2. 23 - 1 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show THE ECONOMICS OF HEALTH CARE 23 C H A P T E R

3. 23 - 2 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show THE HEALTH CARE INDUSTRY Twin Problems: Costs and Access Total Spending on Health Care Deductibles - Copayments Medicare - Medicaid Percentage of GDP International Comparisons High & Rising Health Care Costs

4. 23 - 3 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show THE HEALTH CARE INDUSTRY Health Care Expenses & Finance Nursing Homes 7% Prescription Drugs 6% Program Administration 6% Doctors 22% Dental, Vision, Miscellaneous 22% Hospitals 33%

5. 23 - 4 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show THE HEALTH CARE INDUSTRY Health Care Expenses & Finance Medicaid 15% Medicare 19% Military and Other Public Insurance 9% Other Private Expenditures Copayments, Deductibles, Etc. 22% Private Health Insurance 33%

6. 23 - 5 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show 0 5 10 15 United States Switzerland Germany France Canada Australia Italy Japan United Kingdom Mexico GLOBAL PERSPECTIVE Health Care Spending as a Percentage of GDP, Selected Nations Source: Organization for Economic Cooperation and Development

7. 23 - 6 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show Economic Implications of Rising Costs Reduced Access to Care Labor Market Effects Slower Wage Growth Use of Part-time & Temporary Workers Impact on Government Budgets The basic problem... QUALITY OF CARE Are We Healthier?

8. 23 - 7 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show LIMITED ACCESS Why the Rapid Cost Increases? Peculiarities of the Health Care Market Ethical and Equity Considerations Asymmetric Information Spillover Benefits Third-Party Payments: Insurance The Uninsured: 15% of Population

9. 23 - 8 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show INCREASING DEMAND FOR HEALTH CARE Rising Incomes: Role of Elasticities An Aging Population Unhealthy Lifestyles The Role of Doctors Supplier-Induced Demand Fee-for-Service Defensive Medicine Medical Ethics

10. 23 - 9 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show ROLE OF HEALTH INSURANCE Insurance and Governments Pay 78% of all Payments Moral Hazard Problem Less Prevention Overconsumption Government Tax Subsidy Graphically...

11. 23 - 10 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show INSURANCE AND THE OVERALLOCATION OF RESOURCES TO HEALTH CARE D S PuPu QuQu Overallocation with health insurance 0 P Q PiPi QiQi

12. 23 - 11 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show SUPPLY FACTORS IN RISING HEALTH CARE PRICES Supply of Physicians Slow Productivity Growth Changes in Medical Technology Relative Importance Reform of the Health Care System Universal Access Play-or-Pay Tax Credits and Vouchers

13. 23 - 12 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show SUPPLY FACTORS IN RISING HEALTH CARE PRICES National Health Insurance (NHI) Arguments for NHI: Choice of Physicians Reduce Administrative Costs Separate Employment from Insurance Single-Insurer Market Power for Cost Containment

14. 23 - 13 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show Against NHI: Won’t Control Costs Long Waits for Care Doctor “Strikes” Government’s Poor Record Undesirable Redistributive Effects SUPPLY FACTORS IN RISING HEALTH CARE PRICES National Health Insurance (NHI) Arguments

15. 23 - 14 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show COST CONTAINMENT: ALTERING INCENTIVES Deductibles - Copayments Managed Care Preferred Provider Organizations (PPOs) Health Maintenance Organizations (HMOs) Medicare and DRG Diagnosis-Related-Group (DRG)

16. 23 - 15 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show RECENT LAWS & PROPOSALS Portability and Accountability Medical Savings Accounts Patients’ Bill of Rights Limits on Malpractice Awards Prescription Drug Coverage Medicare Reform

17. deductibles copayments fee for service defensive medicine tax subsidy “play or pay” national health insurance (NHI) preferred provider organizations (PPOs) health maintenance organizations (HMOs) diagnosis-related-group (DRG) system ENDBACK Copyright McGraw-Hill/Irwin, 2005

18. 23 - 17 Copyright McGraw-Hill/Irwin, 2005 The Health Care Industry Quality of Care Limited Access Increasing Demand for Health Care Role of Health Insurance Insurance and the Overallocation of Resources to Health Care Supply Factors in Rising Health Care Prices Cost Containment: Altering Incentives Recent Laws & Proposals Key Terms Previous Slide Next Slide End Show International Trade Chapter 24 Coming next...