Chapter 20 Health Care

Chapter 20Health CareChapter OutlineWHERE THE MONEY GOES AND WHERE IT COMES FROMINSURANCE IN THE U.S.ECONOMIC MODELS OF HEALTH CARECOMPARING THE U.S. WITH THE REST OF THE WORLDThe Money14% of GDP spent on health care (1.2 trillion of 10 trillion) 43% spent by governments (Medicare, Medicaid etc.)Government Health ProgramsMedicare public insurance in the U.S. which covers those over age 65 $214 billionMedicaid public insurance in the U.S. which covers the poor$186 billionWhere the Private Money Comes FromPrivate Insurance$355 billionOut-of-Pocket Patient Expenses$187 billionWhere the Money GoesHospitals$391 billionDoctors$269 billionPrescription Drugs$100 billionResearch$22 billionInsurance Coverage84% covered all year11% covered part of the year5% without any insurance all yearInsurance TypesPrivate Group Insurance168 millionPrivate Individual Insurance22 millionMedicare36 millionMedicaid28 millionWhy People Buy InsurancePeople who believe that their insurance premiums will be less than their expected health care expenditures will buy insurance.People who are risk averse (they would rather pay more than their predicted expenditures to limit their risk of large expenses) will buy insurance.A person who is risk neutral (they would not pay more than their predicted expenditure to eliminate uncertainty) would not buy insurance.Vocabulary of InsuranceDeductible the amount of health spending a year that you have to pay before the insurance company pays anythingCo-payment either a set amount or the percentage of the bill after the deductible has been taken out that you have to payMaximum out-of-pocket the most that a person or family will have to pay over a year for all covered health expensesLifetime maximum the most that an insurance company will pay on your health expenses over your lifetimeTypes of Insurance PlansFee-for-serviceHealth Maintenance Organization (HMO)Preferred Provider Organization (PPO)Controlling ExpensesHMO’s and PPO’s use Primary Care Physicians (PCP’s) or Gatekeepers who are physicians charged with making the initial diagnosis and making referralsAdvantages and Disadvantages of Insurance TypesInsurance TypeAdvantageDisadvantageFee-for-ServiceMaximum physician choiceLittle insurance company meddling in doctors’ decisionsHighest premiums, deductibles, and co-payment rates because of little control over expensive and unnecessary proceduresHMOMaximum control over expensive and unnecessary procedures so premiums, deductibles and co-payment rates are low.Minimal physician choiceSignificant meddling in physician decisions, especially when differing procedures have significant cost differencesPPOSome physician choicemoderate premiums, deductibles and co-payment ratessome control over expensive proceduresminor meddling in physician decisionsPublic Insurance: MedicareThose over 65 are eligiblePart ACovers expenses incurred in hospitalsCompulsory Financed with premiums and 1.45% payroll tax on employers and employeesPart BCovers doctor visitsVoluntaryFinanced with premiums and general tax revenuePublic Insurance: MedicaidCovers the poor eligibility standards vary from state to stateNo premiums are requiredSome states have very small co-paymentsThe Uninsured21 million of 40-45 million go without insurance all year15-20 million are between age 18 and 3420 million are under 18Why Health Care is not “Just Another Good”Rapid increases in quality (which get confused as price increases)Treatments developed in the 1990s for AIDS are expensive but this is a quality increase, not a price increaseConsumers have less knowledge about what they are buying than they typically do when buying goods.Why Medicaid Raises All Health Care PricesP*QpoorQnonpoorDpoor+nonpoorDpoor+nonpoorP*QpoorQnonpoorPQ/tSDpoorDnonpoorWithout MedicaidQ/tSPDpoorDnonpoorWith MedicaidWhy Co-Payments Increase PricesThird-Party Payer: an entity other than the consumer pays part of the costsIf people only pay 20% of a price they will consume much moreModeling Third-Party Payment5PAPQ/tAPADno insuranceQASDwith 20% co-pay P’Moral Hazard with Health InsuranceMoral Hazard: the fact that having insurance increases the demand for the goodIf people choose to smoke, to drink to excess, to overeat and to not exercise, because they will pay fewer of the monetary consequences then this is moral hazard.The HMO DebateTo control costs, HMOs use rules to limit expenses. E.g. recuperating time in a hospital is limited for births.These rules sometimes conflict with doctors’ wishes for their patients.With patients having little interest in controlling costs, HMOs rely on rules to control costs.Organ and Blood DonationThere is always severe organ shortage.Economists argue that part of the problem is that laws prevent people from buying and selling organs.There is often a shortage of blood.Economists argue that part of the problem is that laws prevent people from buying and selling their blood for medical use even though they can sell their blood plasma for cosmetic use. The Rest of the WorldMost of the industrialized world uses a single-payer system where the government collects (usually very high) taxes to pay for everyone’s health careCountry ComparisonsHealth Expenditures/ GDP (1998)Infant Moralityper 1000 births (1999)Life ExpectancyU.S. 14.0 6.376.2 U.K.6.95.877.5France9.65.678.5Germany10.65.177.3Japan7.44.180.1Advantages and Disadvantages of Single-Payer SystemsAdvantagesUniversal coverageLow-to-no cost coverage to patientsDisadvantagesLong waiting lines for heart bypass and other surgeriesHigh taxes