1. 33
The Economics of Health Care

2. Chapter Objectives
Important Facts About Rising Health Care Costs in the United States
The Economic Implications of Rising Health Care Costs
The Problem of Limited Access to Health Care for Those Without Insurance
The Demand and Supply Factors Explaining Rising Health Care Costs
The Types of Potential Reforms of the U.S. Health Care System
How Recent Legislation Has Altered the U.S. Health Care System

3. The Health Care Industry
Twin Problems: Costs and Access
Health Care Expenditures and Finance, 2004
Health Care
Expenditures
Sources of
Funds
Nursing
Homes
Prescription
Drugs
Program
Administration
Doctors
Dental,
Vision, Misc.
Hospitals
Medicaid
Medicare
Military, Other
Public Insurance
Other Private
Expenditures
Copayments,
Deductibles, Etc.
Private Health
Insurance 8%
10% 7%
21%
24%
35%
16%
13% 7%

4. The Health Care Industry
Health Care Spending as a Percentage of GDP, Selected Nations
United States
Switzerland
Germany
France
Canada
Australia
Italy
Japan
United Kingdom
Mexico
15.0
11.5
11.1
10.1
9.9
9.3
8.4
7.9
7.7
6.2
Source: Organization for Economic Cooperation and Development

5. The Health Care Industry
U.S. Health Care Spending as a Percentage of GDP
Percentage of Domestic Output
Year
Projected
Actual
Quality of Care: Are We Healthier?

6. Economic Implications of Rising Costs
Reduced Access to Care
Labor Market Effects
Slower Wage Growth
Use of Part-Time and Temporary Workers
Outsourcing (and Offshoring)
Personal Bankruptcies
Impact on Government Budgets
Too Much Spending
Limited Access

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

8. Why the Rapid Rise in Costs?
Increasing Demand for Health Care
Rising Incomes: The Role of Elasticities
An Aging Population
Unhealthy Lifestyles
The Role of Doctors
Supplier-Induced Demand
Fee for Service
Defensive Medicine
Medical Ethics

9. Why the Rapid Rise in Costs?
Role of Health Insurance
The Moral Hazard Problem
Less Prevention
Overconsumption
Government Tax Subsidy
Graphical Portrayal…

10. Why the Rapid Rise in Costs?
Insurance and the Overallocation of Resources to Health Care
Without
Health
Insurance
With
Health
Insurance Q P S S b
Efficiency
Loss From
Overallocation a Pu Pu Pi c D D Qu Qu Qi

11. Supply Factors in Rising Health Care Prices
Supply of Physicians
Slow Productivity Growth
Changes in Medical Technology
Relative Importance

12. Health Care System Reform
Universal Access
“Play or Pay”
Tax Credits and Vouchers
National Health Insurance (NHI)
Cost Containment: Altering Incentives
Deductibles and Copayments
Managed Care
PPOs
HMOs
Medicare and Diagnosis-Related-Group (DRG) System

13. Health Care System Reform
Recent Laws and Proposals
Prescription Drug Coverage
Medicare Part D
Health Savings Accounts (HSAs)
Limits on Malpractice Awards

14. Mandatory Health Insurance:
Play to Stay
Last
Word
Massachusetts Requirement for Health Insurance Proof in 2008
Individual Responsibility or Penalty
Employer Role or Fee
State Subsidy and Income Redistribution
Below Poverty Line Pay Small Co-payments Only
Criticisms
Increasing Demand for Services
Neighboring State Issues
May Be Too Expensive to Translate to Entire Nation

15. Key Terms deductibles copayments fee for service defensive medicine
tax subsidy
“play or pay”
national health insurance (NHI)
preferred provider organization (PPOs)
health maintenance organizations (HMOs)
diagnosis-related-group (DRG) system
Medicare part D
health-saving-accounts (HSAs)

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Labor Market Institutions and Issues: Unionism, Discrimination, and Immigration
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