CHAPTER 18 THE AMERICAN MODEL
CHAPTER 18 THE AMERICAN MODEL
The American model Unlike every other developed country,the United States lacks universal guaranteed insurance for all citizens. Nevertheless,most Americans find insurance coverage through one of these three avenues: employer-based insurance,Medicare and Medicaid. This mix of private and public insurance is a hallmark of the American model. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics The American model Unlike every other developed country, the United States lacks universal guaranteed insurance for all citizens. Nevertheless, most Americans find insurance coverage through one of these three avenues: employer-based insurance, Medicare and Medicaid. This mix of private and public insurance is a hallmark of the American model
The American model Major characteristics: Private health insurance markets: The non-elderly and non-poor seek insurance on the private market, which is centered around employer-based health insurance pools. Partial universal health insurance: Subsidized universal health insurance is provided to two vulnerable subpopulations:the elderly (through Medicare)and the poor(through Medicaid). Private health care provision: Most hospitals and doctor's clinics are private.While there is some antitrust regulation,there are few legal restrictions on where doctors can practice and hospitals can open.There are also no direct price controls enforced by the government. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics The American model Major characteristics: Private health insurance markets: ◼ The non-elderly and non-poor seek insurance on the private market, which is centered around employer-based health insurance pools. Partial universal health insurance: ◼ Subsidized universal health insurance is provided to two vulnerable subpopulations: the elderly (through Medicare) and the poor (through Medicaid). Private health care provision: ◼ Most hospitals and doctor’s clinics are private. While there is some antitrust regulation, there are few legal restrictions on where doctors can practice and hospitals can open. There are also no direct price controls enforced by the government
The American model 。 The American model reflects a political preference for liberty and free choice. Patients(usually)have free choice of: ·Doctor ·Hospital ·Insurance plan Doctors(usually)have free choice of: Prices to charge Where to practice ·Whom to treat Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics The American model • The American model reflects a political preference for liberty and free choice. • Patients (usually) have free choice of: • Doctor • Hospital • Insurance plan • Doctors (usually) have free choice of: • Prices to charge • Where to practice • Whom to treat
EMPLOYER-SPONSORED HEALTH INSURANCE Ch 18 The American model
Ch 18 | The American model EMPLOYER-SPONSORED HEALTH INSURANCE
Employer-sponsored health insurance Most insured non-elderly Americans receive coverage through employer-sponsored plans. 0 This insurance is not"free",since it is actually part of the worker's total compensation package. The cost of premiums are taken out of the worker's wages. The fact that the costs of insurance effectively come out of the worker's wages is known as wage pass- through. So for the same type of job and skill-level,jobs without employer-sponsored insurance plans may offer higher wages than jobs with them. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Employer-sponsored health insurance Most insured non-elderly Americans receive coverage through employer-sponsored plans. This insurance is not “free”, since it is actually part of the worker’s total compensation package. The cost of premiums are taken out of the worker’s wages. The fact that the costs of insurance effectively come out of the worker’s wages is known as wage passthrough. So for the same type of job and skill-level, jobs without employer-sponsored insurance plans may offer higher wages than jobs with them
Employer-sponsored health insurance Employer-sponsored insurance combats adverse selection by providing a reason for employees to pool together. However,not all members of an employer- sponsored plan are together in a single pool. Example:Consider a firm with four employees,two of whom are young and two of whom are old.The younger employees have lower expected health care costs than the older two.Therefore,this firm would likely use wage pass-through to"charge"older employees more for their health insurance(through forgone wages). Meanwhile,the younger workers pay less,so they are less tempted to leave for other firms. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Employer-sponsored health insurance Employer-sponsored insurance combats adverse selection by providing a reason for employees to pool together. However, not all members of an employersponsored plan are together in a single pool. Example: Consider a firm with four employees, two of whom are young and two of whom are old. The younger employees have lower expected health care costs than the older two. Therefore, this firm would likely use wage pass-through to “charge” older employees more for their health insurance (through forgone wages). Meanwhile, the younger workers pay less, so they are less tempted to leave for other firms
Differential wage pass through Differential wage pass-through can occur whenever employers can observe elevated health risks among their employees. Technically,passing lower wages through to sicker workers is illegal in the US,but wage discrimination is difficult to detect,and there is evidence that people who have higher expected medical expenditures do earn less. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Differential wage pass through • Differential wage pass-through can occur whenever employers can observe elevated health risks among their employees. • Technically, passing lower wages through to sicker workers is illegal in the US, but wage discrimination is difficult to detect, and there is evidence that people who have higher expected medical expenditures do earn less
Differential wage pass through Examples Maternity benefits:Women of childbearing age saw their salaries fall relative to both men and older women in the years following the passage of a 1976 law mandating maternity care coverage for employer- sponsored insurance plans. Obesity:in jobs with employer-sponsored health insurance,the obese earn much less than their thin coworkers.In jobs with no insurance,the obese and thin earn about the same wage. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Differential wage pass through • Examples • Maternity benefits: Women of childbearing age saw their salaries fall relative to both men and older women in the years following the passage of a 1976 law mandating maternity care coverage for employersponsored insurance plans. • Obesity: in jobs with employer-sponsored health insurance, the obese earn much less than their thin coworkers. In jobs with no insurance, the obese and thin earn about the same wage
Firm-specific human capital Why don't these employer pools have adverse selection problems? If healthy workers could find desirable new jobs elsewhere where they do not subsidize unhealthy colleagues,then they have every incentive to leave their current jobs. So why do healthy employees stay in their jobs,even when they are subsidizing their unhealthy co-workers? Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Firm-specific human capital Why don’t these employer pools have adverse selection problems? If healthy workers could find desirable new jobs elsewhere where they do not subsidize unhealthy colleagues, then they have every incentive to leave their current jobs. So why do healthy employees stay in their jobs, even when they are subsidizing their unhealthy co-workers?
