Copyright 2008 The McGraw-Hill Companies 21-1 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 21 The Economics of Health Care

Copyright 2008 The McGraw-Hill Companies 21-2 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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

Copyright 2008 The McGraw-Hill Companies 21-3 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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 8% 10% 7% 21% 24% Medicaid Medicare Military, Other Public Insurance Other Private Expenditures Copayments, Deductibles, Etc. Private Health Insurance 35% 16% 13% 7% 16%

Copyright 2008 The McGraw-Hill Companies 21-4 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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 Source: Organization for Economic Cooperation and Development

Copyright 2008 The McGraw-Hill Companies 21-5 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show The Health Care Industry U.S. Health Care Spending as a Percentage of GDP Actual Projected Percentage of Domestic Output Year Quality of Care: Are We Healthier?

Copyright 2008 The McGraw-Hill Companies 21-6 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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

Copyright 2008 The McGraw-Hill Companies 21-7 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Why the Rapid Rise in Costs? Peculiarities of the Health Care Market –Ethical and Equity Considerations –Asymmetric Information –Positive Externalities –Third-Party Payments: Insurance

Copyright 2008 The McGraw-Hill Companies 21-8 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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

Copyright 2008 The McGraw-Hill Companies 21-9 The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Why the Rapid Rise in Costs? Role of Health Insurance –The Moral Hazard Problem Less Prevention Overconsumption –Government Tax Subsidy –Graphical Portrayal…

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Q P Q P 0 0 Why the Rapid Rise in Costs? D S QuQu PuPu Without Health Insurance With Health Insurance D S QuQu PuPu QiQi PiPi Insurance and the Overallocation of Resources to Health Care a b c Efficiency Loss From Overallocation

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Supply Factors in Rising Health Care Prices Supply of Physicians Slow Productivity Growth Changes in Medical Technology Relative Importance

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show 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

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Health Care System Reform Recent Laws and Proposals –Prescription Drug Coverage Medicare Part D –Health Savings Accounts (HSAs) –Limits on Malpractice Awards

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Mandatory Health Insurance: 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 Last Word Play to Stay

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Key Terms deductibles copayments fee for service defensive medicinedefensive medicine tax subsidy “play or pay” national health insurance (NHI)national health insurance (NHI) preferred provider organization (PPOs)preferred provider organization (PPOs) health maintenance organizations (HMOs)health maintenance organizations (HMOs) diagnosis-related- group (DRG) systemdiagnosis-related- group (DRG) system Medicare part D health-saving- accounts (HSAs)health-saving- accounts (HSAs)

Copyright 2008 The McGraw-Hill Companies The Health Care Industry Economic Implications of Rising Costs Why the Rapid Rise in Costs? Supply Factors in Rising Health Care Prices Health Care System Reform Last Word Key Terms End Show Next Chapter Preview… Labor Market Institutions and Issues: Unionism, Discrimination, and Immigration