the American Economy homework
Mary1997
ch_08_health_care.pptxHealth Care
Chapter 8
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Economics of Health Care
Health care is too important to leave to the market, vs. health care is too important not to be exposed to the market
Reform is difficult
Powerful vested interests
Every dollar saved by using more cost-effective procedures is someone’s dollar of income
U.S. Emphasis on Private Health Insurance
During WWII, with wage and price controls in place, employers offered insurance as an additional benefit
Has since continued as an employee benefit
80 percent of health care costs are paid by insurance
Led to overuse & higher prices
Tendency to regulate (rather than replace) the insurance industry
LO1
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Economics of Health Care
National Issue:
People without Health Insurance
Increasing Share of Federal and State Budgets
Labor Disputes over Health Insurance
Insurance Companies Dictating Medical Care
Ethical Questions
Affordable Care Act (Obamacare)
Economics of Health Care
Health Care Industry
Hospitals, Nursing Homes, Labs, Doctors’ Offices, Drugs, Artificial Limbs, Eyeglasses
17 million employed, 850,000 physicians, over 5,800 hospitals, over one billion office visits each year
Accounts for 17.9% of GDP (5% in 1960), and 10% of total employment
Economics of Health Care
Twin Problems: Costs and Access
Controlling costs and increasing accessibility
High & Rising Health Care Costs
Price and Quantity; Demand and Supply
Absolute terms, % of GDP and per capita
Total Spending on Health Care
Insurance (80%)
Deductibles , Co-payments & cash (20%)
Medicare & Medicaid (triple as % of GDP by 2050); monthly premiums cover 25% of benefits provided
U.S. Health Care Expenditures and Outcomes
Total health care expenditures
In the United States
Not adjusted for inflation
1960: $28 billion
2011: $2.7 trillion (almost 100 times the 1960 number)
U.S. Health Care Expenditures and Outcomes
Gross domestic product (GDP)
A measure of the total output (and income) produced in a nation in one year
Health care expenditures
As percentage of GDP
US: 17.9%
Increased over time
Quality increases are part of rise in costs, i.e., it’s not just inflation
Figure 8-1: National health care expenditures as a percent of GDP of the Western industrialized countries and japan, 2013
U.S. Health Care Expenditures and Outcomes
Are We Healthier?
Good news:
Average life expectancy increased by 6 years since 1970.
U.S. physicians and hospitals use the most advanced medical equipment and technology
More than one-half of world’s medical research is done in the U.S.
Bad News:
Many nations rank higher in life expectancy, maternal mortality and infant mortality
U.S. Health Care Expenditures and Outcomes
Infant mortality rate
The number of infants who die before their first birthday per every 1,000 live births
Life expectancy
The age to which a baby born in a particular year can be expected to live on average
Table 8-3: Life expectancies and infant mortality ratesa for the western industrialized countries and Japan, 2012
Table 8-3 (cont.): Life expectancies and infant mortality ratesa for the western industrialized countries and Japan, 2012
U.S. Health Care Expenditures and Outcomes
United States: (17.9% of GDP)
Lowest life expectancy, highest infant mortality rate
Japan: (10.1% of GDP)
Highest life expectancy, lowest infant mortality rate
U.S. Health Care Expenditures and Outcomes
Quality of US health care varies
Infant mortality rate
Whites: 5.6
African-Americans: 13.2
Life expectancy
Whites: 78.4
African Americans: 74.3
Important factors
Income and discrimination
U.S. Health Care Expenditures and Outcomes
Director of the World Health Organization
“There are 3 Americas. There is high quality health care for the rich and mediocre health care for the middle income class. However... ‘it‘s the bottom 5 percent or 10 percent, made up of Native Americans... the inner-city poor, rural blacks and Appalachia that is the third America. They have health conditions as bad as those in sub-Saharan Africa.’”
U.S. Health Care Expenditures and Outcomes
| Five Year Survival Rates | ||
| Prostate Cancer | Breast Cancer | |
| U.S. | 98.6% | 88.7% |
| U.K. | 71.0% | 81.0% |
| France | 61.7% | 80.3% |
| Germany | 67.6% | 71.7% |
U.S. Health Care Expenditures and Outcomes
Summary
High and increasing health care costs in the U.S.
Our health indicators are below those of other developed nations
Health indicators vary by race and ethnicity
Why do we spend so much on health care, yet we have relatively poor outcomes?
Answer: rising costs and lack of access
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U.S. Health Care Problems
Escalating health care costs
A growing demand for health care
Waste and inefficiency
Physician sovereignty
A medical doctor’s control over the demand for medical procedures (e.g., MRIs)
Fee-for-service
The charging of a specific fee for provision of a specific health care service (e.g., X-rays; 4X)
U.S. Health Care Problems
Defensive medicine
The ordering of unnecessary tests and services by health care professionals solely to protect themselves from charges of malpractice
If a test is not ordered and the insurance company finds out, the insurance company may drop that person from its coverage
Malpractice insurance
Insurance carried by health care professionals to protect themselves from large malpractice damage awards
U.S. Health Care Problems
Third-party payment
Insurance pays 80 percent of all payments
Rapid technological change
More expensive (What’s cold and clammy and out of date?)
When hospitals invest in highly specialized equipment, hospital costs must then increase
Medical experts and their patients judge hospitals by quality of physicians who are on staffs
Reputable medical doctors choose to practice at hospitals that have all the latest technology available
New pharmaceutical products
U.S. Health Care Problems
Cost shifting
The practice of recovering the unpaid costs of some patients by charging higher prices to other patients
Attitudes of patients
Any treatment should be available to us, more tests are better than less, aggressive medical treatment can cure virtually anything
Because they have insurance, they demand excessive care without much regard for cost
Rising incomes
Elasticities: price (-.2); income (1 to 1.5)
U.S. Health Care Problems
An aging population
Over 65: 3.5 times the care of others
Over 65: 12.4% of 2000 pop.; 20% in 2030
Last year of life
Unhealthy life styles
Smoking, alcohol, weight
Moral hazard problem
Consequences
Medical costs have been skyrocketing
U.S. Health Care Problems
Waste and inefficiencies
Unnecessary tests and medical procedures
Unnecessary surgeries and drugs
Extremely expensive equipment
Paperwork costs
Patients forgo cost-effective preventative health care interventions
Prenatal care; blood pressure checks
Child immunizations
Consequences of These Characteristics
Have caused medical costs to skyrocket over time
Physician sovereignty, third-party payment, and increase in tests and treatments caused by rapid technological change and defensive medicine all imply increases in demand for health care
Installation of new technology and continual replacement of “old” technology, as well as expansion of number of hospital beds and doctors, represent increase in supply of health care
Consumer advocates maintain that much of our health care expenditures are wasted on unnecessary tests and medical procedures
Paperwork costs are tremendous
End up at a point inside the PPC
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Figure 8-3: Increased demand for medical care
Because demand has increased since 1960, medical care prices have
risen as we have consumed a greater quantity of health care.
Figure 8-2: Production possibilities curve for health care
As we have moved from point A to point B, we have obtained more health care, but we have
given up other goods and services. At point C, we are using our resources inefficiently.
U.S. Health Care Problems
US hospitals, clinics, etc.
Non-profit and for-profit
Insurance companies, pharmaceutical firms
For-profit
Question:
Should healthcare be a for-profit industry?
Single-payer system
Save an estimated 15-20% of costs
U.S. Health Care Problems
Lack of access to health care
Health insurance or program
Private insurance
Purchased from a private insurance company
Through place of employment
Public health coverage
By the government: Medicare, Medicaid
Many people have no health coverage
Table 8-4: Percent of people without health insurance coverage, by race and ethnicity, 2011-12
Vocabulary of Insurance
Deductible the amount of health spending a year that you have to pay before the insurance company pays anything
Co-payment either a set amount or the percentage of the bill after the deductible has been taken out that you have to pay
Maximum out-of-pocket the most that a person or family will have to pay over a year for all covered health expenses
Public Insurance: Medicare
All those over 65 are eligible
Part A
Covers expenses incurred in hospitals
Compulsory
Financed with premiums and 1.45% payroll tax on employers and employees
Part B
Covers doctor visits
Voluntary
Financed with premiums and general tax revenue
Part D
Prescription coverage
Public Insurance: Medicaid
Covers the poor
Means tested
eligibility standards vary from state to state
No premiums are required
Some states have very small co-payments
State Children’s Health Insurance Program (SCHIP)
Health care to children in families whose income is too high to qualify for medicaid
The Affordable Health Care Act
Passed in 2010 by Obama and Congress
Goals
Achieve universal health coverage
Contain costs and apply mandates
Means
Extend heath care to the uninsured
To make health care more affordable
New policies and regulations
The Affordable Health Care Act
Prior to PPACA health insurers could
cut off dependent children from coverage under their parents’ health insurance the first year after their children reached 23,
consider, charge more for, and deny coverage for any medical condition a prospective client had prior to purchasing insurance through the company.
set annual and lifetime limits on how much they would cover.
set prior conditions by which they could rescind coverage and they were free to raise the rates of those who became ill (and therefore expensive to the company).
charge rates that were different for men and women.
Be free from most government intervention when it came to premiums, profit and the proportion of premiums taken up with administrative costs.
The Affordable Health Care Act
PPACA requires that health insurers
allow dependent children to stay on their parents health insurance through age 25,
to accept everyone without regard to health status,
charge the same to healthy and the unhealthy alike
charge the same for men and women.
no longer set lifetime limits
no longer set annual limits.
no longer rescind coverage or raise rates on the sick
How does each of these impact health care costs?
What Insurance Companies Can Still Do
They will be allowed to
charge older customers no more than three times what they charge younger ones (though younger ones typically cost one fifth or less than what older ones cost),
charge 50 percent more to tobacco users.
set up broad geographic price differences
charge more for larger families than smaller ones.
Are These All Good For Everyone?
Preventing one person from facing an adverse consequence spreads the adverse consequence to others.
Some provisions will cost employers (who may choose to employ fewer people)
Some will simply shift costs from one group to another.
What about the promise made that Americans could keep their present health care coverage if they were happy with it?
The Affordable Health Care Act
New taxes
Higher income Medicare tax
Higher income capital gains tax
Cadillac insurance tax (40%)
Excise tax on sales of medical devices
10% tax on indoor tanning
LO5
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The Affordable Health Care Act
Objections and alternatives
Greater inefficiencies in health care (additional layers of bureaucracy)
First step to national health insurance (and nonprice rationing)
Lack of sufficient revenue sources in the future
Increased inefficient consumption as a result of increased coverage
Need to force consumers to weigh marginal benefits and costs (e.g., Singapore plan)
LO5
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Other Options for Health Care in the U.S.: From the Economic Right
Privatization & increased competition, supply side of health care
Arguments
Government has too large of an influence
Free market is efficient in equating demand and supply
Free market system for supply and demand would result in lower costs
Alternatives for Health Care in the U.S.: From the Economic Right
Privatization
Of government-owned and government-run hospitals
Increase competition among hospitals
Pay more attention to the bottom line
Eliminating a great deal of inefficiency
Advertising within the health care industry
Improve competition among suppliers
Alternatives for Health Care in the U.S.: From the Economic Right
Increased competition, demand side
Well-informed consumer
But, people’s choices are constrained by
Insurance coverage, the availability of providers accepting Medicare and Medicaid
Curtailment/elimination of Medicare, Medicaid
Rising health care costs: demand that is not regulated by the usual norms of frugality
Alternatives for Health Care in the U.S.: From the Economic Right
Medical Savings Accounts
Insurance
The purchaser makes payments into an account that can be drawn against in times of illness
Monies not spent for medical care are returned to the insured person
Alternatives for Health Care in the U.S.: From the Economic Left
Competition
Among health insurance companies—“keeps them honest”
National health insurance
Universal, single-payer, non-profit
Canadian model
Doctors, etc., paid directly by the government
Fees negotiated by industry and gov’t
Criticism: rationing and waiting periods
Alternatives for Health Care in the U.S.: From the Economic Left
Socialized medicine
Similar to national health insurance
Extensive gov’t intervention in health care
British model
Doctors, etc., salaried government employees
Hospitals and clinics government-owned
Relatively little bureaucracy
Criticism: rationing and waiting periods
Alternatives for Health Care in the U.S.
Managed care
Health maintenance organization (HMO)
Group practice
Contracts with insurance companies
Preferred provider organization (PPO)
Similar—contracts with insurance
A group of medical providers contract to provide the insured patient’s medical care at discounted rates
Alternatives for Health Care in the U.S.
Vouchers a Better Solution than insurance?
A voucher is a token that can be used to buy only the item that the voucher specifies.
So a healthcare voucher could be used to buy only health insurance.
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Alternatives for Health Care in the U.S.
Vouchers have four advantages over public and private insurance:
Vouchers can be used with public and private insurance and result in competition between them.
Governments can set the total value of vouchers to overcome bureaucratic overproduction.
Vouchers spread the public contribution across millions of consumers.
4. By giving the buying power to patients, producers compete and provide quality service at the lowest attainable cost.
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Singapore’s Health Care System
Rated by WHO as one of the best
Spent just 3.8% of GDP on health care
Competition between hospitals
Must post prices, and government tracks performance
Increased out-of-pocket expenses (92%)
Required to save 6% of income in MediSave
Private property
Government subsidizes the poor and those whose MediSave accounts have been exhausted.
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Other Plans
Whole Foods
Each full-time employee has $1,800 per year deposited into a “wellness” account
Company pays for a high-deductible HIP that covers 100% of all medical expenses exceeding $2,500 in a given year
At most, employees are on the hook for $700 per year
The $1,800 and $700 are personal property, so employee must consider opportunity costs resulting in less spending
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Other Plans
State of Indiana
Each employee has $2,750 per year deposited into a health savings account
Company provides an insurance policy that covers 80% of medical expenses between $2,750 and $8,000 and 100% of all medical expenses exceeding $8,000 in a given year
Results showed a 35% reduction in medical expenses for those choosing this plan compared to employees choosing traditional PPO plan
Voluntary participation went from 2% in first year to 70% in second year
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Conservative versus Liberal
Liberals
Market has done a poor job of allocating medical care
Special characteristics of health care make it unlikely that the market will ever reach a fair and equitable solution
Favor policy ranging from bolstering Medicaid and Medicare to developing national health programs on the order of those in other industrialized countries
Conservatives
Strongly oppose national health programs
Expansion of the government’s role
Privatization and increased competition
Trimming of Medicare and Medicaid,
Development of medical savings accounts
Stronger role for the unregulated market
