ZUR SHAPIRA, New York University - Department of Economics
Email: ZSHAPIRA@STERN.NYU.EDU
ITZHAK VENEZIA, Hebrew University of Jerusalem - Jerusalem School of Business Administration
Email: msvenez@mscc.huji.ac.il

One of the most intriguing questions in insurance is the preference of consumers for low or zero deductible insurance policies. This stands in sharp contrast to a theorem proved by Mossin, 1968, that under quite common assumptions when the price of insurance is higher than its actuarial value, then full coverage is not optimal.

We show in a series of experiments that amateur subjects tend to underestimate the value of a policy with a deductible and that the degree of underestimation increases with the size of the deductible. We hypothesize that this tendency is caused by the anchoring heuristic. In particular, in pricing a policy with a deductible subjects first consider the price of a full coverage policy. Then they anchor on the size of the deductible and subtract it from the price of the full coverage policy. However, they do not adjust the price enough upward to take into account the fact that there is only a small chance that the deductible will be applied toward their payments. We also show that professionals in the field of insurance are less prone to such a bias. This implies that a policy with a deductible priced according to the true expected payments may seem "overpriced" to the insured and therefore may not be purchased. Since the values of full coverage policies are not underestimated the insured may find them as relatively better "deals".

ARLEEN LEIBOWITZ, University of California, Los Angeles - UCLA School of Public Affairs
Email: arleen@ucla.edu

In contrast to most countries in Europe, which have organized their health care financing into publicly-funded universal systems, the United States relies on a heterogeneous mix of arrangements to finance health insurance. Employer-based insurance covers 63% of the non-elderly. Medicare provides nearly universal coverage for the elderly, financed largely by the federal government. Federal and state funding supports Medicaid, the program for low-income and disabled persons. A variety of state and federal programs pays for medical care for persons with specific diseases (e.g. HIV/AIDS).

There are a number of U.S. examples of multi-level internal markets for insurance that resemble the "emerging paradigm" employed by many European countries. In the first internal market, the Federal Employees Health Benefit Plan offers federal employees a choice of 350 plans. The federal government makes a defined contribution and employees pay the marginal premium cost for the plan they choose.

Adopting an "emerging paradigm" model to structure the entire U.S. health care system would provide several advantages because it would: 1) eliminate overlaps and gaps in coverage, which would end the cost-shifting across programs and help to reduce administrative costs (currently 24% of health spending); 2) fit with American values of private provision of care and choice among health plans and providers; 3) free employers from the costs of arranging health care; 4) allow markets to convey information about consumer preferences; 5) provide a mechanism to rebalance spending on medical care and public/population health.

Adopting a variant of the "emerging paradigm" that would allow integration of medical and public/population health would capitalize on new knowledge on the importance of social/behavioral determinants of health and help the U.S. to address the cost pressures building as a result of the expected increase in the elderly and the introduction of costly new technologies.

LOIS A. VITT, Institute for Socio-Financial Studies
Email: LVITT@CROSSLINK.NET
RAY WERNTZ, HPN Worldwide
Email: ray.werntz@comcast.net

The purpose of this paper is to (1) briefly review past efforts by employers to curb rising costs in health benefit coverage and care, (2) help shed light on consumer values and how (and why) consumers make the health-related decisions they do, (3) describe and discuss values-based, patient-centered approaches being taken in some hospital and other health care settings, and (4) present the case for values-focused employee education in health benefits and care. The analysis notes that consumer values can provide essential insights into consumer thinking about health-related behaviors and decision-making. It also notes that should health education initiatives prove ineffective, the "consumer-driven health movement" could well be doomed, especially if it relies upon fully educated health consumers taking self-initiated actions.

ASAKO SHIMAZAKI, Carnegie Mellon University
Email: ashimaza@andrew.cmu.edu

The number of uninsured people in the U.S. is increasing, and various policies have been discussed and introduced to extend health insurance coverage. To analyze the effects of these policies, it is essential to consider the complexity of the problem of the uninsured.

This paper employs simulation approach to develop a model of health insurance coverage, and uses this model to analyze the effects of various policies. The model is a microeconomic model of individual decision making with regard to health insurance coverage and health care consumption, and insurer determination of premiums. The parameters of the model are calibrated by using simulated method of moments (SMM). The model is calibrated to data from the Medical Expenditure Panel Survey (MEPS) in 2003.

This model is then used to predict the change in the number of the uninsured and to evaluate the change in social welfare caused by the following policies to cover the uninsured: introduction of health insurance vouchers, CDHP (Consumer Driven Health Plan)-type high deductible plans and regulation of charity care. The analysis is restricted to single-person households.

Introduction of a health insurance voucher in individual health insurance market reduces uninsured rate from 20.4% to 16.4%, while introducing the voucher in all health insurance market reduces the rate to 9.2%. The change in social welfare is almost negligible under the former policy, while social welfare is decreased by 5.9% under the latter.

Mandating CDHP-type high deductible plans decreases the rate of the uninsured to 13.2%, and social welfare is increased by 21.4%. Eliminating discounted charity care but sustaining free charity care is found to reduce uninsured rate to 6.1% and increase social welfare by 0.6%.

This study is a first step towards a comprehensive and coherent framework for the evaluation of policies for the uninsured. Further development of the model, such as incorporating employers' health insurance offer decisions, will enable us to make more precise prediction of the effects of the policies.

RICHARD V. BURKHAUSER, Cornell University - Department of Policy Analysis & Management (PAM), Syracuse University - Center for Policy Research
Email: rvb1@cornell.edu
KOSALI ILAYPERUMA SIMON, Cornell University - Department of Policy Analysis & Management (PAM), National Bureau of Economic Research (NBER)
Email: kis6@cornell.edu

Critics of pay or play mandates, borrowing from the large empirical minimum wage literature, provide evidence that they reduce employment. Borrowing from a smaller empirical minimum wage literature, we provide evidence that they also are a blunt instrument for funding health insurance for the working poor. The vast majority of those who benefit from pay or play mandates which require employers to either provide appropriate health insurance for their workers or pay a flat per hour tax to offset the cost of health care live in families with incomes twice the poverty line or more and, depending on how coverage is determined, the mandate will leave a significant share of the working poor ineligible for such benefits either because their hourly wage rate is too high or they work for smaller exempt firms.

BARBARA P. BILLAUER, University of Maryland - School of Law, Foundation for Law and Science Centers, Inc.
Email: omniscience@starpower.net

This plan recommends maximizing health care, not coverage, for those currently uninsured, and suggests preserving the status quo regarding health insurance where it is working, at least for the immediate future. It is, first, a market-driven plan, favoring incentives and practices that maximize profits for physicians who can demonstrate improved health (or increased wellness) in their patient population, and recognizes the financial expectations and motivations of the diligent, motivated and/or entrepreneurial physician. Second, it does away with practices that allow profits to accrue to non-medical owners, such as HMOs, where individual health providers have no financial stake (or capitalistic incentive) in the outcome of their ministrations, the satisfaction of their assigned patient group, or the overall health of the subscribers.

This plan also suggests that the government assumes non-medical infrastructure costs, similar to other low-profit operations that do not lend themselves to private enterprise, while protecting the practice of medicine from outside intervention. Thus, third, the plan creates a federally-run health facility (Health House) where rental and administrative costs, supplies, laboratory services, and basic diagnostic machines are assumed by the government and/or shared by the medical members invited to join. This practice would lower overhead and maximize physician profits, without interfering in patient care or physician selection. In exchange for this financial incentive, physicians would donate a portion of their increased income in the form of medical care for the uninsured. Fourth, the plan broadens the class of those allowed to perform certain routine health services, while noting the legal implications of licensing changes. In addition, and fifth, the plan contemplates targeting specific diseases for enhanced treatment programs and allocating additional research resources, especially for diseases of the aging. Sixth, and finally, the plan contemplates regulating conduct and lifestyle choices of minors that threatens their health. This would be accomplished by broadening the reach of regulations, such as those banning access to alcohol, and tobacco, or exposure to media deemed harmful. An exposition of the last provision is outside the scope of this article.

ANCA MARIA COTET, Ball State university
Email: amcotet@bsu.edu

More progressive taxes, holding tax liability constant, generate disincentives for health investment by decreasing benefits for additional working time and, thus, decreasing returns to health. On the other hand, progressive taxation may induce individuals to invest more in health for the purpose of extending their working life, because lifetime maximization could imply less work per period but more working years. I identify the effect of progressively through differences in labor income tax rates among states. I find that the former effect dominates, more progressive taxes are negatively correlated with health, and argue that neither selection effects nor reverse causality can explain this result.