21 Health Care McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

21

Health Care

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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 21-2

Costs and Access

• Costs increased rapidly

• Higher prices

• Increased quantity of services

• Projected to grow at 6.1% annually over next 10 years

• Access

• 46 million uninsured

LO1 21-3

Health Care Expenditures

Nursing Homes and

Home Health Care, 9%

Prescription Drugs, 10%

Program Admin, 7%

Dental, Vision, Misc., 22%

Physicians, 21%

Hospitals, 31%

Sources of Funds

Medicaid, 15%

Medicare, 20%

Military, Other Public Insurance,

13%

Other Private

Expend., 7% Copayments, Deductibles, etc., 12%

Private Health

Insurance, 33%

Health Care Spending

LO1 21-4

Health Care Spending

LO1

• Costs as a percentage of U.S. GDP

21-5

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 epidemicLO1 21-6

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 21-7

Limited Access

• The poor are likely to be uninsured

• Make “too much” to qualify for Medicaid

• Waiting for treatment increases costs

LO3 21-8

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 21-9

• Increasing demand for health care

• Rising income• Role of elasticity

• Aging population

• Unhealthy lifestyles

• Role of doctors• Supplier induced demand

• Defensive medicine

• Medical ethicsLO4

Why the Rapid Rise in Costs?

21-10

• 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?

21-11

Supply Factors in Rising Health Costs

• Supply of physicians

• Slow productivity growth

• Changes in medical technology

• Relative importance of supply and demand factors

LO4 21-12

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 awardsLO4 21-13

Patient Protection & Affordable Care

• Preexisting conditions, caps, and drops

• Employer mandate

• Personal mandate

• Covering the poor

• Insurance exchanges

• Other provisions

• Taxes

LO5 21-14

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

LO5 21-15