Problems of the American Health Care System 1. Lack of Health Insurance Coverage for 47 Million People 2. High Cost of Health Care 3. Growth in the Costs of Health Care 4. Quality of the Health of Americans

Total Health Expenditures Per Capita, 2003

Total Health Care Expenditures as a Share of GDP, 2003

Infant Mortality and Life Expectancy, 2007 Infant Deaths Per 1,000 Births Life Expectancy at Birth Australia 4.6 80.6 Austria 4.5 79.2 Canada 4.6 80.3 Chile 8.4 77.0 Denmark 4.5 78.0 Finland 3.5 78.7 France 4.2 79.9 Germany 4.1 79.0 Ireland 5.2 77.9 Italy 5.7 79.9 Japan 3.2 81.4 New Zealand 5.7 79.0 Norway 3.6 79.7 Spain 4.3 79.8 Sweden 2.8 80.6 Switzerland 4.3 80.6 United Kingdom 5.0 78.7 United States 6.4 78.0

The Cost of a Long Life

World Health Organization Ranking of Health Care Systems 1. France 11. Norway 2. Italy 12. Portugal 3. San Marino 13. Monaco 4. Andorra 14. Greece 5. Malta 15. Iceland 6. Singapore 16. Luxembourg 7. Spain 17. Netherlands 8. Oman 18. United Kingdom 9. Austria 19. Ireland 10. Japan 20. Switzerland 41 USA

Why Have Health Care Costs Increased So Greatly? Demand for Health Care Has Been Rising 1. Rising Incomes 2. Aging of the Population 3. Unhealthy Lifestyles 4. More Health Care Services Are Provided a. Fee-for Service b. Medical Malpractice 5. Increased Insurance Coverage Costs of Providing Health Care Have Been Rising 1. Some Restrictions on the Number of Physicians 2. Slow Growth in Worker Productivity 3. Tremendous Technological Advances Between 1/3 and ½ of the increase in health care costs can be explained by rising incomes, the aging population, the increased insurance coverage. And the slow worker productivity growth. The rest is explained by the high cost of medical advances.

Why Do People Have Health Insurance? 1. Health Problems Can Be Random Events That Can Cause Great Financial Hardship 2. People are Risk Averse 3. The Tax Law – A $126 Billion Tax Break

Why Must All Employees Be Covered by Health Insurance? 1. Adverse Selection 2. Asymmetric Information 3. The Lemon’s Principle

Inefficiencies Caused by Health Insurance 1. Moral Hazard 2. Increased Demand for Health Care Services 3. May Prevent People From Changing Jobs and Prevent Employers From Hiring Older Workers

Why is Health Care Different From Food? 1. Supplier-induced demand 2. Health Insurance 3. Insufficient Competition A. Physicians B. Hospitals C. Pharmaceutical Companies 4. Externalities

The British National Health Service 1. Treatment is decided by doctors 2. Health care is mostly tax financed and mostly free. 3. Little use of fee-for service 4. Health care is explicitly rationed because an overall budget limits the amount of service that can be provided 5. One of the cheapest systems – spending about 7% of GDP (c.f. 16% for the USA) 6. Yet the British population is as healthy as the American population.

British General Practitioners 1. Each person registers with a GP. One is free to choose his or her GP and to change GPs. 2. GPs are self-employed. 3. Most of their money comes from a Family Health Authority. It gets its money from the NHS budget. 4. The doctor is paid a capitation fee + an allowance to run the practice. 5. An average GP earned about $200,000 per year in 2007. Half earned more than this. 6. The patient pays nothing for doctor visits or home visits. 7. For a major problem, the GP refers the patient to a specialist.

British Hospitals 1. Hospital doctors are all specialists. They are government employees and receive a salary. They earn more than GPs. There is no fee-for-service. 2. All hospital treatment is free to the patient. 3. Hospitals are self-governing bodies run by their own board. 4. The NHS gets most of its funding from general taxes. This is allocated to District Health Authorities. These can buy health care from any hospital in any area. This is designed to create greater competition and therefore increase efficiency.

Advantages of the British Health Care System 1. Incentives to economize and not over-supply health care. 2. NHS is inexpensive by international standards. Because there is no billing of patients, only 3% of health care spending goes for administration, compared to about 25% in the USA. 3. Avoids the problems of private health insurance such as adverse selection and moral hazard. 4. Because health care is free, earlier diagnosis is more likely. 5. Variation in the quality and quantity of treatment received by people at different income levels is smaller than in the USA. 6. No one in Britain fears that and illness will cause financial ruin!

Problems of the British Health Care System 1. Too few resources are devoted to NHS. Much equipment is old and out-of date. 2. There are long waiting times. 3. The “Brain Drain” – leads to reliance on foreign trained doctors. 4. Inefficiency and inflexibility of a government bureaucracy.

Recent British Government Responses 1. Funding for the NHS approximately doubled between 1997 and 2005. 2. Pay for physicians has increased. 3. Introduction of market elements and competition. 4. No one of any political party has proposed eliminating the NHS!

Similarities of Canadian and British Health Care 1. Universal Coverage 2. Public Funding through Taxes 3. People do not pay for “essential” health services. There are no deductibles or co-payments. Therefore, there is much less paperwork.

Similarities of Canadian and American Health Care Systems 1. Most doctors are in private practice. a. Doctors are paid on a fee-for-service basis b. Fees are negotiated with the province. c. Doctors cannot bill the patient above the negotiated fees. 2. Hospitals are non-profit organizations run by their own boards. 3. There is significant use of private insurance, mostly received through employment. This covers “non-essential” services. About 30% of health care costs are paid privately.

Advantages and Disadvantages of the Canadian System 1. Lower cost than in the U.S. a. Advantages of being a monopsony buyer 2. Better health outcomes than the U.S. Disadvantages 1. Long waiting times 2. Low number of doctors and nurses 3. Decrease in spending by the national government 4. Equipment is in need of replacement. Technology can be out-of-date. Innovation is lacking.

Proposals to Lower Health Care Costs 1.Increase Deductibles and Co-Payments 2.Preferred Provider Organizations (PPO) 3.Health Maintenance Organization (HMO) a. Fixed Fee Per Employee b. Doctors Are Salaried c. Restricted Choice d. Must Be Referred to a Specialist

Proposals to Provide Access 1. Tax Credits 2. Pay or Play (Mandates) 3. Single Payer

Hillary Clinton Proposals 1. Individual Mandate – Requires Everyone to Have Health Insurance A. Large Businesses Are Expected to Provide Coverage B. Small Businesses Get Tax Credits to Help Them Pay for Coverage C. Individuals Also Get Tax Credits D. Insurance Pools 2. If Happy, People Can Keep the Plan They Now Have 3. Insurance Companies Would Have to Accept All 4. Emphasis on Prevention to Hold Down Costs 5. Use of Computer Technology to Reduce Costs 6. Best Practices Institute 7. Medicare to Negotiate Pharmaceutical Drug Prices