Lecture Issues in economics today - Chapter 20

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When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps.

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Nội dung Text: Lecture Issues in economics today - Chapter 20

Chapter 20 Health Care McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Chapter Outline • WHERE THE MONEY GOES AND WHERE IT COMES FROM • INSURANCE IN THE U.S. • ECONOMIC MODELS OF HEALTH CARE • COMPARING THE U.S. WITH THE REST OF THE WORLD McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
The Money • 14% of GDP spent on health care (1.2 trillion of 10 trillion) • 43% spent by governments (Medicare, Medicaid etc.) McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Government Health Programs • Medicare public insurance in the U.S. which covers those over age 65 – $214 billion • Medicaid public insurance in the U.S. which covers the poor – $186 billion McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Where the Private Money Comes From • Private Insurance – $355 billion • Out-of-Pocket Patient Expenses – $187 billion McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Where the Money Goes • Hospitals – $391 billion • Doctors – $269 billion • Prescription Drugs – $100 billion • Research – $22 billion McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Insurance Coverage • 84% covered all year • 11% covered part of the year • 5% without any insurance all year McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Insurance Types • Private Group Insurance – 168 million • Private Individual Insurance – 22 million • Medicare – 36 million • Medicaid – 28 million McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Why People Buy Insurance • People who believe that their insurance premiums will be less than their expected health care expenditures will buy insurance. • People who are risk averse (they would rather pay more than their predicted expenditures to limit their risk of large expenses) will buy insurance. • A person who is risk neutral (they would not pay more than their predicted expenditure to eliminate uncertainty) would not buy insurance. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Vocabulary of Insurance • Deductible the amount of health spending a year that you have to pay before the insurance company pays anything • Co-payment either a set amount or the percentage of the bill after the deductible has been taken out that you have to pay • Maximum out-of-pocket the most that a person or family will have to pay over a year for all covered health expenses • Lifetime maximum the most that an insurance company will pay on your health expenses over your lifetime McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Types of Insurance Plans • Fee-for-service • Health Maintenance Organization (HMO) • Preferred Provider Organization (PPO) McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Controlling Expenses • HMO’s and PPO’s use Primary Care Physicians (PCP’s) or Gatekeepers who are physicians charged with making the initial diagnosis and making referrals McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Advantages and Disadvantages of Insurance Types Insurance Type Advantage Disadvantage Fee-for-Service 1) Maximum physician Highest premiums, deductibles, choice and co-payment rates because of 2) Little insurance little control over expensive and company meddling in unnecessary procedures doctors’ decisions HMO Maximum control over 1) Minimal physician choice expensive and 2) Significant meddling in unnecessary procedures physician decisions, so premiums, deductibles especially when differing and co-payment rates are procedures have significant low. cost differences PPO 1) Some physician choice 2) moderate premiums, deductibles and co-payment rates 3) some control over expensive procedures 4) minor meddling in physician decisions McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Public Insurance: Medicare • Those over 65 are eligible • Part A – Covers expenses incurred in hospitals – Compulsory – Financed with premiums and 1.45% payroll tax on employers and employees • Part B – Covers doctor visits – Voluntary – Financed with premiums and general tax revenue McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Public Insurance: Medicaid • Covers the poor – eligibility standards vary from state to state • No premiums are required • Some states have very small co- payments McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
The Uninsured • 21 million of 40-45 million go without insurance all year • 15-20 million are between age 18 and 34 • 20 million are under 18 McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Why Health Care is not “Just Another Good” • Rapid increases in quality (which get confused as price increases) – Treatments developed in the 1990s for AIDS are expensive but this is a quality increase, not a price increase • Consumers have less knowledge about what they are buying than they typically do when buying goods. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Why Medicaid Raises All Health Care Prices P P S S P* P* Dpoor+nonpoor Dpoor+nonpoor Dpoor Dnonpoor Dpoor Dnonpoor Qpoor Qnonpoor Qnonpoor Qpoor Q/t Q/t Without Medicaid With Medicaid McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Why Co-Payments Increase Prices • Third-Party Payer: an entity other than the consumer pays part of the costs • If people only pay 20% of a price they will consume much more McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Modeling Third-Party Payment P 5PA Dwith 20% copay Dno insurance S P’ PA A QA Q/t McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.