Monday, April 03, 2006

Health Insurance

In cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fall in ec 10, we heard a lecture from David Cutler on health economics. David talked about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 incentive effects of health insurance.

The issue is moving to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 front of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 policy agenda. In today's NY Times, Al Hubbard, director of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 White House's National Economic Council, has an op-ed on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 topic. The essence of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 article is in this extract:

Health care is expensive because cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 vast majority of Americans consume it as if it were free. Health insurance policies with low deductibles insulate people from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 cost of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 medical care cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y use — so much so that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y often do not even ask for prices. And people don't recognize cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 high premium costs of this low-deductible insurance because premiums are paid by employers. Finally, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 tax code subsidizes cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se expensive, employer-purchased insurance policies.

To control health care costs, we must give consumers an incentive to spend money wisely. We can do this by encouraging cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 purchase of high-deductible policies and providing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same tax benefits for out-of-pocket health spending that employer-provided insurance enjoys.
The 4th edition of my Principles text, which just published, has a new box on health insurance, which I believe is consistent with what Professor Cutler told you in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fall. So that you don't have to buy a copy of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 new edition to replace your old one (although I won't stop you!), I offer cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 new box here for free:

The Peculiarities of Health Insurance

Many economists believe that health insurance in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 United States is often poorly designed and, as a result, Americans spend too much on healthcare. Three features of typical health insurance distinguish it from ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r kinds of insurance, such as car insurance.

First, health insurance often covers routine expenses, such as annual checkups and vaccinations. If an expense is perfectly predictable, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re is no reason to buy insurance to cover it. In this sense, health insurance is more like a prepayment plan than it is protection against risk. It is as if your car insurance covered oil changes and tire replacement.

Second, health insurance often covers small, random expenses, such as a doctor's visit for a child with an earache. For most people, such expenses would not have a major financial impact, so cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re is no need to buy insurance to protect against cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m. It is as if your car insurance covered cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 contingency that your taillight might burn out.

Third, many people obtain cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir health insurance through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir employers racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r than directly from an insurance company. As a result, when a person loses a job, he or she often loses health insurance as well. By contrast, a person’s car insurance continues as long as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 premiums are paid.

Why does health insurance have cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se three unusual features? One reason is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 tax system. According to U.S. tax law, employer-provided health insurance is a form of compensation that is exempt from income and payroll taxes. This tax treatment does not apply to ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r types of insurance: Your employer could not reduce your tax burden by reducing your salary and paying your car insurance premiums for you. Because of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 preferential tax treatment given to health insurance, you and your employer have an incentive to make health insurance part of your compensation and an incentive to have cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 insurance cover items that could easily be paid out of pocket.

Many economists believe that because of this tax treatment, Americans have health insurance that covers too much. Excessive insurance can lead to excessive use of medical care, driving up cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 amount Americans pay to stay healthy. It would be better, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se economists argue, if people bought less expensive insurance that covered only catastrophic losses and paid for small, routine, and discretionary medical expenses out of pocket.

There are various ways policymakers might induce people to change cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 kind of health insurance cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y have. Some economists have advocated eliminating cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 preferential tax treatment now given to health insurance. Ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rs have proposed giving similar tax treatment to medical expenses paid out of pocket. Eicá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r reform would level cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 playing field between different ways of paying for healthcare, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365reby reducing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 current incentive for employer-provided health insurance.
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A couple observations beyond what's in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 text:

1. We should be careful not to overstate what health-insurance reform will do. The main reason health care is more expensive today than it was a generation ago is technological progress that yields new but expensive ways to prolong and improve our lives. That probably won't stop. Health spending is likely to continue to rise as a share of GDP.

2. As cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 new box makes clear, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re are two ways of leveling cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 playing field. Al Hubbard advocates making out-of-pocket expenses deductible. A case could be made that it would be better to eliminate or cap cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 tax exclusion for employer-provided health insurance. If we exclude all health spending from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 tax base, as Hubbard suggests, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n as health spending rises over time as a share of total expenditure, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 rest of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy will have to pay ever higher tax rates even to maintain a constant ratio of tax revenue to GDP.