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23 - 1Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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THE ECONOMICS OFHEALTH CARE
23C H A P T E R
23 - 2Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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THE HEALTH CARE INDUSTRY
Twin Problems: Costs and Access
Total Spending on Health Care
Deductibles - Copayments
Medicare - Medicaid
Percentage of GDP
International Comparisons
High & Rising Health Care Costs
23 - 3Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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THE HEALTH CARE INDUSTRY
Health Care Expenses & Finance
Nursing Homes7%
Prescription Drugs6%
ProgramAdministration
6%
Doctors22%Dental, Vision,
Miscellaneous22%
Hospitals33%
23 - 4Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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THE HEALTH CARE INDUSTRY
Health Care Expenses & FinanceMedicaid
15%
Medicare19%
Military andOther Public
Insurance9%Other Private
Expenditures
Copayments,Deductibles, Etc.
22%
Private HealthInsurance
33%
23 - 5Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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0 5 10 15
United StatesSwitzerland
GermanyFrance
CanadaAustralia
ItalyJapan
United KingdomMexico
GLOBAL PERSPECTIVEHealth Care Spending as a Percentage ofGDP, Selected Nations
Source: Organization for Economic Cooperation and Development
23 - 6Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
NextSlide
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Economic Implications of Rising Costs
Reduced Access to CareLabor Market Effects
Slower Wage GrowthUse of Part-time & Temporary
WorkersImpact on Government Budgets
The basic problem...
QUALITY OF CAREAre We Healthier?
23 - 7Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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LIMITED ACCESS
Why the Rapid Cost Increases?Peculiarities of the Health Care
MarketEthical and Equity ConsiderationsAsymmetric InformationSpillover BenefitsThird-Party Payments:
Insurance
The Uninsured:15% of Population
23 - 8Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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INCREASING DEMANDFOR HEALTH CARE
Rising Incomes: Role of Elasticities
An Aging PopulationUnhealthy LifestylesThe Role of Doctors
•Supplier-Induced Demand•Fee-for-Service•Defensive Medicine•Medical Ethics
23 - 9Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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ROLE OF HEALTH INSURANCE
Insurance and Governments Pay 78% of all Payments Moral Hazard Problem
Less PreventionOverconsumption
Government Tax Subsidy
Graphically...
23 - 10Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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INSURANCE AND THE OVERALLOCATIONOF RESOURCES TO HEALTH CARE
D
S
Pu
Qu
Overallocationwith healthinsurance
0
P
Q
Pi
Qi
23 - 11Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
NextSlide
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SUPPLY FACTORS IN RISINGHEALTH CARE PRICES
Supply of PhysiciansSlow Productivity GrowthChanges in Medical TechnologyRelative ImportanceReform of the Health Care
SystemUniversal AccessPlay-or-PayTax Credits and Vouchers
23 - 12Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
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SUPPLY FACTORS IN RISINGHEALTH CARE PRICES
National Health Insurance (NHI)Arguments for NHI:
• Choice of Physicians• Reduce Administrative Costs• Separate Employment from
Insurance• Single-Insurer Market
Power for Cost Containment
23 - 13Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
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Against NHI:• Won’t Control Costs• Long Waits for Care• Doctor “Strikes”• Government’s Poor Record• Undesirable Redistributive
Effects
SUPPLY FACTORS IN RISINGHEALTH CARE PRICES
National Health Insurance (NHI)Arguments
23 - 14Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
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COST CONTAINMENT:ALTERING INCENTIVESDeductibles - CopaymentsManaged CarePreferred Provider
Organizations (PPOs)Health Maintenance
Organizations (HMOs)Medicare and DRGDiagnosis-Related-Group
(DRG)
23 - 15Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
NextSlide
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RECENT LAWS & PROPOSALSPortability and
AccountabilityMedical Savings AccountsPatients’ Bill of RightsLimits on Malpractice
AwardsPrescription Drug CoverageMedicare Reform
deductiblescopaymentsfee for servicedefensive medicinetax subsidy“play or pay”national health insurance (NHI)preferred provider organizations (PPOs)health maintenance organizations
(HMOs) diagnosis-related-group (DRG) system
ENDBACKCopyright McGraw-Hill/Irwin, 2005
23 - 17Copyright McGraw-Hill/Irwin, 2005
The Health Care Industry
Quality of Care
Limited Access
Increasing Demand for Health Care
Role of Health Insurance
Insurance and the Overallocation of Resources to Health Care
Supply Factors in Rising Health Care Prices
Cost Containment: Altering Incentives
Recent Laws & Proposals
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
InternationalTrade
Chapter 24
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