Holcombe, public finance, Foldvary

p. 442: Chapter 22 “health care,” actually medical services

Government regulates medical services,

finances it, and produces it.

Produce it for military, veterans.

Problems: rapidly rising costs, low-income folks can’t afford it.

Medicaid: the largest government welfare program for the poor.

28 million recipients. Run by states, with federal and state financing.

Medicare serves 40 million. Paid by payroll tax of 2.9 percent.

What’s the difference between private health and public health?

Government has always been involved in public health,

preventing or dealing with epidemics,

e.g. eradicating mosquitos.

But most of today’s government spending for medical services is for individual benefits.

Some call for universal medical services, paid for by government.

Why medical? When sick, inelastic demand.

Prevention can reduce future higher costs.

Insurance is stimulated by employer-paid plans, because it is not taxed.

The user does not directly pay, weakening the market basis.

Enacted in 2010: the Patient Protection and the Affordable Care Act.

Corrects some of the problems of employer-provided medical insurance.

Pre-existing conditions. Children. Insurance for low-income people.

Starting in 2014, most people will have to have insurance

or pay a "penalty deducted from your taxable income".

For individuals, penalty starts at $95 a year, or up to 1% of income, whichever is greater,

and rise to $695, or 2.5% of income, by 2016.

Guaranteed issue will require policies to be issued regardless of any medical condition,

and partial community rating will require insurers to offer the same premium

to all applicants of the same age and geographical location

without regard to gender or most pre-existing conditions.

For families the tax will be $2,085 or 2.5% percent of household income, whichever is greater. The requirement can be waived for several reasons, including financial hardship or religious beliefs. If the tax would exceed 8% of your income you are exempt, also some religious groups are exempt. That tax cannot exceed the cost of a "bronze plan" bought on the exchange.

There is also 2.3% Tax on Medical Device Manufacturers.

A tax on brand name drugs.

A tax on medical insurers.

An employer mandate on business with over 50 full-time employees to provide insurance.

$2000 per employee, $3000 if employee uses tax credits to buy insurance on the exchange.

Medicare Tax on Investment Income 3.8% over $200k/$250k

Medicare Part A Tax increase of .9% over $200k/$250k

Moral hazard: an insured person is more likely to use the service.

Frivolous uses, and more aggressive treatment.

Adverse selection: those with worse health are more likely to get the insurance.

The legal system makes it costly to defend against malpractice lawsuits,

so there are high insurance costs.

Plus “defensive” medicine.

Low cost to user plus high insurance cost lead to excessive quantities.

Can reduce it with deductibles and co-payments.

HMOs like Kaiser.

Incentive to reduce costs.

But that could result in avoiding some treatments.

HMOs can be sued for malpractice.

1800s: “friendly societies” for mutual aid.

They would hire a doctor.

American Medical Association opposed mutual aid societies.

They also got laws to require licensing.

Medicare, parts A and B

Part A, hospital services, paid by a payroll tax.

Part B, optional, pays for doctors. Paid by those who enrol.

In 2006, prescription drugs were added to Medicare.

Medicare will grow faster than Social Security.

Reforms. Two directions: more governmental provision, or a free market

“Single payer system”: taxpayers finance it.

No insurance forms, but an excess burden.

Special services are rationed.

Medical savings accounts with catastrophe insurance.

Employer mandates, higher labor costs.

Pay or play: employer pays for insurance or is taxed.

Many cities have free clinics.

Emergency care is provided to all.

Most high-income countries provide governmental medical services.

Why?

Is that a sufficient reason for the US to do so?

Free market:

1. Either no tax on wages, or if wages are taxed,

benefits taxed equal to money wages,

or medical services are tax deductible.

2. Tort reform: loser pays winners legal costs.

3. Eliminate medical licensing and restrictions on medical practice.

4. Legalize all medical drugs

5. Give workers a choice between social security and private accounts.