Health Care We must address the crushing cost of health care. This is a cost that now causes a bankruptcy in America every thirty seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance.…. [The budget] includes an historic commitment to comprehensive health care reform – a down-payment on the principle that we much have quality, affordable health care for every American. —President Barack Obama, Address to the Joint Session Of Congress, February 24,

U.S. Health Care Expenditures and Outcomes Total health care expenditures In the United States Not adjusted for inflation 1960: $28 billions 2009: $2,555 billion Inflation An increase in the average price level 2

3 Table 8-1: National health expenditures, selected years, 1960 to 2009 (current dollar amounts in billions)

4 Table 8-2: National healthcare expenditures as a percent of GDP of the Western industrialized countries and Japan, 2006

U.S. Health Care Expenditures and Outcomes Increased health care expenditures Allocate more resources to health care Trade-off: allocate fewer resources to produce goods and services Life expectancy The age to which a baby born in a particular year can be expected to live on average Infant mortality rate The number of infants who die before their first birthday per every 1,000 live births 5

6 Table 8-3: Life expectancies and infant mortality rates a for the western industrialized countries and Japan, 2007

Escalating Health Care Costs More spending, worse outcome! Where did the money go? Reasons why we as nation spend so much on health care are twofold: 1.Consume a growing amount of health care 2.Price of health care is rising 7

Quantity increase Physician Sovereignty Medical doctor’s control over demand for medical procedures We do not shop around for most appropriate medical care, which contributes to rising health care costs BOTTOM LINE: Physician sovereignty leads to higher demand for medical care, waste, and higher medical costs 8

Quantity increase Third-Party Payment Health care payment made by someone other than patient or patient’s family When third party pays for medical care, we are more willing and able to ask for additional medical services Paperwork cost is very high ( billion dollars a year) BOTTOM LINE: Third-party payment increases demand for medical care and therefore its price 9

Price Increase Hospital cost: Rapid Technological Change When hospitals invest in highly specialized equipment, hospital costs, which have been most rapidly escalating element of health care costs in past 30 years, must then increase Many experts believe that expensive and rapidly changing technology is the major force driving hospital costs Medical experts and their patients judge hospitals by quality of physicians who are on staffs Reputable medical doctors choose to practice at hospitals that have all the latest technology available 10

U.S. Health Care System 11

Private Insurance Patient pays a portion of cost through array of premiums, deductibles, and coinsurance payments Premium Payment to purchase and keep in force an insurance policy Deductible Payment on annual or per-service basis that must be made by insured person before insurance company’s payments begin Coinsurance payment Percentage of medical expenses that insured person must pay over and above deductible 12

Medicaid Designed to pay for medical services For the nation’s poor For medically indigent persons Have such high medical expenses that, whatever their income, they cannot afford their medical care Eligibility Depends on the family’s income 13

Medicaid SCHIP State Children’s Health Insurance Program Federal program Health care coverage for children in low- income working families whose income Is too high for the children to qualify for Medicaid But too low for the family to afford private insurance 14

Medicare Eligibility Almost all elderly persons over the age of 65 years Certain categories of disabled people Not means-tested Both rich and poor are covered alike Medicare hospital insurance (Part A) Optional Medicare medical insurance (Part B) Prescription drug coverage (Part D) 15

The Rationing of Health Care Who should be covered? 15% of population Entirely without private or public health insurance Those without high incomes, without access to private insurance, and without access to public insurance in the form of Medicaid or Medicare 16