Health CareWe 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, 2009

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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

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

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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 births5

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Table 8-3: Life expectancies and infant mortality ratesa 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

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Quantity increasePhysician 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

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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 (200-300 billion dollars a year)

• BOTTOM LINE: Third-party payment increases demand for medical care and therefore its price

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Price IncreaseHospital 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

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U.S. Health Care System

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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

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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

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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

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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)

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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

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