Health Economics & Health Economics & PolicyPolicy22ndnd Edition Edition

James W. HendersonJames W. Henderson

Chapter 5Chapter 5

The Market for Health The Market for Health InsuranceInsurance

Copyright 2002, South-Western, a division of Thomson Learning, James W. Henderson, Health Economics and Policy, 2e

The Health Insurance The Health Insurance IndustryIndustry

Historical setting (See Table 5.1)Historical setting (See Table 5.1) Types of insuranceTypes of insurance

– Social insuranceSocial insurance– Indemnity insuranceIndemnity insurance

Types of Health Types of Health Insurance CoverageInsurance Coverage

HospitalizationHospitalization Physicians’ servicesPhysicians’ services Major medicalMajor medical DentalDental Disability income protectionDisability income protection Long-term careLong-term care

The Theory of Private The Theory of Private Insurance DemandInsurance Demand

Important conceptsImportant concepts– ProbabilityProbability– RiskRisk– Expected valueExpected value

Total utility of incomeTotal utility of income Expected utility of incomeExpected utility of income Why people choose to insureWhy people choose to insure

Health Insurance and Health Insurance and Market FailureMarket Failure

Income tax treatmentIncome tax treatment– The economics of a subsidyThe economics of a subsidy

Information problemsInformation problems– Moral hazardMoral hazard– Adverse selectionAdverse selection– Free ridersFree riders

Insurers’ Response to Insurers’ Response to Market FailureMarket Failure

Deductibles Deductibles CoinsuranceCoinsurance CapitationCapitation Practice guidelinesPractice guidelines

Health Insurance in the Health Insurance in the U.S.U.S.

Community ratingCommunity rating Experience ratingExperience rating Cream skimmingCream skimming Self-insuranceSelf-insurance

Medical Care for the Medical Care for the UninsuredUninsured

How many are uninsured?How many are uninsured? Who are the uninsured?Who are the uninsured? Why are they uninsured? Why are they uninsured?

Individuals Without Individuals Without Health Insurance, 1999Health Insurance, 1999

Group Uninsured(000)

Percentage ofGroup

All Persons 42,554 15.5Sex: Male 22,073 16.5 Female 20,481 14.6Age: Under 18 years 10,023 13.9 18 to 24 years 7,688 29.0 25 to 34 years 8,755 23.2 35 to 44 years 7,377 16.5 45 to 64 years 8,288 13.8 65 years and over 422 1.3Income: Less than $25,000 15,577 24.1 $25,000 to $49,999 13,996 18.2 $50,000 to $74,999 6,706 11.8 Over $75,000 6,275 8.3Race: White 31,863 14.2 Black 7,536 21.2 Asian and Pacific Islander 2,272 20.8 Hispanic origin 10,951 33.4

Source: United States Census Bureau, Health Insurance Coverage: 1999, September 2000.

Insurance and HealthInsurance and Health

Do the uninsured have access to Do the uninsured have access to medical care?medical care?

Do the uninsured receive quality Do the uninsured receive quality care?care?

Do we have a two-tiered system of Do we have a two-tiered system of care?care?