Lecture Issues in economics today - Chapter 22

When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps.
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Lecture Issues in economics today - Chapter 22 Chapter 22 MedicareMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Chapter Outline • PUBLIC INSURANCE AND THE ELDERLY • MEDICARE’S NUTS AND BOLTS • COST CONTROL PROVISIONS • MEDICARE TRUST FUNDMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Background • Medicare – covers health care for those over 65 – was established in 1964 – was fully in force in 1967 – part of President Johnson’s Great Society Programs – paired with Medicaid (which covers health care for the poor) – is a federally-administered programMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Public Insurance and the Elderly: Why It Is Needed • A private insurance market for the elderly is likely to fail because of – Adverse Selection • the problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat less – Lack of a group • Most private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group.McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Public Insurance and the Elderly: Who Should Pay? • Those over 65 have a poverty rate that is typically 2-3 percentage points lower than the rest of the nation. • The cost-split was intended to be 50-50 with the taxpayer and recipient paying roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger share.McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Why Medicare’s Costs Are High • The elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive. • Costs to patients are relatively low so there is the problem of the Third Party Payer – when someone other than the producer or consumer pays the costs of a good or service and as a result neither is cost conscious • New treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive.McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Costs of Medicare $ (0 0 0 0 0 0 ) Real Medicare in 1998 Dollars5000000000500000000050000 0 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 YearMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Retrospective Payments • Most payments for services are made after the service has been rendered. • When there are third-party payments this can inflate costs. • Gatekeepers can be used to limit these costs. – doctors who treat general afflictions and who are charged with referring patients to specialistsMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Medicare Nuts and Bolts • Medicare Part A – Pays for hospital care – Mandatory • Medicare Part B – Pays for doctor visits – voluntaryMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Provider Types • Health Maintenance Organizations (HMOs) • Non-HMOs Fee-for-serviceMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Medicare, Part A • Premiums – In 1999 • $309 for those between 65 and 72.5 • $170 for those over 72.5 • Deductible – In 1999 • $768 first the first day in the hospital • After the first day – Medicare pays all • of the next 60 days • But $192 per day from 60-90 days • But $384 per day from 90 days on until reserve days are gone. • There is a 60 day reserveMcGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Prospective Payments and the ...