ECNS 594 Current Issues in Economics

1. ECNS 594 Current Issues in Economics June 20, 2013 Bozeman, Montana

2. 3 Intrinsic Goals 1. Improve health (value for $ spent): Positive 2. Improve responsiveness: Positive 3. Ensure financial burdens are distributed fairly: Normative

3. But levels of health not solely determined by health “systems” • Education • Income • Housing • Food quality

4. Health Care: Merit Good?

5. 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

6. How does the U.S. health system rank?http://www.oecd.org

7. Commonwealth Fund Comparative Ranking

8. International Comparison of Spending on Healthtotal expenditures per capita, U.S. $ PPP Source: OECD Health Data 2009 (June 2009).

9. Total expenditures on health as a percent of GDP

10. 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)

11. General observations about health care spending…

12. 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

13. 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

14. 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)

15. We often compare our system to others • Canada • France • Germany • United Kingdom

16. So Who Has the Best System?Source: Schoen November 2005()= Pew Research Center, June 2009

17. How Valid are Comparisons? • No standard taxonomy • Purchasing power parities errors • Income/prices/taxes • Quality comparisons

18. 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)

19. 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?

20. 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?

21. Elasticity has to do with the ability to stretch your demand or supply when price changes…

22. 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 quantitydemanded of _______% • physician price • Good health3.5% • Poor health1.6% • hospital price1.4% • nursing home price6.9% to 7.6%

23. Demand, Elasticity and Opportunity Cost

24. 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

25. And the supply response is important too

26. Does the law of demand apply to health care?

27. What happens to resource use when its virtually “free?”

28. So is “price” the perfect way to ration use?

29. The dilemma worldwide then is providing… • Accessibility • Geographically • Wait time (time is not free) • Affordability • Quality • Personnel • Equipment (technology)

30. 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)

31. 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)

32. 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

33. 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

34. Mixed • No universal coverage • Multiple payers • No individual or employer mandates • Financing via individual, government, private insurance • Hodge-podge of providers and payers

35. 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

36. 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

37. 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

38. All Non US Systems have… • Individual and/or employer mandates • Universal coverage • Less expensive • Better outcomes?

39. 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)

40. 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

41. 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”

42. 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

43. Human organs are scarce

44. http://www.organdonor.gov/index.html

45. “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.

46. Saying economic choices have an opportunity cost… Is the same thing as saying scarce resources have alternative uses

47. TANSTAAFL

48. Can’t have it all…

49. Salient Features Requiring Special Attention#1 Uncertainty • Irregular demand • Inelastic demand • Provider responses

50. 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!