Delivering Public Health Insurance through Private Plan Choice in the United States

Source: Jonathan Gruber, Journal of Economic Perspectives, Vol. 31 no. 4, Fall 2017

From the abstract:
The United States has seen a sea change in the way that publicly financed health insurance coverage is provided to low-income, elderly, and disabled enrollees. When programs such as Medicare and Medicaid were introduced in the 1960s, the government directly reimbursed medical providers for the care that they provided, through a classic “single payer system.” Since the mid-1980s, however, there has been an evolution towards a model where the government subsidizes enrollees who choose among privately provided insurance options. In the United States, privatized delivery of public health insurance appears to be here to stay, with debates now focused on how much to expand its reach. Yet such privatized delivery raises a variety of thorny issues. Will choice among private insurance options lead to adverse selection and market failures in privatized insurance markets? Can individuals choose appropriately over a wide range of expensive and confusing plan options? Will a privatized approach deliver the promised increases in delivery efficiency claimed by advocates? What policy mechanisms have been used, or might be used, to address these issues? A growing literature in health economics has begun to make headway on these questions. In this essay, I discuss that literature and the lessons for both economics more generally and health care policymakers more specifically.

Selection in Health Insurance Markets and Its Policy Remedies
Source: Michael Geruso Timothy J. Layton, Journal of Economic Perspectives, Vol. 31 no. 4, Fall 2017

From the abstract:
Selection (adverse or advantageous) is the central problem that inhibits the smooth, efficient functioning of competitive health insurance markets. Even—and perhaps especially—when consumers are well-informed decision makers and insurance markets are highly competitive and offer choice, such markets may function inefficiently due to risk selection. Selection can cause markets to unravel with skyrocketing premiums and can cause consumers to be under- or overinsured. In its simplest form, adverse selection arises due to the tendency of those who expect to incur high health care costs in the future to be the most motivated purchasers. The costlier enrollees are more likely to become insured rather than to remain uninsured, and conditional on having health insurance, the costlier enrollees sort themselves to the more generous plans in the choice set. These dual problems represent the primary concerns for policymakers designing regulations for health insurance markets. In this essay, we review the theory and evidence concerning selection in competitive health insurance markets and discuss the common policy tools used to address the problems it creates. We emphasize the two markets that seem especially likely to be targets of reform in the short and medium term: Medicare Advantage (the private plan option available under Medicare) and the state-level individual insurance markets.

The Questionable Value of Having a Choice of Levels of Health Insurance Coverage
Source: Keith Marzilli Ericson, Justin Sydnor, Journal of Economic Perspectives, Vol. 31 no. 4, Fall 2017

From the abstract:
In most health insurance markets in the United States, consumers have substantial choice about their health insurance plan. However additional choice is not an unmixed blessing as it creates challenges related to both consumer confusion and adverse selection. There is mounting evidence that many people have difficulty understanding the value of insurance coverage, like evaluating the relative benefits of lower premiums versus lower deductibles. Also, in most US health insurance markets, people cannot be charged different prices for insurance based on their individual level of health risk. This creates the potential for well-known problems of adverse selection because people will often base the level of health insurance coverage they choose partly on their health status. In this essay, we examine how the forces of consumer confusion and adverse selection interact with each other and with market institutions to affect how valuable it is to have multiple levels of health insurance coverage available in the market.