1) Describe what is meant by welfare economics.
2) Which theory of regulation most closely fits with your perception of who is served by the regulation of healthcare markets? Give two current examples supporting your perception with evidence for your position. These examples may be state or federal.
3) You may use AI to help investigate this policy. The 2021 Consolidated Appropriations Act passed that established a new framework to protect patients from surprise bills for emergency services and non-emergency services provided by out of network providers at an in network facility. What interest groups were for and what ones were against the policy. Now using the concepts in the chapter, in your own opinion, briefly explain which theory of regulation its passage supports. BOLD THE CONSTRUCTS.
Sample Answer
Welfare Economics
Welfare economics is a branch of economics that focuses on how the allocation of resources and goods affects social welfare. It analyzes how an economy's performance, specifically its efficiency and equity, can impact the well-being of its members. The goal is to maximize social welfare, often measured by criteria like Pareto efficiency, where resources cannot be reallocated to make one person better off without making another person worse off. In healthcare, it examines how policies can be designed to improve overall societal health and equity.
Theory of Regulation
The theory of regulation that most closely fits with my perception of who is served by the regulation of healthcare markets is the public interest theory of regulation. This theory posits that regulation is a response to the public's demand for the correction of inefficient or inequitable market practices. It assumes that regulators act to promote the well-being of the public by preventing market failures, such as monopolies, information asymmetry, and negative externalities.
Example 1: The Affordable Care Act (ACA) 🩺. The ACA was a massive federal policy that introduced regulations to address several market failures. It aimed to correct information asymmetry by requiring insurers to cover a comprehensive set of essential health benefits and to be transparent about their plans. It also addressed adverse selection, a type of market failure, by mandating coverage and creating exchanges to pool risk. The goal was to increase access to affordable insurance for millions of people, a clear example of regulation serving the public interest.
Example 2: State-level Certificate of Need (CON) laws 🏥. Many states have CON laws that require healthcare providers to obtain government approval before expanding facilities, purchasing major equipment, or offering new services. The stated purpose of these regulations is to prevent the duplication of services, control healthcare costs, and improve access to care. The theory is that by limiting supply, the state can ensure that healthcare resources are distributed more efficiently and equitably, which is a public interest goal.
The 2021 Consolidated Appropriations Act and Regulation Theory
The 2021 Consolidated Appropriations Act established a new framework to protect patients from surprise medical bills. This policy's passage supports the public interest theory of regulation.
Interest Groups For: Consumer advocacy groups, patient rights organizations, labor unions, and some large employers were largely in favor of this legislation. They argued that it would protect patients from unfair billing practices and reduce the financial burden of unexpected medical costs, thereby addressing a significant market failure caused by a lack of consumer information and bargaining power.
Interest Groups Against: Many private equity firms, physician staffing companies, and some hospitals were against the policy. They argued that it would lower their revenue, reduce their ability to negotiate, and could potentially harm their financial viability.
The passage of this act, despite strong opposition from powerful industry groups, demonstrates the government's response to a widespread public problem—surprise billing. The policy was not designed to serve the interests of a select few; instead, its goal was to protect the public from an exploitative market practice. The act directly addresses the externalities of unexpected medical costs on individual households and the information asymmetry between patients and providers, which is a key tenet of the public interest theory. The government stepped in to correct a clear market failure to benefit society at large, not a specific industry.