WHY HEALTH ECONOMICS?

What makes health care different from other goods? Health is a major source of uncertainty and risk. Governments around the world are deeply involved in financing health systems.

The U.S. health care economy is massive and expensive. The fact that other people’s health decisions affect you creates externalities –Examples: Vaccinations and other preventative measures create positive externalities Going out in public with Ebola virus creates negative externalities Externalities undermine the efficient function of markets and often require government intervention. What makes health care different from other goods?

National Health Expenditures

National Health Expenditures per Capita, Notes: According to CMS, population is the U.S. Bureau of the Census resident-based population, less armed forces overseas. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (see Historical; NHE summary including share of GDP, CY ; file nhegdp10.zip) % 7.2% 9.2% 12.5% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9% NHE as a Share of GDP

National Health Expenditures as a % of GDP

Average Annual Growth Rates for NHE and GDP, Per Capita, for Selected Time Periods Source: Historical data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, January 2012, at (see Historical; NHE summary including share of GDP, CY ; file nhegdp10.zip). Projections from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, July 2011, “National Health Expenditures ,” Table 1, Projected

International Comparisons

Year = 2006 Total expenditure on health, % GDP Total expenditure on health, Per capita US$ PPP Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Mexico Norway Poland Portugal Slovak Republic Spain Sweden Switzerland United Kingdom United States Public expenditure on health, % total expenditure on health

Per Capita Total Current Health Care Expenditures, U.S. and Selected Countries, 2009 ^OECD estimate. *Break in series. Notes: Amounts in U.S.$ Purchasing Power Parity, see includes only countries over $2,500. OECD defines Total Current Expenditures on Health as the sum of expenditures on personal health care, preventive and public health services, and health administration and health insurance; it excludes investment. Source: Organisation for Economic Co-operation and Development. “OECD Health Data: Health Expenditures and Financing”, OECD Health Statistics Data from internet subscription database. data accessed on 01/10/12.

Year = 2004 Doctor consultations per capita Hospital discharge rates, all causes, per population Average length of stay for acute care, all conditions, days Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Mexico Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States

CountryFemales % Daily Smokers Males % Daily Smokers Population % Daily Smokers Alcohol Litres per capita Females % with BMI>30 Males - % with BMI > 30 Population - % with BMI > 30

Why are Health Care Expenditures Increasing Rapidly in the United States?

1. An Aging Population Aging U.S. population % 65 years

The Coming Surge in the Population of Age 65 Years and Older Source: IFTF; U.S. Census Bureau

Table 2a. Projections of the Population by Selected Age Groups for the United States: 2010 to 2050 Age (Resident population as of July 1. Numbers in thousands) BOTH SEXES 310,233325,540341,387357,452373,504389,531405,655422,059439,010.Under 18 years75,21778,10681,68584,86687,81590,72293,98697,669101,574.Under 5 years21,10022,07622,84623,48424,16125,05626,11727,17128,148.5 to 13 years37,12339,01140,79242,49043,85845,17046,74348,66450, to 17 years16,99417,01918,04818,89219,79620,49621,12621,83422, to 64 years194,787200,597204,897208,678213,597221,266230,431239,933248, to 24 years30,71330,88530,81732,55534,05935,69537,03838,23439, to 44 years83,09585,80189,72492,61295,24297,962101,392106,366110, to 64 years80,98083,91184,35683,51084,29687,60892,00095,33398, years and over40,22946,83754,80463,90772,09277,54381,23884,45688, years and over5,7516,2926,5977,2398,74511,45014,19816,98519, years and over Source: Population Division, U.S. Census Bureau

 Current Dollars  Constant Dollars 2. Increasing Incomes

3. Technology: The Health Care Industry is Rapidly Evolving Advances in medical technology and drugs are dramatically improving patient care –But, these improvements are costly

Annual Percent Change in Medical Care and All Goods Price Indices

4. Growth of Third Party Insurance Percent Distribution of National Health Expenditures, by Source of Funds,

4. Growth of Third Party Insurance There have been increased cost containment efforts –Changes in government reimbursement of health care providers –Private insurers are exercising more control over patient care

Two False Reasons for growth in National Health care Expenditures…

Facts don’s support…

Summary: Health care is only getting bigger and more expensive for governments and taxpayers Increasing life expectancies and graying populations throughout the developed world will place stress on public health insurance systems. Governments will have to cope with ongoing questions about whether to pay for expensive new medical technologies. Given these trends we can confidently expect health care to be an ever-growing line item on government balance sheets.

Where are the Dollars$ Coming From and Where are They Going$?

Total Health Care Expenditures in 2010: $2,593,600,000,000

Note: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals and families, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), Household Component, Concentration of Health Care Spending in the U.S. Population, 2009 (≥$51,951)(≥$17,402)(≥$9,570)(≥$6,343)(≥$4,586)(≥$851)(<$851) Percent of Total Health Care Spending

Distribution of Average Spending Per Person, 2009 Average Spending Per Person Age (in years) <5$ 2, , , , , or Older9,744 Sex Male$3,559 Female4,635 Note: Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals and families, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2009.

Total Health Care Expenditures in 2010: $2,593,600,000,000

Percent Distribution of National Health Expenditures, by Type of Sponsor, 1987, 2000, 2010 Notes: Starting with the 2009 NHE data, CMS expanded their focus on spending by Type of Sponsor, which provides estimates of the individual, business, or tax source that is behind each Source of Funds category and is responsible for financing or sponsoring the payments. “Federal” and “State & Local” includes government contributions to private health insurance premiums and to the Medicare Hospital Insurance Trust Fund through payroll taxes, Medicaid program expenditures including buy-in premiums for Medicare, and other state & local government programs. “Private Business” includes employer contributions to private health insurance, the Medicare Hospital Insurance Trust Fund through payroll taxes, workers’ compensation insurance, temporary disability insurance, worksite health care. “Household” includes contributions to health insurance premiums for private health insurance, Medicare Part A or Part B, out-of-pocket costs. “Other Private Revenues” includes philanthropy, structure & equipment, non-patient revenues. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group at (see Historical; NHE Web tables, Table 5). Government Private 1987 (Total = $519.1 billion) Government Private 2000 (Total = $1,377.2 billion) 31.8% 68.2% 35.5% 64.5% 44.9% 55.1% Federal Private Business State & Local Household Other Private Revenues 2011 (Total = $2,700.7 billion)

Percent Distribution of Source of Funds for Selected Personal Health Care Services, 1970 and 2010 Notes: Medicare and Medicaid were enacted in 1965; by January 1970, all states but two were participating in Medicaid. “Out-of-Pocket” includes direct spending by consumers for all health care goods and services not covered by insurance, except for health care premiums. “Priv. Health Ins.” includes premiums paid to health insurance plans and the net cost of private health insurance (administrative costs, reserves, taxes, and profits or losses). “Other” includes Other Public Health Insurance Programs (CHIP, Depts. of Defense and of Veterans Affairs) and Other Third Party Payers (e.g., worksite health care, other private revenues, workers’ compensation, maternal/child health, other state and local programs, etc.). Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group at (see Historical; NHE Web tables, Tables 7, 8, 11, 12) Hospital Care Physician & Clinical Services Retail Prescription Drugs Nursing Care Facilities & Continuing Care Retirement Communities