[Music]
Many firms buy health insurance for their
workers, but the amounts paid for insurance
might otherwise be paid in salary.
In addition, companies withhold from employees'
paychecks funds that pay to support two federal
programs, Medicaid and Medicare, that provides
health insurance to people 65 and older and
to low-income or disabled people.
In 2011, the average cost for an employee's
share of family plan premiums rose 74% from
its 2003 level: from $2,250 to $4,000.
Health insurance premiums extract approximately
20% of the annual median family income in
35 states.
Employees are frequently unaware of how much
is taken from their paychecks to cover health
care costs, which rose from 5.2% of gross
domestic product (GDP)
in 1960 to 17.9% in 2013.
The U.S. Congressional Budget Office projects
that Medicare and Medicaid spending will increase
from 6% of GDP in 2013 to nearly 12% in 2050
at its current pace.
In 2010, then President Obama and Congress
passed the Patient Protection and Affordable
Care Act, the ACA, which made major changes
to the U.S.
health care system.
The act included a provision that businesses
with 50 or more full-time employees must provide
health insurance to all full-time employees
or pay a fine.
States were to set up exchanges to make health
insurance less expensive for small businesses
and individuals by allowing them to enter
an insurance pool where healthy and sick people
pay the same premiums.
With the election of President Donald Trump
taking office in 2017, Repeal and Replace
of the Affordable Care Act was implemented.
Restructuring this entire sector of the US
economy may take months, even years to achieve.
In this chapter, we will explore the most
pressing health care topics to consider and
look around the world to find possible solutions.
Americans spend more of their tax dollars
on public health care than people in Canada,
the UK, or Australia.
Who's at fault?
Insurance companies?
Drug companies?
Malpractice lawyers?
Hospitals?
Or is it more complicated than a simple blame
game?
Hey.
Let's find out!
[Music]
In the late 1700s, England had the highest
level of income per person of any large country,
but the average life expectancy at birth was
only 38 years, and 30% of the population died
before reaching the age of 30.
In 2014, the average life expectancy at birth
in the United Kingdom and other high-income
countries was around 80 years.
Life expectancy at birth in the United States
increased from 47.3 years in 1900 to 78.7
years in 2013.
The overall mortality rate decreased by more
than 25% between 1981 and 2011.
The decline in death rates after 1981 was
due to changes in lifestyle and advances in
new diagnostic equipment, new prescription
drugs, and new surgical techniques.
Improving health shifts out a country's production
possibilities frontier and higher incomes
allow the country to devote more resources
to research and development,
including medical research.
Since 1981, there have been significant decreases
in rates of death due to cancer, cardiovascular
diseases, and diseases of the liver.
Rates of death due to kidney disease and diabetes
increased slightly
because of an increase in obesity.
The increase in mortality and decrease in
life expectancy in 1918 were due to the severe
influenza epidemic of that year: Spanish Flu.
The health of the average person in the United
States improved significantly during the nineteenth
and twentieth centuries.
Individuals in the United States today are
taller, they live much longer, and they are
much less likely to die in the first months
of life than was true 150 years ago.
Over time, people in high-income countries
have, on average, become taller, indicating
that their nutritional status has improved.
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In 2012, about 64% of people received health
insurance through their employer and about
10% directly purchased an individual or family
health insurance policy from an insurance
company.
About 36% of people received health insurance
through a government program including Medicaid,
Medicare, and the program run by the Department
of Veteran Affairs.
About 16% of people were uninsured.
Note: Because some people have more than one
type of health insurance, the sum of the values
shown here for each category is greater than
100%.
Health care in America has been through various
cycles from patient paid fees directly to
their doctor, to insurance company payer systems,
to Health Maintenance Organizations - HMO.
Each had advantages, but in 2010 the Affordable
Care Act solidified health insurance company
dominance in the marketplace.
We still have Medicare, Medicaid, Military
Health Insurance, and some state sponsored
variants, but the employer mandate put in
place by the ACA shifted this category of
insurance to new levels.
In 2012, about 98% of firms employing at least
200 workers and about 61% of firms employing
3 to 199 workers offered health insurance
as a fringe benefit.
Some health insurance plans reimburse doctors
and hospitals on a fee-for-service basis,
a system under which doctors and hospitals
receive a payment for each service they provide.
About 16% of people were not covered by health
insurance in 2012.
Some young people opt out of employer-provided
health insurance because they do not believe
the cost of premiums their employers charge
is worth the benefit.
The uninsured must pay for their medical bills
out-of-pocket.
Addressing the problems of the uninsured was
one of the motivations for the health care
legislation enacted in 2010.
Canada has a single-payer health care system,
a system in which the government provides
health insurance to all of the country's residents.
As in the United States, most doctors and
hospitals are private businesses, but they
are required to accept fees that are set by
the government.
As in the United States, doctors and hospitals
are typically reimbursed
on a fee-for-service basis.
But unlike in the United States, doctors and
hospitals are required to accept the fees
set by the government.
Japan has a system of universal health insurance
under which every resident is required to
enroll in one of many health insurance societies
organized by industry or profession, or enroll
in the health insurance program provided by
the national government.
The Japanese system requires substantial co-payments
under which patients pay as much as 30% of
their medical bills.
As in the United States, most doctors do not
work for the government, and there are many
privately owned hospitals.
In the United Kingdom, the health care system
is referred to as socialized medicine, a health
insurance system under which the government
owns most of the hospitals and employs most
of the doctors.
Apart from a small co-payment for prescriptions,
the National Health Service (NHS) supplies
health services without charge to patients.
Elective care is a low priority.
To avoid waiting lists, more than 10% of the
population has private health insurance to
pay for elective procedures.
The United States is well above the line showing
the average relationship between income per
person and health care spending per person,
which indicates that the United States spends
more on health care per person than do other
countries, even taking into account the relatively
high levels of income in the United States.
Typically, the higher the level of income
per person in a country, the higher the level
of spending per person on health care.
Health care spending per person in the United
States is higher than in other countries.
Comparing health care outcomes among members
of the Organization for Economic Cooperation
and Development (OECD), the United States
does relatively poorly
in terms of infant mortality.
People in the United States are more likely
to have complications from diabetes and more
likely to be obese.
The United States rates well in the availability
of medical equipment that can be used to diagnose
and treat illness.
People in the United States have a lower rate
of cancer deaths and a lower probability of
dying from cancer before age 75 than in most
OECD countries.
Difficulties in making cross-country comparisons
in health care outcomes include:
* Data problems
* Problems with measuring health care delivery
* Problems with distinguishing health care
effectiveness from lifestyle choices
* Problems with determining consumer preferences
Each country has deployed a different solution,
each particular to their specific culture
and in response to their resources available.
[Music]
Asymmetric information is the core of the
healthcare challenge.
A situation in which one party to an economic
transaction has less information than the
other party.
That is the core of the healthcare challenge.
You know your ailments better than anyone
else.
If you, or anyone else in this situation,
takes advantage of that insider information,
you can use it for Adverse Selection advantage.
As sellers of lemons taking advantage of knowing
more about the cars they are selling than
buyers do, the used car market will fall victim
to adverse selection, just as the health care
market does: The situation in which one party
to a transaction takes advantage of knowing
more than the other party to the same transaction.
Michael one day all this will be yours.
This??
this see this junker? I paid $100 for her.
She's got 120,000 miles on her
transmission shot,
bumpers have fallen off.
what do I do with her?
hmm I sell her!
We really should weld these bumpers on,
but that takes time, equipment, and money
so
we use super glue instead.
Go ahead put it on!
Won't it fall off?
Definitely!
Isn't that dangerous?
NOT TO ME!
Asymmetric information problems are severe
in markets for all types of insurance.
Insurance companies provide risk pooling when
they sell policies to households.
An insurance company can pool the risk of
your house burning down by selling fire insurance
to thousands of other homeowners.
For the insurance company to cover its costs,
the total amount it receives in premiums must
be greater than the amount it pays out in
claims to policyholders.
A company that charges premiums that are too
high will lose customers to other companies
and may be driven out of business.
One obstacle to health insurance companies
accurately predicting the number of claims
policyholders will make is that buyers always
know more about the state of their health
than do the companies.
Therefore, insurance companies face an adverse
selection problem.
If companies have trouble determining who
is healthy and who is sick, they may end up
setting premiums that are too low and will
fail to cover their costs.
If companies raise their premiums, healthier
people may drop their insurance.
This would lead to an adverse selection problem
because policyholders will be less healthy
on average than they were before the premium
increase.
One way to deal with adverse selection is
to require individuals to buy health insurance.
The Patient Protection and Affordable Care
Act (ACA), beginning in 2014, residents of
the United States were required carry insurance
or pay a fine leveled by the IRS.
This provision is known as the individual
mandate.
The insurance market is also subject to moral
hazard: The actions people take after they
have entered into a transaction that make
the other party to the transaction worse off.
Moral hazard in the insurance market occurs
when people
change their behavior after becoming insured.
Normally, there are two parties to a transaction:
the buyer and the seller.
The insurance company becomes a third party
to the purchase of medical services because
the company pays for some or all of the service.
Economists refer to traditional health insurance
as a third-party payer system.
This means that consumers of health care do
not pay a price that reflects the full cost
of providing the service.
Third-party payer health insurance can lead
to a principal-agent problem, a problem caused
by agents pursuing their own interests
rather
than the interests of the principals who hired them.
Doctors can pursue their own interests rather
than the interests of their patients.
Because health insurance pays most of the
bill for medical procedures, patients are
more willing to accept them.
The fee-for-service aspect of health insurance
can make the principal-agent problem worse
because doctors and hospitals are paid for
each service performed, whether or not the
service was effective.
Insurance companies can reduce, but not eliminate,
adverse selection and moral hazard problems
by using deductibles and coinsurance.
Someone applying for an individual health
insurance policy is usually required to submit
his or her medical records.
Insurance companies have frequently offered
limited coverage of pre-existing conditions.
Critics argue that by excluding or limiting
coverage of pre-existing conditions, insurance
companies force people with serious illnesses
to pay the entire amount of large medical
bills or to go without medical care.
The companies argue that if they do not exclude
coverage of these pre-existing conditions,
then adverse selection problems might make
it difficult to offer any health insurance
policies or force companies to charge premiums
so high as to cause healthy people to not
renew their policies.
Some goods or services involve an externality,
which is a benefit or cost that affects someone
who is not directly involved in the production
or consumption of a good or service.
There are several aspects of health care that
economists believe involve externalities.
For example, anyone vaccinated against a communicable
disease protects not just himself or herself
but also reduces the chances that people who
have not been vaccinated will contract the disease.
People who do not get vaccinated still benefit
from other people being vaccinated.
As a result, the marginal social benefit from
vaccinations is greater than the marginal
private benefit to people being vaccinated.
Because only the marginal private benefit
is represented in the market demand curve
D1, the quantity of vaccinations produced,
QMarket, is too low.
If the market demand curve were D2 instead
of D1, the level of vaccinations would be
QEfficient, which is the efficient level.
At the market equilibrium of QMarket, there
is a deadweight loss equal to the area of
the yellow triangle.
As we explore goods and services in the marketplace,
consider ideas of rival and excludable goods
or services.
A rival good means to consider consumption
of the good: if you consume it and thereby
no one else can consume it, then it is rival.
Excludable goods means that when you purchase
the good,
no one else can consume that particular good.
We take a closer look at healthcare through
discussion of economics.
Using these considerations, goods and services
can be divided into four categories on the
basis of whether people can be excluded from
consuming them and whether they are rival
in consumption.
A good or service is rival in consumption
if one person consuming a unit of a good means
that another person cannot consume that unit.
Put health care into this analysis - where
does it belong?
Studying this table, is health care a public
good, like national defense or the legal system?
Nonrival would mean one person receiving health
care would not prevent another person from
receiving it.
Hmmm, that is not really the case is it?
While you are in a hospital bed, no one else
can be there at the same time.
Non-Excludability?
Are people really excluded from getting healthcare
if they cannot pay for it?
The ACA passed in 2010 made payment for healthcare
mandatory.
If you do not pay, you do not receive it plus
you are fined through your tax submission
if you failed to pay.
Really, healthcare fits into the category
of a Private Good where
it is both excludable and rival.
President Trump has introduced several changes
to make healthcare more available across state
lines, thereby increasing competition, making
healthcare costs tax deductible, and allowing
Health Saving Accounts that will further allow
tax deductions across tax years.
Information asymmetries, externalities, and
imperfect knowledge combine to create a challenging
situation for any government to manage.
Consider for yourself, what is the most equitable
solution for American Healthcare?
Also ask yourself, is the Positive analysis
or a Normative Analysis question?
[Music]
Here we see that health care spending has
been rising in the United States since the
1960s, and before that.
Health care spending rose from less than 6%
of GDP in 1965 to about 17% in 2013, and it
is projected to rise to about 20% by 2019.
When considered as health care spending alongside
other personal consumption items, health care
costs have risen at a slower rate than either
our spending on goods in general or our spending
on durable goods like appliances and automobiles.
Now consider how much people in other countries
spend on healthcare.
Germany and Norway appear to rank at the top
of this list at over $5,500 per person per
year, but one is missing.
Oh ya, it is the United States.
There we are topping $8,500 a year per person.
So, we are topping the world in per person
costs, and not by a little, but by a lot - by
50% more than the next highest countries.
Out-of-pocket spending on health care has
declined sharply as a fraction of all health
care spending, while the fraction of spending
accounted for by third-party payers, such
as firms or the government, has increased.
This demonstrates the challenges presented
by the third-party payer problem in America.
As consumers, we are not directly paying for
the services we order
from our health care providers.
At the same time, our medical service providers
are not paid directly
by the patients they serve.
The third party is the insurance companies
we and our employer pay, and who decides how
much each procedure or service will cost.
Price negotiations are made within the guidelines
of federal rules and health care service providers.
Notice that patients are not involved in the
price negotiations at all.
Where is the incentive for the customer to
shop around for the best price for an MRI,
a knee surgery, or medications?
Lots of pundits point to the extreme costs
of paperwork brought on by regulations as
a cause of increasing costs.
Providers are obligated to enter specific
codes for each ailment and corresponding treatment.
That costs money.
Others point to the heavy cost of litigation
brought on because ailments are not always
alleviated the way patients find reasonable.
Big picture - this happens but accounts for
somewhere between 1% and 7%
of total medical costs.
This percent of expenses have not changed
much over the past 25 years.
Uninsured patients often seek medical attention
in expensive emergency rooms, when they would
have been better served, at lower costs, in
doctor offices or in "ready care" clinics.
But since they do not have health insurance,
they are not granted appointments.
That causes expense creep to climb sharply.
Cost disease is not specifically unique to
health care providers, but it carries a definite
cost burden.
Think of how new technologies have changed
how manufacturers make something like a computer.
Automated soldering devices, mechanical assembly,
and lightweight materials lead to Moore's
law that says that you double computer capacity
every 18 months, at half the price.
Healthcare has witnessed substantial advances
in sickness discovery and for some treatments,
but ultimately it is realized with one medical
service provider visiting with one patient
at a time.
Forty years ago, a visit with my doctor took
30 minutes, and today, it takes half an hour.
At the same time, providers have the expectation
of salaries commensurate with their extremely
long university training programs, tremendously
high stress occupations of life and death,
and substantial governmental regulations of
their occupations.
A substantial effect of good health care and
improved life choices has created a population
that has people living into senior citizen
status for decades.
When we age, we need more health care attention.
Typically, expensive health care attention.
Although the aging of the U.S. population
will increase federal government spending
on the Medicare and Medicaid programs, increases
in the cost of providing health care will
have a larger effect on government spending
on these programs.
Considering this again as an economist, we
can find an equilibrium price and quantity
where supply meets demand.
If consumers paid the full price of medical
services, their demand would be D1 and the
equilibrium quantity would be at the efficient
level QEfficient.
Because consumers pay only a fraction of the
true cost of medical services, their demand
is D2, and the equilibrium quantity of medical
services produced increases to QMarket, which
is beyond the efficient level.
There is a deadweight loss equal to the yellow
triangle.
Doctors and other suppliers of medical services
receive a price, PMarket, that is well above
the price, P, paid by consumers.
Making healthcare an issue of American national
priority has gained attention for a hundred
years, specifically putting the needs of everyone
- rich and poor - into the national debate.
These debates did not start over the ACA in
2010.
President Truman proposed a National Health
Insurance program in 1945.
President Clinton proposed a universal health
care package in 1993.
In both cases, Congress did not agree with
the President's plan and they were not implemented.
This debate changed in 2010 when President
Obama, with majority in both House and Senate,
passed the Affordable Care Act.
Several key components of the ACA were promised
to Americans that were immediately not realized,
like the ability to keep doctors patients
liked, and choices of levels of coverage.
Highly significant became the evacuation of
insurance companies from some states because
they could not operate profitably within ACA
regulations.
That left single insurers in certain locations
and the loss of market competition to hold
costs low.
Healthcare premiums shot up 22% on average
from 2016 to 2017.
In 8 states costs went up over 30% and in
Arizona, it went up 116%.
now for more on this let's bring in
Marco Soriano he's the managing partner
of the Soriano group thank you for
joining us happy new year
thank you so much during the election
Mr. Trump was saying we're going to
repeal Obamacare he walked back a little
bit now he's saying we might try to save
parts of it what do you see happening
repeal or modify definitely a
modification of the current ACA would be
more appropriate
I think the rhetoric the political
rhetoric that was happening was just
part of the campaign we can all agree on
that but it will be more beneficial to
the average American to implement
modifications to the plans to reform
rather than what he was saying what
would you like to see saved and what
needs to go
I think the biggest problem that we have
with Obamacare is understanding it
there's too many logistical problems
there's five categories that will make
you a good candidate for then you have
four different types of plants that you
can choose from where if you choose the
lowest premium you manned up and higher
deductible so these are in this
information that should be disclosed
clear to the to the people and make them
understand what are the benefits and the
pros and cons of this but beyond that
though what about the fact that premiums
have been going up on average they've
been going up into double digits things
like that
how do you stop all that how do you stop
it was very complicated to say first I
don't think is going to happen right away
Donald Trump and his team of advisors
should take their time to understand the
implications that any changes may cause
down the line because he has so many
other plans in place as well so it isn't
as easy as its success right arm so i
would suggest the same take a very close
look at these implications rather than
making big college like this
well they are estimating that it will
take two to four years to come up with
the full replacement plan and if they
repeal Obamacare early on but then it
takes a full four years to replace it
what happens in the interim
a lot of Americans that are already
enrolled would have issues wave if
they're sick and seeing doctors on
the will have to pay under their own
pockets for these expenses and that's
nothing that we want to do so they need
to think about that a little bit more
and what we're hearing about a death
spiral that's the term that people are
using where the premiums keep going up
and then you know the coverage goes down
and then you have less competition and
the less competition is making the
prices go up even further do you think
concerns about a death spiral are real
yes I mean possible on the possibility
that could have occurred it depends on
legislation at this point that's why i
don't suggest i don't think that it
would be immediate a change of reform
right away into this besides the fact
that most Americans that have enrolled
for 2017 are already in the plan so
you'll have to wait in 2018 to make any
proposals that need to be adjusted or
accepted in Congress yeah if it's gonna
be a long process for sure and we just
saw that President Obama is still hoping
to stop it but as I Steve Moore said on
our show earlier are you republicans are
in control right now do they have any
shot here and i can say everything you
want so I think there's a lot of haters
of the Obamacare plan therefore lack of
information on the ACA which is really
what it is ye paca and so common it also
by cared meet leads people to understand
where this information is in in the
internet whether Donald Trump or
Republicans are supporting this
initiative by Obama that's a different
story but they should study it carefully
because it can implicate a lot into our
economy and the plan that we have for
the future right
Marko Soriano thank you so much thank
When you shop for a car or truck, new or used,
you shop around.
That is just what we as consumers normally
do.
Look for the vehicle we like, that serves
our needs, and is affordable.
This basic feature of the economy is pushed
aside in much of our healthcare system because
of the third-party-payer system.
Magnetic Resonance Imagining, an MRI may cost
you $925 or $10,000.
But as a consumer you really are not negotiating
that, are you?
You have insurance so it is not really your
problem, especially if you already met your
deductible for the year.
It seems ridiculous that the basic market
structures to find equilibrium from supply
and demand curves has eluded healthcare in
America.
We take a look at one provider who recognizes
the need to advertise their costs to consumers
when they have not yet met their deductibles.
Let's take a look.
it's a new year that means you start all
over with your healthcare deductible be smart
get your MRI on the lowest cost provider
and save yourself money which give the
art technology first MRI has the
equipment any experienced staff to get
your MRI done quickly and comfortably
look how much you can save by going to
first first best of all first of our I
offers great pricing without sacrificing
quality it's your money
tell your doctor you want the
lowest-cost MRI insist on going to
first MRI.
Market-based reforms are changes in the market
for health care that would make it more like
the markets for other goods and services.
Economists who support market-based reforms
to improve the health care system were disappointed
that the ACA did not adopt this approach.
One goal of market-based reforms would be
to ensure that U.S. firms continue their innovations
in equipment, procedures, and drugs.
The ultimate bottom line of a modified US
healthcare system must be focused on the improvements
of how medical care is translated into the
health of the American public.
That does not mean only the delivery of improved
treatments.
It translates to how Americans improve the
overall health of the population.
It is about eating healthier meals, living
healthy lifestyles, enabling active involvement,
while stopping destructive habits of alcohol,
drugs, smoking, and high-risk activities.
So much of our reduced enjoyment of healthy
living is from self-induced destructive behaviors.
Only then, we can concentrate on our healthcare
efforts squarely on prevention of catastrophic
diseases like cancer, multiple sclerosis,
leukemia, heart attacks and stroke.
Did everyone pay attention to what I just
did?
I converted my Positive Analysis discussion
into a Normative Analysis opinion.
In reality, many people make a tradeoff between
longer lives and drug use enjoyment, between
healthier breathing of fresh air and smoking
tobacco or marijuana to feel the high of it.
People enjoy the fatty foods at fast-food
markets instead of taking the time to eat
a meal from home with low calorie.
Those are tradeoffs made with short-term benefits,
ignoring longevity.
[Music]
