Problems of the American Health Care System

1
Problems of the American Health Care System

• 1. Lack of Health Insurance Coverage for
• 47 Million People
• 2. High Cost of Health Care
• 3. Growth in the Costs of Health Care
• 4. Quality of the Health of Americans

2
Total Health Expenditures Per Capita, 2003

3
Total Health Care Expenditures as a Share of GDP,
2003
4
Infant Mortality and Life Expectancy, 2007

• Infant Deaths Per 1,000 Births Life
  Expectancy at Birth
• Australia 4.6
  80.6
• Austria 4.5
  79.2
• Canada 4.6
  80.3
• Chile 8.4
  77.0
• Denmark 4.5
  78.0
• Finland 3.5
  78.7
• France 4.2
  79.9
• Germany 4.1
  79.0
• Ireland 5.2
  77.9
• Italy 5.7
  79.9
• Japan 3.2
  81.4
• New Zealand 5.7
  79.0
• Norway 3.6
  79.7
• Spain 4.3
  79.8
• Sweden 2.8
  80.6
• Switzerland 4.3
  80.6
• United Kingdom 5.0
  78.7
• United States 6.4
  78.0

5
The Cost of a Long Life
6
World Health Organization Ranking of Health Care
Systems

• 1. France
  11. Norway
• 2. Italy
  12. Portugal
• 3. San Marino
  13. Monaco
• 4. Andorra
  14. Greece
• 5. Malta
  15. Iceland
• 6. Singapore
  16. Luxembourg
• 7. Spain
  17. Netherlands
• 8. Oman
  18. United Kingdom
• 9. Austria
  19. Ireland
• 10. Japan
  20. Switzerland
• 
  41 USA

7
Why Have Health Care Costs Increased So Greatly?

• Demand for Health Care Has Been Rising
• 1. Rising Incomes
• 2. Aging of the Population
• 3. Unhealthy Lifestyles
• 4. More Health Care Services Are Provided
• a. Fee-for Service
• b. Medical Malpractice
• 5. Increased Insurance Coverage
• Costs of Providing Health Care Have Been Rising
• 1. Some Restrictions on the Number of
  Physicians
• 2. Slow Growth in Worker Productivity
• 3. Tremendous Technological Advances
• Between 1/3 and ½ of the increase in health care
  costs can be explained by rising incomes, the
  aging population, the increased insurance
  coverage. And the slow worker productivity
  growth. The rest is explained by the high cost
  of medical advances.

8
Why Do People Have Health Insurance?

• 1. Health Problems Can Be Random Events That Can
  Cause Great Financial Hardship
• 2. People are Risk Averse
• 3. The Tax Law A 126 Billion Tax
• Break

9
Why Must All Employees Be Covered by Health
Insurance?

• 1. Adverse Selection
• 2. Asymmetric Information
• 3. The Lemons Principle

10
Inefficiencies Caused by Health Insurance

• 1. Moral Hazard
• 2. Increased Demand for Health Care
• Services
• 3. May Prevent People From Changing Jobs
  and Prevent Employers From
• Hiring Older Workers

11
Why is Health Care Different From Food?

• 1. Supplier-induced demand
• 2. Health Insurance
• 3. Insufficient Competition
• A. Physicians
• B. Hospitals
• C. Pharmaceutical Companies
• 4. Externalities

12
The British National Health Service

• 1. Treatment is decided by doctors
• 2. Health care is mostly tax financed and mostly
  free.
• 3. Little use of fee-for service
• 4. Health care is explicitly rationed because an
  overall budget limits the amount of service that
  can be provided
• 5. One of the cheapest systems spending about
  7 of GDP (c.f. 16 for the USA)
• 6. Yet the British population is as healthy as
  the American population.

13
British General Practitioners

• 1. Each person registers with a GP. One is free
  to choose his or her GP and to change GPs.
• 2. GPs are self-employed.
• 3. Most of their money comes from a Family
  Health Authority. It gets its money from the NHS
  budget.
• 4. The doctor is paid a capitation fee an
  allowance to run the practice.
• 5. An average GP earned about 200,000 per year
  in 2007. Half earned more than this.
• 6. The patient pays nothing for doctor visits or
  home visits.
• 7. For a major problem, the GP refers the
  patient to a specialist.

14
British Hospitals

• 1. Hospital doctors are all specialists. They
  are government employees and receive a salary.
  They earn more than GPs. There is no
  fee-for-service.
• 2. All hospital treatment is free to the
  patient.
• 3. Hospitals are self-governing bodies run by
  their own board.
• 4. The NHS gets most of its funding from general
  taxes. This is allocated to District Health
  Authorities. These can buy health care from any
  hospital in any area. This is designed to create
  greater competition and therefore increase
  efficiency.

15
Advantages of the British Health Care System

• 1. Incentives to economize and not over-supply
  health care.
• 2. NHS is inexpensive by international
  standards. Because there is no billing of
  patients, only 3 of health care spending goes
  for administration, compared to about 25 in the
  USA.
• 3. Avoids the problems of private health
  insurance such as adverse selection and moral
  hazard.
• 4. Because health care is free, earlier
  diagnosis is more likely.
• 5. Variation in the quality and quantity of
  treatment received by people at different income
  levels is smaller than in the USA.
• 6. No one in Britain fears that and illness will
  cause financial ruin!

16
Problems of the British Health Care System

• 1. Too few resources are devoted to NHS. Much
  equipment is old and out-of date.
• 2. There are long waiting times.
• 3. The Brain Drain leads to reliance on
  foreign trained doctors.
• 4. Inefficiency and inflexibility of a
  government bureaucracy.

17
Recent British Government Responses

• 1. Funding for the NHS approximately doubled
  between 1997 and 2005.
• 2. Pay for physicians has increased.
• 3. Introduction of market elements and
  competition.
• 4. No one of any political party has proposed
  eliminating the NHS!

18
Similarities of Canadian and British Health Care

• 1. Universal Coverage
• 2. Public Funding through Taxes
• 3. People do not pay for essential health
  services. There are no deductibles or
  co-payments. Therefore, there is much less
  paperwork.

19
Similarities of Canadian and American Health Care
Systems

• 1. Most doctors are in private practice.
• a. Doctors are paid on a fee-for-service
  basis
• b. Fees are negotiated with the province.
• c. Doctors cannot bill the patient above
  the negotiated fees.
• 2. Hospitals are non-profit organizations run by
  their own boards.
• 3. There is significant use of private
  insurance, mostly received through employment.
  This covers non-essential services. About 30
  of health care costs are paid privately.

20
Advantages and Disadvantages of the Canadian
System

• Advantages
• 1. Lower cost than in the U.S.
• a. Advantages of being a monopsony
• buyer
• 2. Better health outcomes than the U.S.
• Disadvantages
• 1. Long waiting times
• 2. Low number of doctors and nurses
• 3. Decrease in spending by the national
• government
• 4. Equipment is in need of replacement.
  Technology
• can be out-of-date. Innovation is
  lacking.

21
Proposals to Lower Health Care Costs

• 1.Increase Deductibles and Co-Payments
• 2.Preferred Provider Organizations (PPO)
• 3.Health Maintenance Organization (HMO)
• a. Fixed Fee Per Employee
• b. Doctors Are Salaried
• c. Restricted Choice
• d. Must Be Referred to a Specialist

22
Proposals to Provide Access

• 1. Tax Credits
• 2. Pay or Play (Mandates)
• 3. Single Payer

23
Hillary Clinton Proposals

• 1. Individual Mandate Requires Everyone to
  Have Health Insurance
• A. Large Businesses Are Expected to
• Provide Coverage
• B. Small Businesses Get Tax Credits
• to Help Them Pay for Coverage
• C. Individuals Also Get Tax Credits
• D. Insurance Pools
• 2. If Happy, People Can Keep the Plan They
• Now Have
• 3. Insurance Companies Would Have to Accept All
• 4. Emphasis on Prevention to Hold Down Costs
• 5. Use of Computer Technology to Reduce Costs
• 6. Best Practices Institute
• 7. Medicare to Negotiate Pharmaceutical Drug
  Prices