A recent paper by Hai Zhong (2011) finds that health insurance that provides immediate reimbursement for health care services significantly increases the likelihood of patients seeking outpatient treatment in China compared to reimbursement beneficiaries with a delay. China isn’t the only country where insurance companies provide delayed reimbursement. In fact, in France patients pay the full cost of physician visits up front and only later are reimbursed 70 percent of the cost.
Why would the delayed reimbursement make a difference? I can think of three reasons.
- Liquidity Constraints. Some individuals may not be able to afford the payment. Poor individuals may literally not have the capital to pay for these services up front. Getting loans from formal institutions (e.g., banks) or informal ones (e.g., friends and family) may be costly either in terms of interest of obligations to family and friends. Even if an individual is rich, acquiring extra money may be costly (e.g., trip to ATM, ATM fees, interest on credit card).
- Probability of Non-Payment. Although may policies are written where payment is assured, in practice reimbursement rates will not be 100 percent. For instance, individuals could fail to submit the correct forms for reimbursement, they could move addresses, or the patient could die. In addition, patients may have some uncertainty surrounding the benefits covered and thus they may not be 100% sure that they will receive reimbursement. Beneficiaries may not trust their insurance plan; they may assume it is trying to cheat them and thus with some non-zero probability the beneficiary will not get paid.
- Reflection of value. Even if a patient is rich and payment probabilities are 100%, the patient may still be less likely to use the service if they don’t need it if they realize the true cost. Alternatively, patients who realize a service is valuable may also be more likely to use it.
Source:
- Zhong, H. (2011), Effect of patient reimbursement method on health-care utilization: evidence from China. Health Economics, 20: 1312–1329. doi: 10.1002/hec.1670
Bring Market Prices to Medicare
December 16, 2011 in Books, Health Insurance, Managed Care, Medicare, Medicare Advantage | 5 comments
Medicare is a government-run insurance program. Can policy changes be made to add competition to Medicare, maintain quality and reduce cost? A book titled Bring Market Prices to Medicare argues that it can through a competitive bidding process. This book makes a number of sensible arguments which I review today.
The main proposal of the book is a competitive bidding process for all Medicare plans. Currently, there is a form of competitive bidding only for Medicare Advantage (MA) managed care plans. The authors also argues for competitive bidding for fee-for-service (FFS) Medicare (i.e., Parts A and B). There is already a competitive bidding process for Medicare’s prescription drug program (Part D) which has worked well.
One of the main advantages of Medicare FFS is that beneficiaries do not need a referral for any services and are not limited to certain provider networks. However, Medicare beneficiaries do not pay for these added benefits. In addition, even if HMOs are more efficient than Medicare FFS, Medicare FFS beneficiaries still pay the same Part B premiums.
The authors want beneficiaries to face the true price differentials between the lowest cost plans and less efficient plans., regardless if the plan is Medicare FFS or an MA plan. Thus, beneficiaries would be responsible for any premium differences due to choosing a more expensive plan.
Currently, MA plans receive a variant of the average bid in their service area. The authors propose that Medicare would only pay for the lowest cost plan. This proposal would in essence be a transfer from plans and beneficiaries (who would have to pay the cost differential between the plan they choose and the lowest cost plan) to the government. Given the fiscal hole the federal government is facing, this is a good idea.
Authors also propose to eliminate the 25% tax on premiums. According to MedPAC, “Plans that bid below the benchmark also receive payment from Medicare in the form of a “rebate.” The law defines the rebate as 75 percent of the difference between the plan’s actual bid (not standardized) and its case mix-adjusted benchmark. The plan must then return the rebate to its enrollees in the form of supplemental benefits or lower premiums” The rebate structure gives plans a disincentive from lowering their bids since they only recover a share of the cost decreases.
Another issue focuses on regional adjustments. Living in New York is expensive and health care is more expensive in New York than in rural Mississippi. However, should Medicare subsidize New Yorkers because their health care is more expensive. The authors argue no, but poor individuals in high cost areas will be adversely affected by this policy choice.
A major issue is controlling quality. Plans could create low cost plans by providing low-quality care or failing to provide mandated services. Thus, CMS will need to regulate the plans. Plans with quality levels below a specific level would be barred from enrolling individuals or the government could force beneficiaries to pay additional premiums to enroll in these low quality plans. Public reporting of plan quality is also needed.
Strategic bidding is also a problem. Plans could collude to raise the bid price. However, by having Medicare FFS as an option will cap the amount colluding firms could increase prices. Further, a small firm could bid a very low amount and set the market. Medicare could set the benchmark at the lowest cost plan which meets a minimum size requirement.
Source:
Another Review of the Book:
Tags: AEI, Auction, Books, Competitive Bidding, HMO, Managed Care, Medicare