Lecture Issues in economics today - Chapter 20

When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps.
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Lecture Issues in economics today - Chapter 20 Chapter 20 Health Care McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Chapter 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 WORLD McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. The Money • 14% of GDP spent on health care (1.2 trillion of 10 trillion) • 43% spent by governments (Medicare, Medicaid etc.) McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Government Health Programs • Medicare public insurance in the U.S. which covers those over age 65 – $214 billion • Medicaid public insurance in the U.S. which covers the poor – $186 billion McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Where the Private Money Comes From • Private Insurance – $355 billion • Out-of-Pocket Patient Expenses – $187 billion McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Where the Money Goes • Hospitals – $391 billion • Doctors – $269 billion • Prescription Drugs – $100 billion • Research – $22 billion McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Insurance Coverage • 84% covered all year • 11% covered part of the year • 5% without any insurance all year McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Insurance Types • Private Group Insurance – 168 million • Private Individual Insurance – 22 million • Medicare – 36 million • Medicaid – 28 million McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Why 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. McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Vocabulary 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 lifetime McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Types of Insurance Plans • Fee-for-service • Health Maintenance Organization (HMO) • Preferred Provider Organization (PPO) McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Controlling 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 referrals McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Advantages and Disadvantages of Insurance Types Insurance Type Advantage Disadvantage Fee-for-Service 1) Maximum physician Highest premiums, deductibles, choice and co-payment rates because of 2) Little insurance little control over expensive and company meddling in unnecessary procedures doctors’ decisions HMO Maximum control over 1) Minimal physician choice expensive and 2) Significant meddling in unnecessary procedures physician decisions, so premiums, deductibles ...