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What are the major measures of inflation? Give an example of how each is used.
- price deflator, reflects overall changes in prices in economy, current GNP/Last
- year GNP
- Price Index, changes in prices producers pay
What are the major measures of inflation in health care?
Medical Price Index, tracks charges, not actual paid amount
- CMS computes "market basket" indices for hospitals, nursing homes,
- and home health agencies, (major metropolitan, urban, and rural)
- Medicare Economic Index, is a blend
- of other indices
Explain the difference between increases in expenditure and inflation by defining 3components of changes in expenditures.
- Inflation-the change in the price of
- particular goods.
- "Intensity" - cost increases but with the quality. More resources may be used for each unit of
insurance –Be able to the problem on page 4 of module 6
Be able to do problems like the problems on this set.
- The price of doctor's visits is $100
- The price elasticity of doctor's visits is .1
- The income elasticity for physician visits is 2.
- The cross price elasticity for prescription drugs and
- physician visits is -.1
- 1. What happens to the quantity demanded of physician's
- visits if the price of doctor's visits goes up to $110?
- Price and quantity demanded have an inverse relationship. Quantity demanded would decrease 10%. (x= .1*
2. What would happen to the quantity demanded for physician visits if income increases 10%
- Income and demand have a converse relationship, so quantity
- demanded would increase 20%
- (x/10%=2 , 2*10%)
3. What would happen if the price of a prescription drugs increase 20%.?
- Under cross price elasticity, if one service price
- increases, the other service decreases. So if prescriptions rose 20% and Visits fell 10%, then .2/-.1=2
HFMA brief assignment Be able to answer the problems
- As of 2011, roughly what
- portion of the federal budget goes to Medicaid and Medicare?(Not counting
- 5% of GDP
- What portion does the
- CBO project for 2040?
- How does CBO estimate
- Medicare and Medicaid will grow relative to revenue between now and 2040?
- Require $400 – 600 Billion in reductions overn the next 10
- How will the
- sequesterization due to the failure of the Super Committee influence payments
- to providers?
- Cut provider payments an additional 130million, on top of
- 27% from the Sustainable growth rate rule
- How does the
- Affordable Care Act change Medicaid? Comment on changes in eligibility, federal
- match and payment to primary care physicians.
- States will be required to have the income standard be no
- lower than 133% of poverty
- Some organizations that have provided charity care will now
- find that primary care MDs are receiving Medicare rates
- States must reimburse primary care at least at the rate set
- by Medicare (
- for individuals who were categorically ineligible for
- Medicaid will find many of those individuals shifted to 100% federal Medicaid
BE ABLE TO DO THE PROBLEM TITLED 'THE WELFARE LOSS FROM INSURANCE"
Condense notes from Review page
- In a competitive market, the price and
- marginal cost of office visits is $10. An uninsured consumer's demand curve is linear, intersecting the axis
- at Q= 0, P= $15 and Q =15 P= $0.
- 1. Show the quantity the consumer will
- purchase. Label this Qe.
- 2. Show graphically the amount of
- consumer surplus. Label this.
- 3. Calculate the amount of consumer
- 4. Show how the consumer demand curve
- shifts if the insurer covers 40% of cost. What Quantity will the consumer
- purchase? Label this Qi.
- 5. Show graphically the welfare loss
- due to health insurance.
- 6. Calculate the welfare loss due to
- health insurance
In several sentences, explain why attempts to
establish social health insurance in the United States failed during the first half of the Twentieth Century.
The government is decentralized. The challenge to stability was small and was from agrarians and populists, who were less interested in social insurance. Roosevelt also believed that including health insurance would have jeopardized the passage of Social Security.
Contrast plans that offer indemnity benefits, service benefits and direct services. Contrast how each plan handles
reimbursement, trys to control cost, and has an open vs closed panel.
What were the major features of Forand’s proposal in
1958 and the Kerr-Mills act of 1960? What were major features of each of layers in the “three layered cake” of the 1965 law that established Medicaid and Medicare?
- Forand proposed in 1958 a scaled back health insurance plan for the elderly and only covered hospital costs. Kerr Mills provided federal financial support that matched state spending on welfare medicine for the poor. The three layered cake included Medicaid an expanded version of Kerr Mills, Medicare Part A similar to Forand’s proposal and Medicare Part B which was
- similar to a Republican proposal to cover physicians fees with the government subsidizing the premium for individuals on social security who choose to take
- the program.
What was the HMO act of 1973? What were its major
- Created the “federally qualified” category of HMOs. Employers were required to offer as an alternative a federally qualified HMO if it existed in their area.
- Grants and loans for federally qualified HMOs.
- Overrode state laws that prohibited HMOs.
During the 1990’s what were the major responses of
private payers to increased health care cost?
Growth in Managed care, HMOs, PPOs, growth in self insured plans. Negotiated rates, DRGs for hospitals, Resource Based Relative Value System for physicians and others.
What is the BBA? What were its effects?
- The Balanced Budget Act of 1997. Sharply reduced reimbursement from Medicare to home health agencies, nursing homes, and hospitals. Many nursing homes and home health agencies went bankrupt. Created State Children’s Health Insurance Program (SCHIP) to provide coverage for “near poor” kids.
- Provided additional preventative services to Medicare recipients.
Why has there been an expansion in the number of firms
that self insure?
- Self insured businesses are exempt from state regulations
- regarding mandated benefits, premiums taxes and reserve requirements for unpaid and unreported claims. Appears to be a gain in efficiency. Self Insurance is less expensive. There are a number of new products which make it more feasible to self insure.
What are the major changes to the structure of the
health insurance markets since 1970?
- There is an increase in the number of companies that self
- insure health benefits. There has been an increase in the number of HMOs and in the number of HMO members. There was a growth in managed care organizations such as PPOs. This was a period of decline in the market share of Blue Cross/Blue Shield.
By decade since the 1940’s, summarize the major trends that influenced the resources going into health care in the US.
1940’s – The class of 46, more resources from the federal government for target areas – Hill Burton, VA NIH, mental health.
1950’s Growth in employer based insurance (sometimes called “private social security”) allowed more people to pay with insurance.
1960’s Entitlement for particular categories of people – elderly poor disabled through Medicaid and Medicare.
1970’s Attempts to shift resources from institutional care, attempts to hold down cost through regulation and HMOs.
- 1980’s Attempts to hold down cost
- through reimbursement incentives such as DRGs.
1990’s Attempts to hold down costs through managed cage and the BBA. Expansion of SCHIP.
2000’s MMA brough Medicare Drug Benefits. Consumer directed plans emphasized.
Describe the major features of the covered services of
the Medicare program
- Part A – provides inpatient hospital services, hospice
- services, some home health services and some skilled nursing home coverage. Funded by payroll tax. In 83 switched to DRG reimbursement system.
- Part B – covers physician and other providers service, outpatient hospital services, and other services including preventative services and some home health.
- Part C – Medicare Advantage Plans. Organizations (some HMOs) that contract to provide all Part A, B and D services to Medicare eligible individuals for a set premium.
- Part D – is the MCR prescription bill, which began in Jan 06.
Describe the major features of the eligibility requirements for individuals Medicaid program. What is meant by "dually eligible” what is meant by “spend down”.
Income tests – there is a maximum amount of eligible both for Medicare and Medicaid.
- Assets tests – There is a maximum amount of assets that
- may be owned by the household.
- Categorical – An individual must fall into one of several “categories” they may be a low income child or their parent, or a
- pregnant woman, or disabled, or over age 65.
- Dually Eligible – Means that an
- individual is eligible both for MCR and MCD.
- Spend Down – Occurs when an individual starts out ineligible for MCD for asset or income reasons, but
- “spends down” either their income or assets on medical expenses to the point that they are eligible.
Describe the major features of the distribution of
spending between eligible groups for
- elderly and disabled account for 25% of Medicaid enrollees and 70% of the spending.
- dually eligible account for 40% of Medicaid spending.
3.6% of the enrollees with expense above $25,000 in 2001 accounted for nearly half of all spending.
- Children represent nearly half of all enrollees but
- less than one fifth of spending
Medicaid accounts for 17% of all spending on health care in the US, and it accounts for 44% of the spending on nursing homes.
What is SCHIP, who does it cover? How does it differ
State Children’s Health Insurance Program was part of the Balanced Budget Amendment (BBA) of 1997.
covers low income children who are not eligible for Medicaid
differ from Medicaid coverage because not entitlement program
What is an entitlement program? Name one program that
is an entitlement program and one that is not
Under an entitlement program, it is mandatory that benefits are provided to all eligible individuals.
it can not refuse to sign up individuals who meet the criteria for Medicaid. Medicare is also an entitlement program.
The Veteran’s Administration is not an entitlement program. The VA is given a budget to work with, and they must ration the care to eligible veterans and remain within the budget.
SCHIP is also not an entitlement program. If a State believes it is going to exceed its budget for SCHIP, the State is allowed to refuse to enroll additional people, even if the people meet the State’s eligibility requirements.
Describe the major historical trends in health care
spending in the United States.
- health care spending has consistently
- grown faster than the GNP for the past 80 years.
- Government expenditures increased in
- 1960 with the introduction of Medicare and Medicaid (25% to 50% of GNP)
- Private expenditures decreased
- beginning in 1960 (75% to 50%)
- Composition of private spending
- changed significantly. Out of pocket
- spending decreased
- Insurance benefits increased, but has
- declined slightly in recent years.
- Composition of public spending also
- changed. Federal spending increased. State and Local spending has had a roughly
- constant share of the expenditures
As of 2007, what were the size, in terms of GNP, of the major sectors of health care spending in the US. What was the change in these sectors since 1993?
Hospital expenditures were 5.04% of GNP / Hospital care decline from 36% of total health care spending in 1993
expenditures on physician and clinical services were 3.46 % of GNP, / prescription drugs increased from 6 % to 10%
retail prescription drugs were 1.65% of GNP /
nursing home care was 1.38% of GNP.
- By contrast national defense was 4.77% of GNP in
- elementary and secondary schools 3.77% of GNP in
Describe Grossman’s model. Why does it suggests people demand health care? What process is used to meet demand?
Grossman’s model is an economic model that developed from human capital theory.
- 1. demand for medical care is derived. medical
- care is an input to produce health.
- 2. consumer purchases the inputs and produces
- health. They combine time and inputs, so
- they are part of the production process.
- 3. Health is a capital good that
- depreciates. The cost of holding health
- for one period is depreciation and interest forgone. The depreciation is faster for elderly
- because their cost of holding health is higher.
4. Health has the following aspects:
- A) Consumption - people want health because it
- makes them feel better
- B) Pure investment - health allows someone to work
- more, so health is worth more to high wage workers
What are the four types of risk management? Provide a
health care example of each type.
spending money to reduce risk
purchasing insurance which transfers risk.
take no action and bear the risk.
Risk pooling occurs when a large number of independent risks are combined.
What are the major problems with using the standard deviation as a measure of risk? Explain prospect theory.
- the standard deviation does not
- always adequately reflect risk.
- doesn't necessarily let managers
- know the probability of a loss exceeding the limit.
- it is necessary to know how the
- cash flows are distributed.
What types of risk does reinsurance control? What
types of risk does it not control?
protect an insurer against unpredictable variation in claims experience.
provides protection against a single bad year that could cause severe financial results.
- may allow the primary insurer to underwrite more coverage than they otherwise could with the same level of
- offers little protection against the risk that the
- characteristics of a particular plan will cause it to consistently have high claim costs.
policies adjust premiums to reflect claims experience.
- may respond to a high cost plan by limiting or dropping
over time plans will tend to bear the full cost of the claims
will not protect against adverse selection
List 2 sources of risk when providers tagree to capitated payments. List 2 sources of risk under fee for service.
Capitated: many high risk patients, more volume than expected
FFS: No pay, Low pay, slow pay
Briefly describe the design of the Rand study. What were the principal findings of the Rand study?
- estimate how demand responds to insurance. do people
- use more care if it is free?
2. Does the demand response differ for the poor.
- 3. Are demand elasticities greater for
- outpatient physician services, psychotherapy, and preventative services, which
- would be consistent with lesser coverage
- 4. how does the consumption of health services
- affect health?
- 5. effect of possibly treating a more healthy
- group of patients.
- use of medical services responds to changes in the
- amount paid out-of-pocket.
- Cost sharing affects the number of medical
- contacts, as opposed to the intensity of those contacts.
- no significant difference among the plans with respect
- to inpatient services.
- cost sharing reduces total expenditures relative to free care
- Income has a positive affect on out patient use and a
- negative affect on inpatient use.
- There are different responses for usage for children
- and usage for adults.
- There was no differential response to health insurance
- coverage between the healthy and the sickly.
- There was no difference between the sites in response
- to health insurance coverage.
- There were no differences between individuals enrolled
- 3 years and individuals enrolled 5 years.
- Poor adults with high blood pressure had a clinically
- significant reduction in blood pressure in the free fee for service plan
- compared to the plans with cost sharing.
- For poor adults who began the experiment with vision
- problems that were correctable with eyeglasses, there was a "modest"
- improvement in vision.
- Individuals on the free care plan between the ages 12
- and 35 showed a "modest" improvement in health of the gums.
In several sentences briefly describe Weisbrod’s model of the nonprofit sector. To what extent is the model consistent with the development of not for profit hospitals in the United
- Weisbrod suggests a significant minority of the
- population feels that the amount of publicly provided services is too low.
- get together and finance nonprofit organizations to
- provide additional public services.
- not-for-profit firms are a mechanism for converting
- charitable gifts into the services donators demand.
- not-for-profit sector is a third sector of the economy
- that supplements the private sector and government.
- provides an explanation for the original financing of
- not-for-profit hospitals.
- Jeffrey Weiss points out that Weisbrod’s model doesn’t
- necessarily predict that the net effect of charitable contributions will be to
- increase the amount of public services.
- It could be that the presence of nonprofit
- organizations reduces the general public’s desire to fund public services with
- government spending.
Contrast the major theories of why there are
- over 70% of short-term general hospital beds are in
- not-for-profit hospitals.
- the firm’s “residual”, can’t be distributed to
- “owners”, but is reinvested in the organization
not-for-profits are exempt from some taxes
- donations to not-for-profits receive favorable tax
Nonprofits are a response to government failure.
- Nonprofits are a response to information asymmetries
- and transaction costs in private markets.
- Nonprofits further goals of entrepreneurs and
- Nonprofits are driven by competitive interaction with other
Describe each of the following models of hospital behavior, profit maximization model, the utility maximizing model, physician control models, the Harris model, and constituency models.
A. Profit maximization models: Profit maximizers produce at the point where marginal revenue equals marginal cost
The model predicts hospitals will reinvest profits by choosing those investments that yield the highest return.
In Feldstein's description of the profit maximizing model the hospital can practice price discrimination. The hospital will price discriminate according to the price elasticity for each class of patient and for each type of service.
B. Utility maximization models: managers have objectives other than maximization of profits, hospitals may maximize: 1. Quantity of services, 2. Quality of services, 3. Prestige, 4. Environment for executives
C. Physician control models: physicians act as contractors who retain the residual revenue after other inputs are paid. In these models physicians have an incentive to favor over-investment in hospital equipment, since this investment increases their productivity. it means more purchasing power is available for physician’s services.
- D. The Harris Model: hospital as two separate firms, a medical staff, which is the demand division, and the administration, which is the supply division. cost containment strategies should recognize the role of
- physicians as demanders of service, rather than being directly solely at the suppliers of hospital services.
- E. hospitals as trying to serve multiple constituencies. Instead of trying to maximize profit, the managers must balance the interests of patients, physicians, government
- agencies, employers, professional trade organizations and others.
What advantages and disadvantages do for profit
hospitals have when compared to not for profit hospitals? Does the evidence suggest that either type is more efficient?
Evidence suggests that chains have 2-8% higher cost per admit, not for profit hospitals are at least no more expensive then for profit hospitals.
- Disadvantages to the nonprofit firm
- 1. Managers may not aggressively pursue efficiency.
2. More difficult for not for profits to raise capital.
3. The credibility of the not-for-profit designation could be destroyed by individuals who use the not-for-profit designation for personal gain
What is the relative share of not-for-profit, public
and investor owned acute care hospitals in 2002? How has that distribution changed since 1982?
2002- 60% were not-for-profit, roughly 25% were state and local acute care hospitals and roughly, 15% were investor owned.
1982 - 2002 the number of not-for-profit acute care hospitals declined by roughly 10%, the number of public acute care hospitals declined about 33% and the number of investor owned hospitals increased slightly
Describe the changes since 1988 in the mix of
inpatient and ambulatory services in hospitals in the United States
- According to the AHA in 1988 21% of hospital revenue was outpatient, (so 79% was inpatient) and in 2008 39% was outpatient and 61% inpatient. So in the last 20 years
- outpatient went from one fifth to two fifths of hospital revenue.
Describe changes in census, admissions and LOS for
inpatient services between 2000 and 2008
- Census has been constant at around 200 million
- inpatient days per year. Admissions per 1000 is flat at 120 per year. LOS dropped from 5.8 to 5.5 to offset growth in US population.
Who are the major payers for LTC? What is spend down?
What is the relative share of unpaid care?
What is the prime difference in purchasing by payers?
- Medicaid pays 36 %, Medicare 25%, out of pocket 33%, private insurance 4%, and others 3%. Free care is often estimated at 33-50 % of all care. (Roughly 1/3rd Medicaid, 1/3rd out of pocket, 1/4th Medicare and 1/10th other).
- Spend down is a feature of Medicaid that allows individual to use up income and/or assets and qualify for Medicaid. Medicaid covers almost half of all nursing home expenditure. Medicare is the largest government payer for home health. Out of pocket payments go primarily to nursing home care.
Since 1950, what have been the major shifts in the
settings and types of mental health care provided in the United States? What caused these changes?
- In 1955, 3 out of 4 episodes took place in a mental hospital, and there more than half a million residents of state mental hospitals, Now 3 out of 4 episodes occur in
- community settings, less than 60,000 residents of state mental hospitals.
- Medicare and Medicaid created an incentive to discharge patients from state institutions.
- Drugs and CMHCs made deinstitutionalization more feasible. Legal rights changes and other changes in community attitudes also had an effect.
What are the major changes in financing for Community
Mental health centers since 1973?
a. Initially, CMHCs were funded directly through grants from the federal government, explicitly bypassing state mental health authorities.
- b. In 1981 the Reagan administration instituted “block grants” for federal support of mental health services and gave states the authority to disperse these block grant funds to CMHCs. By 1983, the block grant approach
- had reduced federal funding for CMHCs by 21 percent.
- c. During late 1980s and early 1990s, however, Medicaid assumed a more important role in the financing
- of mental health care. By reimbursing for mental health care through the Medicaid program wherever possible, states were able to “draw down” federal funds for part of the costs of that care. As the proportion of CMHC funding received through Medicaid increased, CMHC revenue flows became more dependent on Medicaid payment policies and regulations pertaining to service delivery.
d. During the early 1990s, there was a major movement into managed care by Medicaid in many states
What four factors does Berndt identify as increasing
utilization of prescription drugs in recent years?
1. A law of derived demand “The importance of being small”- rapid growth is more feasible when a category is a small portion of the total.
2. The increase in the third party insurance coverage.
3. New products
- 4. Aggressive marketing .One aspect of this was the
- FTC ruling that allowed more direct to consumer advertising
What was the MMA ? How did it influence e-prescribing?
- The Medicare Modernization Act (MMA) of 2003
- established Medicare Part D, which covers prescription drugs. It also required the Dept of Health and Human Services to establish standards for formatting
- information for e-prescribing
What are the economic benefits of providing health care in rural areas?
1. Often health care is the leading employer.
- 2. Health care employees spend their paycheck and generate a
- multiplier in rural areas.
3. Quality health care attracts other employers.
What is the current tax treatment of health benefits? Has it had any benefits? What does Enthoven believe are the major bad effects of the tax subsidy? What reform
does Enthoven suggest?
- Under the Internal Revenue Code of 1954 employers’
- expenditures for employee health insurance and employee health care were exempt from federal income and payroll taxes.
- Advantages of the tax subsidy include that the subsidy as an offset to the effects of adverse selection and the
- subsidy as an incentive towards coverage.
- Enthoven (1984) points out four major
- problems with the current tax treatment of health insurance
- 1. It reinforces the cost-increasing incentives in our health care system and weakens consumer cost
2. The distribution of tax subsidies is regressive.
- 3. The revenue loss to the government is growing
- faster than the GNP and consequently is contributing
- to the deficit.
4. The present system reinforces the link between jobs and health insurance. This makes coverage more complex, especially when employees change jobs or have two members of the family working.
Enthoven proposed to have a refundable tax credit equal to 40% of their or their employer's health insurance payments and cap the refundable tax at $150 per family