Problems of the American Health
Care System
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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
Total Health Expenditures Per Capita, 2003
Total Health Care Expenditures as
a Share of GDP, 2003
Infant Mortality and Life
Expectancy, 2007
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Infant Deaths Per 1,000 Births
Australia
4.6
Austria
4.5
Canada
4.6
Chile
8.4
Denmark
4.5
Finland
3.5
France
4.2
Germany
4.1
Ireland
5.2
Italy
5.7
Japan
3.2
New Zealand
5.7
Norway
3.6
Spain
4.3
Sweden
2.8
Switzerland
4.3
United Kingdom
5.0
United States
6.4
Life Expectancy at Birth
80.6
79.2
80.3
77.0
78.0
78.7
79.9
79.0
77.9
79.9
81.4
79.0
79.7
79.8
80.6
80.6
78.7
78.0
The Cost of a Long Life
World Health Organization Ranking
of Health Care Systems
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1. France
2. Italy
3. San Marino
4. Andorra
5. Malta
6. Singapore
7. Spain
8. Oman
9. Austria
10. Japan
11. Norway
12. Portugal
13. Monaco
14. Greece
15. Iceland
16. Luxembourg
17. Netherlands
18. United Kingdom
19. Ireland
20. Switzerland
41 USA
Why Have Health Care Costs
Increased So Greatly?
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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
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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
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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.
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
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Break
Why Must All Employees Be
Covered by Health Insurance?
• 1. Adverse Selection
• 2. Asymmetric Information
• 3. The Lemon’s Principle
Inefficiencies Caused by Health
Insurance
• 1. Moral Hazard
• 2. Increased Demand for Health Care
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Services
• 3. May Prevent People From Changing
Jobs and Prevent Employers From
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Hiring Older Workers
Why is Health Care Different From
Food?
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1. Supplier-induced demand
2. Health Insurance
3. Insufficient Competition
A. Physicians
B. Hospitals
C. Pharmaceutical Companies
4. Externalities
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.
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.
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.
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!
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.
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!
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 copayments. Therefore, there is much less
paperwork.
Similarities of Canadian and
American Health Care Systems
• 1. Most doctors are in private practice.
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a. Doctors are paid on a fee-for-service basis
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b. Fees are negotiated with the province.
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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.
Advantages and Disadvantages of
the Canadian System
• Advantages
• 1. Lower cost than in the U.S.
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a. Advantages of being a monopsony
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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
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government
• 4. Equipment is in need of replacement. Technology
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can be out-of-date. Innovation is lacking.
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
Proposals to Provide Access
• 1. Tax Credits
• 2. Pay or Play (Mandates)
• 3. Single Payer
Hillary Clinton Proposals
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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