ECNS 594 Current Issues in Economics
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Transcript of ECNS 594 Current Issues in Economics
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ECNS 594 Current Issues in Economics
June 20, 2013Bozeman, Montana
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3 Intrinsic Goals1. Improve health (value for $ spent): Positive
2. Improve responsiveness: Positive
3. Ensure financial burdens are distributed fairly: Normative
Affordability
AccessQuality
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But levels of health not solely determined by health “systems”
Education Income Housing Food quality
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Health Care: Merit Good?
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Evolution of Health Systems post WWII
Europe and Japan rebuilt from scratch Developed national health systems
U.S. chose subsidies for its health care system Hospitals: Hill Burton Act Physicians: NHSC Employers: tax preference treatment for
benefits Elderly and low income disabled: Medicare Financially indigent: Medicaid, Community
Health Centers
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How does the U.S. health system rank?
http://www.oecd.org
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Australia Canada Germany New Zealand
UK US
Rank 3.5 5 2 3.5 1 6
Quality 4 6 2.5 2.5 1 5
Access 3 5 1 2 4 6
Efficiency
4 5 3 2 1 6
Equity 2 5 4 3 1 6
Healthy Lives
1 3 2 4.5 4.5 6
Per Cap Spending
$2,876 $3,165 $3,005 $2,083 $2,546 $6,102
Commonwealth Fund Comparative Ranking
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International Comparison of Spending on Healthtotal expenditures per capita, U.S. $ PPP
Source: OECD Health Data 2009 (June 2009).
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Total expenditures on health as a percent of GDP
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U.S. Health Care We are the biggest
spender Per capita As a share of GDP
High expenditures may have 3 meanings: High average level of
use? (large income elasticity)
High resource costs? (supplier induced demand)
Inefficient provision of services (fee for service)
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General observations about health care spending…
Income group Spending on health/GDP
Gov. health spending/total
health spending
Gov. health spending/tot
al Gov. Spending
Low income 4.3 36.2 5.9
Lower middle income
4.5 43.2 8.2
Upper middle income
6.3 55.1 9.8
High income 11.2 60.7 17.1
Global 8.7 57.6 14.3
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Choice is important… “Our founders
thought politicians should be accountable when it comes to citizens’ right to life, liberty and the pursuit of heart surgery” Gottlieb, American
Enterprise Institute
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Any System Must Ration Any and all systems, for all kinds of goods
and services, must ration resources someway, somehow, according to… price time in queue budgets geography (access) specialty, type of service
Each has unintended consequences
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Unintended consequences are seldom good….
…If a federal program was established to give financial assistance to Boy Scouts to enable them to help old ladies cross busy intersections, we could be sure that:
not all the money would go to Boy Scouts, that some of those they helped would be neither old nor
ladies, that part of the program would be devoted to preventing
old ladies from crossing busy intersections, and that many of them would be killed because they
would now cross at places where, unsupervised, they were at least permitted to cross.” (Ronald Coase)
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We often compare our system to others
Canada France Germany United Kingdom
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So Who Has the Best System?
Source: Schoen November 2005()= Pew Research Center, June 2009
Overall System View (%)
Minor change needed
Fundamental change needed
Completely rebuild system
Australia 23 48 26
Canada 21 61 17
New Zealand 27 52 20
U. K. 30 52 14
U.S. 23 (24) 44 (30) 30 (41)
Germany 16 54 31
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How Valid are Comparisons? No standard taxonomy
Purchasing power parities errors Income/prices/taxes
Quality comparisons
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What Are Some of the Safer Conclusions?
Availability of medical resources does not explain high health care costs in the U.S. (or does it?) Japan and Italy have more MRI and CT Scanners per
million population
Spend more on medical care in absolute terms ($5,635 per capita) and in relative terms (15% GDP)
High income elasticity of demand (income is U.S. 20% higher than average, hence, supports more spending on medical care)
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Some of the Safer Conclusions, continued…
Lifestyle choices of U.S. citizens (obesity)
Shorter waiting times (we pay for convenience)
18% of U.S. population has no insurance
Would more government and universal access improve the U.S. situation?
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Questions to Ask with Each Reform?
Does the plan achieve universal coverage?
How is the plan financed, will it add to the federal deficit and national debt?
Will it contain costs without sacrificing quality?
Will it slow cost growth? How will it affect overall
employment? Freedom of choice?
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Elasticity has to do with the ability to stretch your demand or supply when price changes…
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Recall in ELM 9 and 11 the concept of a “change in the quantity
demanded…?” A 10% increase in the price of _______
results in a decrease in the quantity demanded of _______% physician price
Good health 3.5% Poor health 1.6%
hospital price 1.4% nursing home price 6.9% to 7.6%
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Demand, Elasticity and Opportunity Cost
0 2 4 6 8 10 12 14 16 18$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
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Remember in your ELM’s the concept of a “change in demand?” a 10% increase in income results in a _____
% increase in the demand for ______. 0.2% to 0.4% hospital services 24% to 32% dental services 2.0% to 5.7% physician services 6.0% to 9.0% nursing homes
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And the supply response is important too
4 5 6 7 8 9 10 11 12 13 14 15$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Inelastic
Supply
0 10 20 30 40 50 60 70 80 90 100$0
$2
$4
$6
$8
$10
$12
$14
$16
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Does the law of demand apply to health care?
Coinsurance %
# visits/year Total spending on outpatient care
Probability of use
Free 4.6 $340 87%
25% 3.3 $260 79%
50% 3.0 $224 77%
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What happens to resource use when its virtually “free?”
Percent Waiting
Australia Canada New Zealand
UK US
% waiting >week to
see specialist
46 57 40 60 23
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So is “price” the perfect way to ration use?
Percent Australia Canada New Zealand
UK US
Did not fill Rx
22 20 19 8 40
Did not visit MD
when sick
18 7 29 4 34
Did not get rec. test
20 12 21 5 33
> $1,000 out of pocket
14 14 8 4 34
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The dilemma worldwide then is providing…
Accessibility Geographically Wait time (time is not free)
Affordability Quality
Personnel Equipment (technology)
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Health Care System Typology
Sickness Insurance (Germany) Private insurance market with state subsidy
National Health Insurance (Canada) National level health insurance system
National Health Services (United Kingdom) State provides health care
Mixed System (U.S.) Sickness insurance and national health
coverage)
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Overview of Health System Types
National Health Service Great Britain, Sweden, Norway, Finland,
Spain, Italy, Greece National Health Insurance
Japan, France, Russia, Canada, Australia Mixed
U.S., China (post reform efforts)
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National Health Service Universal coverage-Single Payer Financing via general revenues,
income taxes District budgets control spending Patients seen in public hospitals and
clinics Physicians work for NHS
Private practices often allowed
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National Health Insurance Universal coverage via employer and
employee mandates May be both single and multiple
payers Financing via employment taxes,
Social Security Public and private hospitals exist France: 87% have supplemental
insurance
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Mixed No universal coverage Multiple payers No individual or employer mandates Financing via individual, government,
private insurance Hodge-podge of providers and payers
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The UK Experience All British citizens have access to universal health care Financing: payroll taxes, general fund, fees 10% Britons buy private health insurance
Chief benefit is reduced wait time for elective surgery Not all services are free (dental, Rx) GP is gatekeeper Good access to emergency and primary care For specialty care: rationed via wait lists and limits to
technology
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Canadian Experience 13 different provincial healthcare systems
Quebec is unique: administers its own system for physician licensing
Hospitals: owned by provincial governments, private not for profits, and some by federal government
Financing for Medicare: provincial and federal taxes
Hospitals on global budgets regardless of ownership
Wait times are big although only 20% Canadians consider it a problem
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The German Experience World’s oldest social health insurance
Universal coverage: 88% have social insurance, 10% private insurance
Financing: almost entirely via labor market (employer-employee)
Hospitals are private, not for profit and state/federal/local owned
Privately insured: shorter wait times, more elective surgery, more likely to see specialists
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All Non US Systems have… Individual and/or employer mandates Universal coverage Less expensive Better outcomes?
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Can health care be “too” universal?
Recent case of Spain as point of “health tourism” Northern Europeans relocate to
Mediterranean area in Spain for medical care
Spain recovers only fraction of cost from EU health fund ($10 million of $67 million)
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U.S. System No central governing
Little coordination and integration Hodge-podge of public and private financing
Technology Driven Lack of central control credited with innovation, diffusion,
utilization Technology as bellwether indicator of quality Dartmouth Studies
Uninsured use safety nets: CHC, ER, Outpatient Dept. Delivery in imperfect market: consumer knows little of cost
Asymmetry of info between principals-agents
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So Who Has It Right? France & Japan & Netherlands
Rapidly increasing costs Benefit reductions
Germany Increased payroll tax to meet spiraling costs
England 2006 report “the present system is
incomprehensible and its outcomes unjust”
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The “health” of health systems
Ultimately depends on… Public values which are culturally
dependent UK: right to free care as citizens Canada: “just, fair, and equitable principal” Germany: solidarity and subsidiarity U.S.: self reliance, aversion to taxation,
limited role for government
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Human organs are scarce
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http://www.organdonor.gov/index.html
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“Commercialize” human organs?
Assisted-suicide pioneer Jack Kevorkian temporarily commercialize organ harvesting and auctioning off body parts online to pay donors and provide an expense fund for poor recipients.
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Is the same thing as saying scarce resources have alternative uses
Saying economic choices have an opportunity cost…
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TANSTAAFL
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Can’t have it all…
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-$1,500
-$1,000
-$500
$0
$500
$1,000
$1,500
$2,000
Annual Change in Per Capita Spending Available AFTER Health Care, Montana(2009 $)
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Salient Features Requiring Special Attention
#1 Uncertainty
Irregular demand Inelastic demand Provider responses
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Salient Feature # 2 Third Party Payers
Deductibles, co-pays-co-insurance Fee for service reimbursement Dartmouth Studies Moral hazard of insurance
Even with red light cameras!
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Salient Feature #3 Information Asymmetry
Adverse selection in health insurance (individual mandate)
Quality chasm: providers provide both info and service
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Salient Feature #4 Role of not-for-profits
Usually assume firms maximize profits
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Salient Feature #5 Monopoly, Oligopoly, Monopsonistic
Competition Licensure Direct to consumer advertising Regulation Patent protection Anti-trust
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Salient Feature #6 Concerns for Equity, Need for Health
Care Is health care a merit good? All health care?
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Salient Feature #7 Government
As direct provider (VA, CHC, IHS, State and County hospitals, nursing homes, etc.)
As financier of health care Who really pays, really?
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Salient Feature # 8 Taxing ESI Health Coverage likely…
Increases demand for elaborate and many perk health plans (Cadillac tax of ACA)
Big loss of tax revenue for government Think “budget deficits and the national
debt” federal revenue lost = $268 B in 2011 federal deficit = $642 B (4% of GDP)
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ESI and the demand for health care
Gross Pay/Week
Marginal Tax Rate
Take Home Pay
Insurance Cost $60/Week
Net Take Home Pay
Difference
$1,000 28% $720 Employee Pays
$660 $17
$940 28% $677 Employer Pays
$677
Assume Marginal Tax Rate Increases to 35 Percent
$1,000 35% $650 Employee Pays
$590 $21
$940 35% $611 Employer Pays
$611
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Know Your Facts: Some Examples
The uninsured go without coverage because they believe they do not need it or simply don’t want it.
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Know Your Facts: Some Examples
The uninsured don’t have ESI because they are not working
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5 factors will shape the trajectory of future spending on health care.. 1. state of economy 2. impact of ACA, and future of 3. industry consolidation 4. shift toward value 5. empowerment of health care
consumer
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New trends? Share of population with private
insurance dropped Share with public insurance and the
uninsured increased Sustained in reductions in utilization Growth in hospital admissions and
physician visits down
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354,000 May Change Health Insurance
Previously Eligible Med-icaid1%
Crowd-Out Medicaid4%
Newly Eligible Med-icaid11%
Young Adults5%
FFE Popu-lation with Subsidies
53%
FFE Population without Subsidies
26%
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Stretch Time