Abstract
Chapter 7 examines the role of group purchasing as a form of health insurance policy. This chapter describes the role of government in terms of health insurance policy. The chapter begins with a description of the goal of government, which is to move the health insurance system to providing optimal health insurance arrangements. A beneficent “social planner” could, in theory, implement a set of prices that would maximize the utility of health insurance to society. However, many of the implied policy solutions may be infeasible. As a result, health insurance policy is concerned with “second best” policies that optimize health insurance subject to constraints facing policymakers and markets. These policies can improve health insurance by addressing market failures in the health insurance market. Policymakers have a number of policy and regulatory tools that they can use to improve health insurance. Ultimately, any health insurance policy implemented by the government relies on the benefits of scale and scope if it is to make society better off. The trade-off for any governmental intervention are the costs arising from crowd out and deadweight loss. That trade-off leads to a consideration of universal group coverage and, in particular, full group coverage provided by the government. These are two types of single payer approaches to health insurance, which is an approach with both benefits and costs. As a result, policymakers may want to consider the wider menu of health insurance policy options that fall short of a single payer approach. Finally, this chapter assesses the meaning of public health insurance. How does the federal government operate as a group purchaser? How can group insurance for large populations account for diversity and heterogeneity in preferences and the variation in prices paid by different individuals within a public system? The answers to these questions imply an ongoing role for the private sector in any governmental approach to health insurance. That conclusion also provides a segue to Chap. 9, which considers the broader range of public policy choices with respect to health insurance in the United States.
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Notes
- 1.
It is also possible that a floor does not cause any shift in the supply curve, and simply “cuts off” the lowest quantity insurance plans. In that case, line 3 would be identical to line 1, with the exception that it would simply start well above the quantity zero, and plans with small quantities (α close to 1) and small prices would not be part of the supply curve. It is also possible that health insurers could “capture” health insurance subsidies rather than passing them on to consumers in the form of higher quantities of insurance. In that case, line 2 would be closer to, or coincident with, line 1, and the supply of health insurance would not shift to the right as much to as great an extent (or, it might not shift to the right at all).
- 2.
The Rothschild-Stiglitz model could be considered an early example of a “revelation mechanism ” that induces individuals to reveal the truth about themselves. For more on the economics of mechanisms and mechanism design, see Borgers et al. (2015).
- 3.
The right policies could also grow the economy, but the short run conservative assumption is that regulation will reallocate financial wealth rather than increase it.
- 4.
Note that a private monopolist would keep the amount it earned as profits. A public monopolist could choose to use the amount earned to fund other programs, but would still be reducing consumer welfare through the lower total quantity of health insurance it would provide.
- 5.
The ACA has made guaranteed renewable health insurance much less valuable and less useful through the elimination of medical underwriting.
- 6.
CMS is a large employer of actuaries. The role of the Office of the Actuary (OACT) “Performs actuarial, economic and demographic studies to estimate CMS program expenditures under current law and under proposed modifications to current law” (Centers for Medicare and Medicaid Services 2015). However, CMS actuaries are not responsible for ensuring that premiums are equal to payments under these plans.
- 7.
Fragmented systems have almost the opposite problem—there are so many different types of plans and premium levels that trying to compare across plans is difficult or impossible (an “apples versus oranges” comparison).
- 8.
It is important to note that “high-risk pools ” are not necessarily risky in the economic sense. Risk refers to a range of possible contingencies with different possibilities. Many of the individuals enrolled in high-risk pools have high costs that are quite certain. It would be more accurate to term these as “high cost” pools.
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Lieberthal, R.D. (2016). The Role of Government. In: What Is Health Insurance (Good) For?. Springer, Cham. https://doi.org/10.1007/978-3-319-43796-5_8
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