HEALTH INSURANCE Second Edition MICHAEL A. MORRISEY HAP AUPHA Health Administration Press, Chicago, Illinois Association of University Programs in Health Administration, Arlington, Virginia
BRIEF CONTENTS Preface xvii Parti: An Introduction 1 Chapter i: History of Health Insurance in the United States 3 Chapter 2: A Summary of Insurance Coverage 27 Chapter 3: The Patient Protection and Affordable Care Act (ACA) 43 Chapter 4: The Demand for Health Insurance 61 Part II: Issues of Adverse Selection 75 Chapter 5: Adverse Selection 77 Chapter 6: Underwriting and Rate Making 91 Chapter 7: Risk Adjustment Ill Part III: Issues of Moral Hazard 127 Chapter 8: Moral Hazard and Prices 129 Chapter 9: Utilization Management 157 Part IV: Managed Care, Selective Contracting, and the Insurance Industry 173 Chapter 10: Selective Contracting 175 Chapter 11: Managed Care Backlash, Provider Consolidation, and Monopsony Power 197 Chapter 12: Insurance Market Structure, Conduct, and Performance 211 vii
VIII Brief Contents Part V: Employer-Sponsored Health Insurance 229 Chapter 13: Premium Sensitivity for Health Insurance 231 Chapter 14: Compensating Differentials 243 Chapter 15: Taxes and Employer-Sponsored Health Insurance 259 Chapter 16: Employers as Agents 275 Part VI: Special Topics in Health Insurance 293 Chapter 17: Health Savings Accounts and Consumer-Directed Health Plans 295 Chapter 18: The Small-Group Market 313 Chapter 19: The Individual Insurance Market 337 Chapter 20: Health Insurance Regulation 357 Chapter 21: High-Risk Pools 379 Chapter 22: Health Insurance Exchanges 393 Part VII: Medicare, Medicaid, and Private Coverage 417 Chapter 23: An Overview of Medicare 419 Chapter 24: Retiree Coverage 443 Chapter 25: Medicaid, "Crowd Out," and Long-Term Care Insurance 461 Epilogue: A Course Summary 481 References Name Index 5^7 Subject Index 525 About the Author 551
DETAILED CONTENTS Brief Contents Detailed Contents Preface New in the Second Edition Teaching with This Textbook Acknowledgments vii ix xvii xviii xxiii xxiv Parti: An Introduction i Chapter i: History of Health Insurance in the United States 3 Prehistory: Workers' Compensation and Sickness Funds 3 Early Growth of Health Insurance: The 1940s and 1950s 11 The 1960s and 1970s 13 The 1980s, 1990s, 2000s, and 2010s 17 Summary 23 Discussion Questions 24 For the Interested Reader 25 Chapter 2: A Summary of Insurance Coverage 27 The Extent of Coverage 27 The Uninsured 31 Employer-Sponsored Coverage 32 Medicare 35 Medicaid 37 Health Insurance and the Great Recession of 2007-2009 38 Summary 40 Discussion Questions 41 For the Interested Reader 41 Chapter 3: The Patient Protection and Affordable Care Act 43 The Uninsured 45 The Medicaid Expansion 45 The Individual Mandate 46 ix
Detailed Contents Insurance Exchanges Employer-Sponsored Coverage 52 ACA Spending and Revenue Projections 55 Summary 58 Discussion Questions 59 For the Interested Reader 59 Chapter 4: The Demand for Health Insurance 61 The Theory of Insurance 61 Hypothesis I: The Degree of Risk Aversion 65 Hypothesis II: The Size of the Potential Loss 66 Hypothesis III: The Probability of Loss 68 Hypothesis IV: The Wealth Effect 69 Taxes and Employer-Sponsored Health Insurance 71 Summary 73 Discussion Questions 73 For the Interested Reader 74 Part II: Issues of Adverse Selection 75 Chapter 5: Adverse Selection 77 HMO Effect Versus Favorable Selection 78 Evidence of an HMO Effect 80 Evidence of Favorable Selection 82 Favorable Selection in the Medicare Program 83 Persistence of Favorable Selection over Time 85 Selection Bias in Non-HMO Settings 87 Summary 89 Discussion Questions 89 For the Interested Reader 90 Chapter 6: Underwriting and Rate Making 91 Premium Computations 91 Objective Risk 92 Nature of Underwriting 94 Approaches to Rating 97 Self-Insured Plans 100 Manual Rating Methods Used by HMOs 102 The Consequences of Combining Dissimilar Groups 104 Summary 107 Discussion Questions 109 For the Interested Reader 110
Detailed Contents xi Chapter 7: Risk Adjustment Ill Medicare Adjusted Average Per Capita Costs 112 Improving the AAPCC 113 Implications of Better Risk Adjustment 116 Generalizing the RAND Findings 117 Medicare's Current Approach to Risk Adjustment 119 How Well Did the CMS-HCC Work in Reducing Favorable Selection? 123 Risk Adjustment in the ACA 125 Summary 125 Discussion Questions 126 For the Interested Reader 126 Part III: Issues of Moral Hazard 127 Chapter 8: Moral Hazard and Prices 129 The Nature of Moral Hazard 130 Early Efforts to Estimate the Extent of Moral Hazard 131 The RAND Health Insurance Experiment 132 Moral Hazard and Specific Types of Health Services 138 Deductibles 149 Effects of Large-Scale Increases in Insurance Coverage 151 Summary 152 Discussion Questions 155 For the Interested Reader 155 Chapter 9: Utilization Management 157 Defining Utilization Management 158 Preadmission Certification and Concurrent Review 159 The Second Generation of UM Studies 162 Effectiveness of Gatekeeping 166 Disease Management and Intensive Case Management 168 Summary 170 Discussion Questions 171 For the Interested Reader 171 Part IV: Managed Care, Selective Contracting, and the Insurance Industry 173 Chapter 10: Selective Contracting 175 The "Golden Era" of Hospitals 175 The Advent of Selective Contracting 176
xíí Detailed Contents Generalizing the Evidence on Selective Contracting 180 Other Effects of Selective Contracting 184 Favorable Selection Versus Selective Contracting 186 Managed Care and Physicians 189 Medicaid Managed Care 192 New Approaches to Selective Contracting 192 Summary 194 Discussion Questions 194 For the Interested Reader 195 Chapter ii: Managed Care Backlash, Provider Consolidation, and Monopsony Power 197 Why Did Insurance Premiums Increase After the Selective Contracting Innovations? 197 Insurer Monopsony Power Versus Hospital Monopoly Power 206 Summary 209 Discussion Questions 210 For the Interested Reader 210 Chapter 12: Insurance Market Structure, Conduct, and Performance 211 The Structure of the Health Insurance Industry 211 Research on Insurer Market Power 218 Most Favored Nation Clauses 221 Summary 226 Discussion Questions 227 For the Interested Reader 227 Part V: Employer-Sponsored Health Insurance 229 Chapter 13: Premium Sensitivity for Health Insurance 231 Early Studies of Premium Sensitivity 231 Employee Premium Sensitivity 234 Insurance Take-Up Rates 239 Summary 241 Discussion Questions 242 For the Interested Reader 242 Chapter 14: Compensating Differentials 243 The Nature of the Labor Market 243 Why Do Employers Provide Health Insurance? 244
Detailed Contents Implications of Compensating Differentials 246 Evidence of Compensating Differentials 248 Obesity, Smoking, Health Insurance, and Compensating Differentials 253 A Natural Experiment in Compensating Differentials 254 Summary 257 Discussion Questions 257 For the Interested Reader 258 Chapter 15: Taxes and Employer-Sponsored Health Insurance 259 The Tax Treatment of Health Insurance 259 Size of the Health Insurance Tax Expenditures 263 Estimates of the Effects of Tax Rates on Health Insurance 264 Taxes and Employee Premium Contributions 271 Summary 272 Discussion Questions 273 For the Interested Reader 274 Chapter 16: Employers as Agents 275 Employee Perceptions of Employer Plans 276 Labor Market Sorting 277 Two-Earner Households 280 Employee Premium Contributions 282 Information on Plan Quality 288 Summary 290 Discussion Questions 291 For the Interested Reader 292 Part VI: Special Topics In Health Insurance 293 Chapter 17: Health Savings Accounts and Consumer-Directed Health Plans 295 Health Savings Accounts 295 Medical Savings Accounts 296 Flexible Spending Accounts 298 Health Reimbursement Accounts 298 Consumer-Directed Health Plans 298 The Economics of HSAs 301 Enrollment in CDHPs 305 Research on CDHPs 307 Consumer Search for Health Services 309
xiv Detailed Contents Summary áil Discussion Questions 311 For the Interested Reader 312 Chapter 18: The Small-Group Market 313 The Extent of Coverage 313 Why Small Employers Do and Do Not Offer Health Insurance Coverage 316 The Role of Agents and Brokers 319 Price Sensitivity in the Small-Group Market 321 Reforms in the Small-Group Insurance Market 324 Small-Group Coalitions and Association Health Plans 327 The Small-Group Market: Diverse and Complex 330 The ACA and Small Employers 331 Summary 334 Discussion Questions 335 For the Interested Reader 335 Chapter 19: The Individual Insurance Market 337 Who Has Individual Coverage? 337 Insurance Providers in the Individual Market 341 Premium Sensitivity in the Nongroup Market 343 Pooling in the Nongroup Market 344 Insurance Coverage and the Availability of Charity Care 347 The Individual Market and the Internet 348 Tax Credits in the Individual Market 351 What We Do Not Know About the Nongroup Market 353 Summary 353 Discussion Questions 354 For the Interested Reader 355 Chapter 20: Health Insurance Regulation 357 Federal Regulation of Health Insurance 358 State Regulation of Health Insurance 361 Why Have State Mandates Become So Popular? 364 The Economics of Mandates 365 Line-of-Business Laws 372 Summary 375 Discussion Questions 376 For the Interested Reader 376
Detailed Contents XV Chapter 21: High Risk Pools 379 How Many Uninsurables Are There? 380 State High-Risk Pools 380 Effects of Premiums on Risk Pool Enrollment 387 The Pre-Existing Condition Insurance Plan Under the ACA...388 Summary 390 Discussion Questions 390 For the Interested Reader 391 Chapter 22: Health Insurance Exchanges 393 State Versus Federal Exchanges 393 Role and Structure of the Exchanges 394 Governance 395 The Number of Exchanges and Risk Pools 397 Functions of the Exchanges 398 Essential Health Benefits 400 Subsidies Within the Exchanges 403 Exchanges with No State Medicaid Expansion 405 Risk Adjustment 405 Estimated Enrollment in the Exchanges 409 Estimated Premium Costs in Exchanges 411 Summary 415 Discussion Questions 415 For the Interested Reader 416 Part VII: Medicare, Medicaid, and Private Coverage 417 Chapter 23: An Overview of Medicare 419 Social Security: Medicare in Context 419 Medicare Hospital Insurance Coverage 420 Medicare Supplementary Medical Insurance 424 Medicare Advantage Coverage 425 Medicare Prescription Drug Coverage 429 Financing Social Security and Medicare 432 The Effects of Medicare on Health Spending and Health Status 439 Summary 440 Discussion Questions 441 For the Interested Reader 442
xvi Detailed Contents Chapter 24: Retiree Coverage 443 Distribution of Supplemental Coverage 443 Employer-Sponsored Retiree Coverage 446 Medigap Coverage 451 Effects of Supplemental Coverage on Traditional Medicare 455 Medicare Advantage 456 Summary 459 Discussion Questions 460 For the Interested Reader 460 Chapter 25: Medicaid, Crowd-Out, and Long-Term Care insurance 461 Medicaid Overview 461 Medicaid Recipients and Expenditures 465 Medicaid-Covered Services 466 Children's Health Insurance Program (CHIP) 466 Copayments and Premiums Under Medicaid and CHIP 469 Medicaid Crowd-Out 470 CHIP and Crowd-Out 471 Medicaid Expansion Under the ACA 472 Long-Term Care Insurance and Medicaid 475 Summary 478 Discussion Questions 479 For the Interested Reader 480 Epilogue 481 A Course Summary 481 References 483 Name Index 517 Subject Index 525 About the Author 551