The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill...

17
The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Transcript of The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill...

Page 1: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

The Economics of Health Care

Chapter 21

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Page 2: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Objectives

• Rising health care costs• Economic implications • Problem of limited access to

health care for the uninsured• The market for health care • Potential reforms of the U.S.

health care system • Recent legislation

21-2

Page 3: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Health Care Facts

• 16% of GDP in 2006, up from 5.2% in 1960

• 10% of U.S. employment

• Overall prices 3.3% higher each of last 4 years

• Spending to grow 7.3% per year next 10 years

• 45 million uninsured21-3

Page 4: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Health Care Expenditures

2006 Data

Health CareExpenditures

Sources ofFunds

NursingHomes Prescription

Drugs

ProgramAdministration

DoctorsDental,

Vision, Misc.

Hospitals

8% 10%7%

21%23%

31%

Medicaid

Medicare

Military, OtherPublic Insurance

Other PrivateExpenditures

Copayments,Deductibles, Etc.

Private HealthInsurance

34%

15%

12%13%

7%

19%

21-4

Page 5: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Health Care SpendingPercentage of GDP, Selected Nations, 2005

United StatesSwitzerland

FranceGermany

CanadaAustralia

ItalyUnited Kingdom

JapanMexico

0 5 10 15

Source: Organization for Economic Cooperation and Development21-5

Page 6: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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

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Page 7: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Other Issues

• Are we healthier?–Yes

• Too much spending?–Maybe

• Limited access–The uninsured

21-7

Page 8: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Why the Rapid Rise in Costs?

• Peculiarities of the health care market–Ethical and equity considerations

–Asymmetric information

–Positive externalities

–Third-party payments: insurance

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Page 9: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Increasing Demand

• Rising income–Role of elasticity

• Aging population• Unhealthy lifestyle• Role of doctors

–Supplier induced demand–Defensive medicine–Medical ethics

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Role of Health Insurance

• The moral hazard problem–Less prevention–Overconsumption

• Government tax subsidy

21-10

Page 11: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Q

P

Q

P

0 0

Why the Rapid Rise in Costs?

D

S

Qa

Pa

Without HealthInsurance

With HealthInsurance

D

S

Qa

Pa

Qc

Pc

Insurance and the overallocation of resources to health care

a

b

c

EfficiencyLoss From

Overallocation

21-11

Page 12: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Factors

• Supply of physicians

• Slow productivity growth

• Changes in medical technology

• Relative importance of supply and demand factors

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Page 13: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Health Care System Reform

• Universal access–“Play or pay”–Tax credits and vouchers–National health insurance

• Cost containment: altering incentives–Deductibles and copayments–Managed care (PPO and HMO)–Medicare and DRG system

21-13

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Recent Laws and Proposals

• Prescription drug coverage–Medicare Part D

• Health savings accounts• Limits on malpractice awards

21-14

Page 15: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Mandatory Health Insurance

• Massachusetts in 2007• Proof of insurance or pay fee• Eliminate free riders• Expected to reduce cost for some• Will increase demand• State subsidy • Neighboring state issues• May not work for entire nation

21-15

Page 16: The Economics of Health Care Chapter 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Key Terms

• deductibles

• copayments

• fee for service

• defensive medicine

• tax subsidy

• “play or pay”

• national health insurance (NHI)

• preferred provider organization (PPO)

• health maintenance organization (HMO)

• diagnosis-related-group (DRG) system

• Medicare Part D

• health savings account (HSA)

21-16

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Immigration

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