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Health Care Reform Part 1: Introduction

Health Care Reform Part 1: Introduction. 4/19/11. Outline. I. Why reform ? II. How to reform. I. Why Reform?. Reason 1: Rising costs National health expenditures (NHE) grew from 5.7% of GDP in 1965 to 15.3% of GDP in 2003. NHE are projected to grow 1% faster each year than real GDP.

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Health Care Reform Part 1: Introduction

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  1. Health Care ReformPart 1: Introduction 4/19/11

  2. Outline • I. Why reform? • II. How to reform

  3. I. Why Reform? • Reason 1: Rising costs • National health expenditures (NHE) grew from 5.7% of GDP in 1965 to 15.3% of GDP in 2003. • NHE are projected to grow 1% faster each year than real GDP. • This would mean real NHE would be 18.7% of real GDP by 2014 and 33% by 2078. • Expenditures on Medicare and Medicaid would grow from 25% of the budget to 50% of the budget by 2050.

  4. I. Why Reform? • Reason 2: Uninsured • As a consequence of rising costs, the percent of the population without health insurance has risen from 12% in 1987 to 15.5% in 2004. • The U.S. is unique among developed countries in not providing some sort of universal coverage.

  5. I. Why Reform? • Are rising costs bad? • Market forces • Better technology => greater demand? • Preference for health care relative to other goods can change over time • Could be supply-side changes as well (i.e. greater opportunities for women => lower supply of nurses) • Market failures • Expansions in coverage => greater moral hazard (perhaps mitigated by managed care) • Better technology => greater information asymmetry • Certainly unsustainable from a public finance standpoint • Doesn’t necessarily have to be fixed by curbing cost growth; could also be fixed by higher taxes or more cost-sharing

  6. I. Why Reform? • Is it bad that some people are uninsured? • No: people have different risk preferences • Yes • Many of the uninsured can’t get affordable coverage because of pre-existing conditions. • Others tend to not get care until serious illness, then they get expensive emergency room care that is either financially devastating, defaulted on, or given as charity => social costs. • Is health care a right or a market good? • If right, we should provide coverage for everyone. • If market good, people should be allowed to not have insurance, but they must bear the downside of the gamble. • The U.S. seems to want it to be market good but then is reluctant to deny care to the uninsured when they can’t pay.

  7. II. How to Reform • Must balance economics and politics • Serious cost control (i.e. single-payer system) would require taking on doctors, hospitals, pharmaceutical companies, insurance companies, and patients, and is probably politically infeasible at this point. • Achieving universal coverage was seen as more politically feasible. • “This round of reforms thus involves a decision not to hold the attainable goal of universal coverage hostage to the (currently) unattainable goal of fundamental health care cost control.” -Jon Gruber

  8. II. How to Reform • Tension between coverage and costs • Expanding coverage without doing anything to control costs would likely lead to higher medical expenditures. • The reform therefore aims to approach universal coverage while doing just enough on the cost control side to break about even. • We will still have to deal with more dramatic cost containment in the future.

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