Chapter 22

Health Care

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22-2

U.S. Emphasis on Private Health Insurance

• Patient Protection & Affordable Care Act (2009)• During WWII employers offered insurance• Continued as an employee benefit• Led to overuse & higher prices• Tendency to regulate industry

LO1

22-3

Costs and Access

• Costs increased rapidly• Higher prices• Increased quantity of services• Projected to grow at 5.8% annually over next

10 years• Access• 49 million uninsured

LO1

22-4

Health Care Expenditures

Nursing Homes and Home

Health Care, 10%

Prescription Drugs, 10%

Program Admin, 7%

Dental, Vision, Misc., 21%

Physicians, 20%

Hospitals, 32%

Sources of Funds

Medicaid, 15%Medicare, 21%

Military, Other Public

Insurance, 14%

Other Private Expend., 6%

Copayments, Deductibles, etc., 11%

Private Health Insurance, 33%

Health Care Spending

LO1

22-5

Health Care Spending

LO1

22-6

Health Care Spending

LO1

22-7

Health Care Spending

• Is the U.S. healthier?• Longer life expectancies• Most advanced medical equipment and

technologies• Half of medical research funding is in U.S.• Increase in breast cancer mortality• TB has reappeared• AIDS epidemic

LO1

22-8

Economic Implications of Rising Costs

• Reduced access to care

• Labor market effects

• Slower wage growth

• Part-time and temporary workers

• Outsourcing and offshoring

• Personal bankruptcies

• Impact on government budgets

LO2

22-9

Limited Access

• The poor are likely to be uninsured• Make “too much” to qualify for Medicaid• Waiting for treatment increases costs

LO3

22-10

Why the Rapid Rise in Costs?

• Peculiarities of the health care market• Ethical and equity considerations• Asymmetric information• Positive externalities• Third-party payments: insurance

LO4

22-11

• Increasing demand for health care• Rising income• Role of elasticity

• Aging population• Unhealthy lifestyles• Role of doctors• Supplier induced demand• Defensive medicine• Medical ethics

LO4

Why the Rapid Rise in Costs?

22-12

• Role of health insurance

• The moral hazard problem

• Less prevention

• Overconsumption

• Government tax subsidy

• Rationing to control costs

LO4

Why the Rapid Rise in Costs?

22-13

Q

P

Q

P

0 0

D

S

Qa

Pa

Without Health

Insurance

With HealthInsurance

D

S

Qa

Pa

Qc

Pc

a

b

c

EfficiencyLoss from

Over-Allocation

Pb

LO4

Why the Rapid Rise in Costs?

22-14

Supply Factors in Rising Health Costs

• Supply of physicians• Slow productivity growth• Changes in medical technology• Relative importance of supply and demand

factors

LO4

22-15

Cost Containment: Altering Incentives

• Deductibles and copayments• Health Savings Accounts (HSA)• Managed care• Preferred Provider Organizations (PPO)• Health Maintenance Organizations (HMO)

• Medicare and DRG• Limits on malpractice awards

LO5

22-16

Patient Protection & Affordable Care

• Preexisting conditions, caps, and drops• Employer mandate• Personal mandate• Covering the poor• Insurance exchanges• Other provisions• Taxes

LO6

22-17

Patient Protection & Affordable Care

• Objections and alternatives• Greater inefficiencies in health care• First step to national health insurance• Lack of revenue sources• Increased consumption• Need to force consumers to weigh marginal

benefits and costs

LO6

22-18

Singapore’s Health Care System

• Rated by WHO as one of the best• Spent only 4% of GDP on health care• Competition between hospitals• Increased out-of-pocket expenses• Citizens required to save 6% of income in

MediSave