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The market mechanism and health insurance in rural places: lessons learned from an economics and policy perspective
The market mechanism and health insurance in rural places: lessons learned from an economics and policy perspective
- Collection:
- Health Policy and Services Research
- Author(s):
- Barker, Abigail, author
McBride, Timothy D., author
Mueller, Keith J., author
Huntzberry, Kelsey A., author - Contributor(s):
- Rural Health Research & Policy Centers, issuing body.
Rural Policy Research Institute (U.S.), issuing body. - Publication:
- Iowa City, IA : Rural Policy Research Institute, February 2019
- Language(s):
- English
- Format:
- Text
- Subject(s):
- Health Insurance Exchanges
Insurance, Health
Rural Population
United States - Genre(s):
- Technical Report
- Abstract:
- This paper focuses on unique challenges in health insurance markets facing rural people, providers, and places. We identify how and when these challenges stem from what economists call "market failures," defined narrowly or broadly. We review how previous government interventions and programs have sought to redress insurance market failures, and we assess the success (or lack thereof) of these interventions. We conclude with observations about the current landscape of rural insurance markets and make suggestions for policy interventions and further research. In large towns and cities, the up-front investment necessary to acquire or improve the non-labor inputs to health care delivery, including facilities, equipment, and electronic medical records, can be spread over many units--or patients--using them. This phenomenon is known as "economies of scale." In a low-volume setting, many investments and new technologies will not make financial sense given the high average cost per use. In other words, the baseline, or "fixed," costs of entering the market to provide health care or health insurance are relatively high, and this may stand in the way of market entry even when the per-person, or "variable," costs are relatively low. Low population density in rural insurance markets makes it difficult for firms to implement risk adjustment techniques. Unlike a government entity, which can function well over time by breaking even in its predictions, a private company's goal is consistent profitability. Businesses hesitate to enter--and are quick to exit--a geographic market in which losses are likely to be, or are being, incurred. Rather than staying in the market and fine-tuning the products offered and the risk-assessment methodology used, some firms will simply exit. When the county is the geographic level of choice, each county is treated as a marginal decision to be made. The provision of health care generates significant benefits to society (e.g., caring for the poor and disabled, improving population health). However, such benefits are not represented in private market transaction decisions. We discuss several of these issues as they manifest in rural places, all of which indicate a need for additional structure or regulation around any market-based policy solutions. The issues include: (1) structural differences between urban and rural delivery systems due to differing goals; (2) difficulty in crafting equitable payment policies to address regional variation in poverty, disability, and population health; (3) greater sensitivity in rural places to precise policy details, due to the greater role of public funding of health care; and (4) demographics in many rural places that differ from those in urban places, including a greater degree of poverty, an older population, fewer large employers to provide health insurance, and in general lower attainment of many factors considered to be the "social determinants of health." Policy considerations for addressing the issues presented in this paper include: (1) maintaining insurance reforms while strengthening risk adjustment and reinsurance; (2) redesigning rating areas and network adequacy policies; (3) incentivizing plans to offer coverage over large, perhaps nationwide, service areas while discouraging the county as the unit of coverage; (4) encouraging demand for insurance by individuals and small employers; (5) encouraging the development of rural provider networks; (6) shifting focus from paying for medical interventions to paying for prevention; and (7) restructuring payment to reflect the different cost profile, i.e., higher fixed costs and lower variable costs, that is often true for rural places.
- Copyright:
- The National Library of Medicine believes this item to be in the public domain. (More information)
- Extent:
- 1 online resource (1 PDF file (26 pages))
- NLM Unique ID:
- 101771117 (See catalog record)
- Permanent Link:
- http://resource.nlm.nih.gov/101771117