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Healthcare (Health Insurance (Deductibles: Insurees pay the full cost up…
Healthcare
Health Insurance
Deductibles: Insurees pay the full cost up to a limit, beyond which the insurer pays everything
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Optimal health insurance generosity = Trade-off between social benefits from alleviating market failures and improving equity, against social costs from moral hazard
Since patient payments (PMC) are lower than true costs (SMC), there is a tendency towards excessive use, creating DWL
DWL from healthcare subsidies depends on the slope of demand curve, and thus price elasticity of health care
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Effect of health insurance depends on:
- Take-up: If people do not take up a health insurance programme, it may be the case that they already have access to better health insurance
- Crowd-out: Empirically, that are declines in private insurance = 20-50% of public insurance expansions. Thus, government-based health insurance crowded out private insurance.
Government Intervention
Market Failure
- Asymmetric information leading to adverse selection
- Recall: Government's advantage over private insurers allows them to compel individuals to participate
Equity Concerns
- Inequality in income driven by varying market abilities
- Inequality in health outcomes driven by varying health risks
Because premiums are not related to underlying health risks, public healthcare can redistribute from healthy to the sick. If healthcare programmes are means-tested, they also redistribute from rich to poor.
Redistribution: Why redistribute specific goods rather than providing cash?
- Consumer sovereignty supports provision of cash
- However, income transfers can enhance allocative inefficiency (cash provisions may go to people who are wealthy, but do not generate income)
- In-kind transfers can enhance targeting of redistribute tax and transfer systems, i.e. improve the equity-efficient trade-off
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US Healthcare
Medicaid: Federal and state programme providing healthcare to the poor. This is categorical, and targeted to single mothers, pregnant women, infants and children.
Medicare: Federal programme providing health insurance to the elderly and disabled; this programme is not means-tested.