After reading this chapter, you should be able to: Describe how information failures may justify government intervention in some markets; explain the difficulties of conveying economic preferences through majority voting; discuss "government failure" and explain why it happens. | Chapter 22 Medicare Chapter Outline PUBLIC INSURANCE AND THE ELDERLY MEDICARE’S NUTS AND BOLTS COST CONTROL PROVISIONS MEDICARE TRUST FUND Background Medicare covers health care for those over 65 was established in 1964 was fully in force in 1967 part of President Johnson’s Great Society Programs paired with Medicaid (which covers health care for the poor) is a federally-administered program Public Insurance and the Elderly: Why It Is Needed A private insurance market for the elderly is likely to fail because of Adverse Selection the problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat less Lack of a group Most private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group. Those over 65 have a poverty rate that is typically 2-3 percentage points lower | Chapter 22 Medicare Chapter Outline PUBLIC INSURANCE AND THE ELDERLY MEDICARE’S NUTS AND BOLTS COST CONTROL PROVISIONS MEDICARE TRUST FUND Background Medicare covers health care for those over 65 was established in 1964 was fully in force in 1967 part of President Johnson’s Great Society Programs paired with Medicaid (which covers health care for the poor) is a federally-administered program Public Insurance and the Elderly: Why It Is Needed A private insurance market for the elderly is likely to fail because of Adverse Selection the problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat less Lack of a group Most private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group. Those over 65 have a poverty rate that is typically 2-3 percentage points lower than the rest of the nation. The cost-split was intended to be 50-50 with the taxpayer and recipient paying roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger share. Public Insurance and the Elderly: Who Should Pay? Why Medicare’s Costs Are High The elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive. Costs to patients are relatively low so there is the problem of the Third Party Payer when someone other than the producer or consumer pays the costs of a good or service and as a result neither is cost conscious New treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive. Costs of Medicare Retrospective Payments Most payments for services are made after the service has been rendered. When there are third-party payments this can inflate costs. Gatekeepers can be used to limit these costs. doctors who treat general afflictions and who are
