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Chapter 22 Health CareChapter OutlineYou Are HereThe MoneyGovernment Health ProgramsWhere the Private Money Comes FromWhere the Money GoesInsurance CoverageInsurance TypesWhy People Buy InsuranceVocabulary of InsuranceTypes of Insurance PlansControlling ExpensesAdvantages and Disadvantages of Insurance TypesPublic Insurance: MedicarePublic Insurance: MedicaidThe UninsuredWhy Health Care is not “Just Another Good”Why Medicaid Raises All Health Care PricesWhy Co-Payments Increase PricesModeling Third-Party PaymentMoral Hazard with Health InsuranceThe HMO DebateOrgan and Blood DonationThe Rest of the WorldInternational Health Care Finance ArrangementsCountry ComparisonsCountry Comparisons (cont.)Advantages and Disadvantages of Single-Payer SystemsChapter 22Health CareCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin22-2Chapter 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 WORLD22-3You Are Here22-4The Money•16% of GDP spent on health care (2.2 trillion of 13.8 trillion)• 46% spent by governments (Medicare, Medicaid etc.)22-5Government Health Programs•Medicare public insurance in the U.S. which covers those over age 65 –$431 billion•Medicaid public insurance in the U.S. which covers the poor–$329 billion22-6Where the Private Money Comes From•Private Insurance–$775 billion•Out-of-Pocket Patient Expenses–$264 billion22-7Where the Money Goes•Hospitals–$697 billion•Doctors–$479 billion•Prescription Drugs–$228 billion•Research–$40 billion22-8Insurance Coverage•82% covered all year•8% covered part of the year•10% without any insurance all year22-9Insurance Types•Private Group Insurance–171 million•Private Individual Insurance–25 million•Medicare–43 million•Medicaid–52 million22-10Why 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.22-11Vocabulary 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 lifetime22-12Types of Insurance Plans•Fee-for-service•Health Maintenance Organization (HMO)•Preferred Provider Organization (PPO)22-13Controlling 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 referrals22-14Advantages and Disadvantages of Insurance TypesInsurance TypeAdvantage DisadvantageFee-for-Service1) Maximum physician choice2) Little insurance company meddling in doctors’ decisionsHighest premiums, deductibles, and co-payment rates because of little control over expensive and unnecessary proceduresHMO Maximum control over expensive and unnecessary procedures so premiums, deductibles and co-payment rates are low.1) Minimal physician choice2) Significant meddling in physician decisions, especially when differing procedures have significant cost differencesPPO 1) Some physician choice2) moderate premiums, deductibles and co-payment rates3) some control over expensive procedures4) minor meddling in physician decisions22-15Public 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 revenue22-16Public Insurance: Medicaid•Covers the poor –eligibility standards vary from state to state•No premiums are required•Some states have very small co-payments22-17The Uninsured•21 million of 40-45 million go without insurance all year•18-20 million are between age 18 and 34•8.5 million are under 1822-18Why 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.22-19Why Medicaid Raises All Health Care PricesP*QpoorQnonpoorDpoor+nonpoorDpoor+nonpoorP*QpoorQnonpoorPQ/tSDpoorDnonpoorWithout MedicaidQ/tSPDpoorDnonpoorWith Medicaid22-20Why 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 more22-21Modeling Third-Party Payment5PAPQ/tAPADno insuranceQASDwith 20% co-pay P’22-22Moral Hazard with Health Insurance•Moral Hazard: the fact that having insurance increases the demand for the good•If people choose to smoke, to drink to excess, to overeat and to not exercise, because they will pay fewer of the monetary consequences then this is moral hazard.22-23The HMO Debate•To control costs, HMOs use rules to limit expenses. –E.g. recuperating time in a hospital is limited for births.•These rules sometimes conflict with doctors’ wishes for their patients.•With patients having little interest in controlling costs, HMOs rely on rules to control costs.22-24Organ and Blood Donation•There is always severe organ shortage.–Economists argue that part of the problem is that laws prevent people from buying and selling organs.•There is often a shortage of blood.–Economists argue that part of the problem is that laws prevent people from buying and selling their blood for medical use even though they can sell their blood plasma for cosmetic use.22-25The Rest of the World•Most of the industrialized world uses a single-payer system where the government collects (usually very high) taxes to pay for everyone’s health care22-26International Health Care Finance ArrangementsCountryPublic $ as a %


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CWU ECON 101 - Chapter 22 Health Care

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