Problem: Moral Hazard - Excess consumption of medical care because insurance shields consumer from actual costs.
Solution | Pros | Cons |
---|---|---|
Higher co-pays. Higher deductibles. |
Better price signals. | Reduced risk sharing. |
Defined contribution plans, which incorporate employer contributions, consumer payments up to a specified level and catastrophic insurance above that level. | Better price
signals. Employer still contributes. Some plans allow carry-overs of yearly contributions. |
Reduced risk sharing. Confusing to potential customers, has resulted in low uptake. May discourage preventive visits to care providers. |
Problem: Adverse Selection - High-risk and low-risk consumers tend to segregate by insurance plan generosity and cost, thus reducing risk pooling.
Solution | Pros | Cons |
---|---|---|
Universal coverage, government sponsored. | Broadest possible risk pool. Prevents "creaming"
by insurers. Insures coverage to high-risk consumers. |
Politically unattractive in U.S. Large deadweight loss due to taxation. Large redistribution impact. |
Risk adjustmentadjust insurance payments according to actual health risk. | Better price signals. Employer still contributes. Some plans allow carry-overs of yearly contributions. |
Current systems are inaccurate, don't predict actual risk well. |
Problem: Market Power - Markets with restricted entry and too few players give providers and insurers undue influence over prices.
Solution | Pros | Cons |
---|---|---|
Antitrust enforcement at federal and state level. | Establishes more competition and better markets. | Politically difficult, though Federal Trade Commission has taken some steps recently. |
Allows for-profit HMOs in states that prohibit them. | Establishes more competition. | Politically unlikely. For-profits may be less financially transparent than non-profits. |
Problem: Information Asymmetry - Unequal information regarding disease and treatment distorts transactions between patients, doctors and insurers;may result in poor decisions, fraud and waste.
Solution | Pros | Cons |
---|---|---|
"Report cards" on providers. | Better information for consumers. | May skew doctor behavior, pushing them not to treat high-risk patients in order to raise ratings. |
Provides information about disease, treatments, costs and doctor/hospital quality via Internet. | Better-informed consumers. Improves communication with providers. Improves price signals. |
Puts onus on consumers. |
Better information sharing between insurers and providers to prevent fraud. | Increases likelihood that fraud can be detected. | Concerns over patient confidentiality. |
Increases fraud enforcement efforts. | Raises prosecution levels and improves deterrence. | High cost. Government has other security priorities. |
Improves technology to monitor and share information about current best practices and "evidence-based medicine." | Can reduce waste by ensuring that most cost-effective methods are used. | Expensive technology. Might discourage innovation. |
Problem: Unequal Access - The poor don't have access to health care because they lack insurance, and prices for drugs and health care services are beyond their means.
Solution | Pros | Cons |
---|---|---|
Single-payer, universal insurance. | Basic health care made widely available. | Politically unattractive in U.S. Large deadweight loss due to taxation. Large redistribution impact. May increase moral hazard. |
Tax credits for small employers to encourage them to provide insurance for employers. | Extends tax subsidies for health insurance to self-employed and broadens coverage through small employers. |
Some research indicates credits may not induce insurance purchases. |
Buyer pools for insurance. | Larger risk sharing pools and greater leverage with insurers. | Research suggests they do provide more choice, but don't lower prices. |
Subsidizes education for nurses and other health care workers. | Increases number of workers and lower pressure on wages. | Expensive. Slow. |
State negotiates discount prices with pharmaceutical companies. Companies not offering discounts may face price caps. |
Less expensive drugs. | Legal challenges by manufacturers (though federal courts have recently rejected several challenges). Price caps may discourage research. |
Restricts drug advertising. | Less artificial demand creation for drugs. | Inhibits information flow. Open to First Amendment challenges. |
Reduces patent protection for drugs. | Introduces
more competition in drug manufacturing. Lower prices. |
May reduce research and development for new drugs. |
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