Essay: Discuss the differences between a medical market and a competitive market. Many critics argue that we have tried market competition in healthcare and it didn’t work. We have continued to see the cost of care rise. More and more, consumers are having to pay for costs out of their own pocket. For this assignment: Discuss the differences between a medical market and a competitive market. Be sure to include some discussion on demand-side and supply-side failures. • Demand-side failures o Tax exempt employer paid health insurance ? Law of demand ? Employees purchase more comprehensive coverage with fewer deductibles and lower cost sharing ? Consumer incentive are distorted because they are not paying the full cost for insurance or for the use of medical services ? Consumers are less aware of the prices charged by their providers o Health Plan Choices ? Most employers only offered on health plan • To be competitive they need to offer more choices • 1990s – 80% of employees offered one plan • 2010 – 60% only offered one plan for employees ? Employers who offer more than one choice offer higher cost health plans or contribute a fixed percentage of the premium to the plan ? Managed care plans offer broad networks with overlapping providers • Plans not sufficiently differentiated • Don’t offer employees real choices • Not competing on provider’s ability to manage care, on quality of provider or patient satisfaction ? Not many employers pay insurers risk-adjusted premiums for their employees o Lack of Information ? Lack of information on how good a substitute one competitor is for another enables each competitor to charge higher prices or produce lower quality of care than they could if consumers were informed on the prices and quality of both providers o Medicare and Medicaid ? Half of all medical expenditures are made by federal and state governments ? Medicare patients have supplementary health insurance to cover their medicare cost sharing requirements ? Medicaid patients do not have cost sharing ? This means they do have any incentive to be concerns about provider prices or cost of medical services • Supply-side Failure o Provider Consolidation ? When there is more than one provider in the market the greater the competition ? When only one provider is available the patient has to choose that provider ? Insurers have fewer hospitals and providers to negotiate with when hospitals merge ? FTC has been unsuccessful in preventing hospitals from merging ? As the number of competitors has declined, health plans have been forced to pay higher prices, which are passed on to consumers in the form of higher insurance premiums (White, Bond, and Reschovsky 2013) o State Regulations ? States enacted anticompetitive regulation that limit price competition ? Result in higher health insurance premiums ? Regulations on provider training, what procedures are permitted to be performs, entry into medical markets, cost of insurance policies, benefit coverage, rules covering provider networks ? Cost burden put on individuals and small businesses making insurance unaffordable to some ? Certificate of need (CON) laws • Prohibits competitors from entering a market ? Any willing provider (AWP) law • Limits price competition among physicians o Lack of Physician Information ? Physicians are not equally proficient in the knowledge and skills ? Physicians sometime shave a financial interest in the quantity and type of care they provide • Supplier induced demand20 Discuss the ways in which medical markets can be more competitive. ? Government tax policy that excludes employer-paid health insurance from an employee’s taxable income should be changed o Employer contributions should be treated as regular income. o This change will affect how much insurance consumers buy, what plan they choose and how much care the receive ? Remove restrictions on market entry ? Remove restrictions on laws promoting anticompetitive behavior o CON and AWP ? Eliminate state mandates that raise the cost of health insurance ? Eliminate state insurance regulations that require community rating ? Enforce antitrust laws ? Reform medicare and Medicaid ? Employers should offer a choice of health plans, give fixed dollar contributions and use risk adjusted premiums Lastly, comment on the idea that the poor are at a disadvantage in a competitive market. o Competitive markets produce the most good and service o Competitive markets sell goods and services at the lowest possible price o Competitive markets make goods and services affordable to low income individuals o Competitive mare should not be evaluated on whether the poor receive all the medical services needed o Achieving market efficiency has little to do with ensuring that everyone’s needs are met o Competitive medical markets may be considered unfair because those with higher income and purchase more than those with lower income but this is true in all markets The paper should be formatted using APA (6th ed). It should be 3 pages in length (excluding title page and reference page).
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