 2018
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Department
Course
Professor
Who's covered (population characteristics)?
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How many people?
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When did it start?
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How is it financed?
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5 Different Groups/Programs
Financing, who and what is covered
▪
Medicare, Medicaid, ESI, the ACA, and the uninsured
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Health insurance in the US
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Delivery
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Three roles of a health care system
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Outline
Providers preferred the government not to meddle
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Social Security: idea was to provide some financial security for retirees (NHI would be included in this)
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1935: Roosevelt enacts Social Security, wanted to include NHI, AMA opposition
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1948: Truman - opposed by Southern Democrats
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Arrived at a compromise - there wasn't enough public support to insure everyone publicly, but there was
enough to support the elderly and low income populations
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1965: Johnson enacts Medicare and Medicaid - "deserving" elderly and poor
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1974: Nixon - employer mandate, liberals wanted to hold out for a better option
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Tried to expand employer-sponsored health insurance by including employer mandates
▪
The idea was to achieve universal coverage by expanding the programs already in place (instead of
scraping everything and starting from scratch)
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Small business didn't want to be required to offer HI to their employees
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Small business, AMA, advocates for elderly all opposed it
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Those who had coverage weren't willing to give up what they had for something "unknown"
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Opponents managed to create enough fear with the specter of "big government medicine"
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Of the insured, these people were worried about losing what they had/becoming worse-off (lots of
opposition)
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At this time about 40/50 million uninsured citizens in US; but overall most people have HI
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1993: Clinton - universal coverage (Medicare and ESI), employer mandate, regional purchasing cooperatives, tax
financing
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Health Reform Efforts in the US
Builds on the Clinton plan and the healthcare insurance reforms in Massachusetts
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Done by expanding existing programs
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Coverage expansions
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Those who don't have coverage through an employer/private plan can go and buy HI in this market;
BUT the non-group market needed reform
▪
These were done in the private HI market (non-group market)
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Health insurance market reforms
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Other components: quality improvement, prevention, costs
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Prior to the ACA, insurance companies could deny coverage based on a pre-existing medical
condition
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Preventing insurance companies from denying coverage
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When you file your taxes, you have to indicate that you have HI - if you don't, then you have to pay
an extra tax
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Mandating coverage for all to eliminate free riding
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The "three-legged stool" to increase health insurance coverage (only allowed to vary the price as a function of
your age/tobacco usage):
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Patient Protection and Affordable Care Act of 2010
Lecture 9 - The US Healthcare System
Thursday, February 22, 2018
9:42 AM
ECON 440 Page 1
an extra tax
This was a big deal - the US government was essentially making an individual so something (linked
to the employer mandate of Clinton's plan)
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In order to eliminate free-riding and keep healthier people in the insurance pool, coverage is
mandated
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If you make people buy insurance coverage, you have to subsidize it (in the case they can't afford it)
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Subsidizing the purchase to make it affordable
○
•
The ACA doesn't do much in terms of Medicare
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There was an expansion of the Medicaid program to different populations
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The market reforms touch both the employer-sponsored market and the non-group market
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Those judged to be permanently disabled
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Elderly
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Who's covered (population characteristics)?
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Above age 67, around 97% - equivalent of the single payer system in Canada
▪
Around 14-15% of Americans
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How many people?
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When did it start?
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Part A: insurance for hospital care
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Part B: insurance for physician services
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Private, for-profit and NFP private-insurers participate in the Medicare program (20-30% of the
elderly are beneficiaries of private care)
▪
Part C: Medicare advantage
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Rx were relatively recent (prior to 2006, people would either receive Rx through their private plan,
or they'd purchase a supplemental insurance policy)
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Part D: prescription drugs
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Less generous in the sense that it does include cost-sharing and deductibles
▪
Medicare is "generous" in the sense that any Hospital/physician insurance will be covered
○
What benefits are covered?
•
This is a federal, mostly publicly-financed program (through both General Revenue taxation and
▪
Taxes - this makes up a bulk of the financing
○
How is it financed?
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Medicare
ECON 440 Page 2
This is a federal, mostly publicly-financed program (through both General Revenue taxation and
Targeted taxation)
▪
Individual elderly beneficiaries do pay some parts of the cost
○
•
There's a gap in the level of coverage people have
○
If they pass this amount, their plan pays 75%, and the individual pays 25% (cost-share)
▪
Individuals pay to buy HI (a premium) - when they start spending an filling prescriptions, they pay the first
$400 of any Rx drug costs
○
BUT, when you're a very high spender (over $8,000 a year) the individual only has to pay 5% and the
plan pays 95%
▪
Coverage gap (donut hole): in between spending $3,700 and $8,000 a year, there are significant gaps
(where you'll be paying 50%+ of these costs)
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Budget constraints - this is why the coverage gap emerged
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But, it doesn't make rational sense when thinking about insurance as risk - we should want to focus
on protection (focus on high-risk individuals)
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BUT: political issue; politicians want to focus on covering everyone, even those with low
expenditures
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This gap is a reflection of the government's desire to have everyone benefit from the new Rx plan
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"Donut Hole" Coverage in Rx
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The ACA was trying to close this coverage gap
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Typically, it’s a the public insurance healthcare program for low income individuals and their dependents
○
Defined as individual income of about 12K, and family (of 4) income of about 24K
□
We have a low income cut-off that is a moving target (depending on family size) which qualifies
people: the Federal Poverty Level
▪
FPL increases over time with inflation
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What does low-income mean?
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The elderly and disabled account for the majority of Medicaid spending
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Who's covered (population characteristics)?
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About 20% of the population (75 million people)
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How many people?
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If you were a low-income women without children (or a low-income man), you were ineligible
▪
1965; in the early years, Medicaid focused on low-income mothers and their children
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Eventually expanded to people without children
When did it start?
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Medicaid
ECON 440 Page 3
Document Summary
Medicare, medicaid, esi, the aca, and the uninsured. 1935: roosevelt enacts social security, wanted to include nhi, ama opposition. Social security: idea was to provide some financial security for retirees (nhi would be included in this) 1965: johnson enacts medicare and medicaid - deserving elderly and poor. Arrived at a compromise - there wasn"t enough public support to insure everyone publicly, but there was enough to support the elderly and low income populations. 1974: nixon - employer mandate, liberals wanted to hold out for a better option. 1993: clinton - universal coverage (medicare and esi), employer mandate, regional purchasing cooperatives, tax financing. The idea was to achieve universal coverage by expanding the programs already in place (instead of scraping everything and starting from scratch) Tried to expand employer-sponsored health insurance by including employer mandates. Small business, ama, advocates for elderly all opposed it. Small business didn"t want to be required to offer hi to their employees.
