Lecture Economics (18th edition): Chapter 21 - McConnell, Brue, Flynn''s

Chapter 21
Health Care

McGraw­Hill/Irwin

        Copyright © 2009 by The McGraw­Hill 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
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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 uninsured
21-3

Health Care Expenditures
2006 Data
Sources of
Funds

Health Care
Expenditures
Hospitals

Nursing
Homes

Prescription
Drugs

Medicaid

Private Health
Program Insurance
Administration

31%

23%
Dental,
Vision, Misc.

8% 10%
7%

Medicare

15%
34%
19%

21%
12%
Copayments,
Deductibles, Etc.
Doctors
Other Private
Expenditures

7%

13%

Military, Other
Public Insurance
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Health Care Spending
Percentage of GDP, Selected Nations, 2005
0

5

10

15

United States
Switzerland
France
Germany
Canada
Australia
Italy
United Kingdom
Japan
Mexico
Source: Organization for Economic Cooperation and Development
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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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Other Issues
• Are we healthier?
– Yes

• Too much spending?
– Maybe

• Limited access
– The uninsured

21-7


Why the Rapid Rise in Costs?
• Peculiarities of the health care
market
– Ethical and equity considerations
– Asymmetric information
– Positive externalities
– Third-party payments: insurance

21-8


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


Why the Rapid Rise in Costs?
Insurance and the overallocation of resources
to health care
With Health
Insurance

Without Health
Insurance
P

P

S

S
b

Pa

Pa

Pc

a

Efficiency
Loss From
Overallocation

c

D

D
0

Qa

Q

0

Qa Qc

Q
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Supply Factors
•
•
•
•

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

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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
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Recent Laws and Proposals
• Prescription drug coverage
– Medicare Part D

• Health savings accounts
• Limits on malpractice awards

21-14


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
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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-relatedgroup (DRG) system
• Medicare Part D
• health savings
account (HSA)

21-16


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Immigration

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