| 1. |
The health care industry in the
United States covers a broad range of services provided by doctors
hospitals
dentists
nursing homes
and medical laboratories. It employs about 9 million people
over 600
000
of whom are physicians. There are about 6
000 hospitals. Some 680 million visits are made
to physicians each year.
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| 2. |
Two major problems face the health care system.
The costs of health care are high and growing rapidly. Some U.S. citizens do not have
access to health care or adequate coverage by the system.
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| 3. |
Health care costs are rising for many reasons.
- Costs have risen in absolute and relative terms.
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- Total health care spending pays for many items
and is obtained from many sources
as shown in text Figure 35-1.
- Expenditures were 14% of domestic output in 1995
and may rise to 16% by the year 2000.
- The highest per capita health care expenditures
in the world are in the United States.
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- There is general agreement that medical care in
the United States is probably the best in the world
which is a consequence of its high
expenditures for health care. That does not mean
however
that the United States is the
healthiest nation. In fact
it ranks low internationally on many health indicators.
- Rising health care expenditures and costs have
negative economic effects that include
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- reduced access and coverage for workers and
- others;
- labor market problems in the form of slower wage
growth
less labor mobility
and more use of part-time or temporary workers; and
- adding to budget demands at all levels of
government.
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- The basic problem is that there is an
overallocation of resources to health care and less economic efficiency in the use of the
nation’s resources.
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| 4. |
A large percentage of the population (about 16%
in 1996) have no medical coverage. Those medically uninsured are generally the poor
although some young adults with good health choose not to buy insurance. Low-income
workers and those employed in smaller businesses are less likely to be covered
or have
limited coverage
because of the higher costs of health care for smaller firms.
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| 5. |
There are many reasons for the rapid rise in
health care costs.
- The market for health care is different from
other markets because of ethical-equity considerations
asymmetric information
spillover
benefits
and third-party insurance.
- Several demand factors have increased health care
costs over time.
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- Health care is a normal good with an income
elasticity of about +1.0
so that spending on it will rise in proportion to per capita
income. Health care is also price inelastic
which means that total health care spending
will increase even as the price of health care rises.
- The aging population of the United States
increases the demand for health care.
- Unhealthy lifestyles because of alcohol
tobacco
or drug abuse increases the demand for and spending on health care.
- Doctors can add to costs because there is
asymmetric information — the provider knows more than the buyer — and thus there
is supplier-induced demand. Doctors have no strong incentive to reduce costs for the buyer
and perhaps an economic interest in increasing them because they are paid on a
fee-for-service basis. Two other doctor practices may contribute to increased costs:
“defensive medicine” may be used to prevent possible lawsuits
and medical
ethics require the best (and often the most expensive) procedures.
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- Although health insurance plays a positive role
in giving people protection against health risks
it contributes to increased costs and
demand for health care.
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- Physicians have high incomes that add to medical
costs
although it is difficult to identify what specific factors determine the high
income levels.
- The productivity growth in health care has been
slow.
- Most new medical technology has increased costs
despite the fact that some technological advances in medicine have decreased costs.
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- Supply factors affect health care costs.
- Only a relatively minor portion of the increase
in health care costs can be attributed to increasing incomes
the aging of the population
or defensive medicine. The most likely explanations for the rise in health care costs are
the use of new medical technology and a third-party system of insurance payments with
little incentive to control costs.
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| 6. |
Reforms for the health care system call for
increased access to health care and cost containment.
- There are three basic proposals for increasing
access.
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- “Play-or-pay” schemes would require all
employers either to fund a basic health insurance program (play) or finance health care
through a special payroll tax (pay).
- Tax credits and vouchers are another option
designed to make health insurance more affordable for the poor.
- A national health insurance (NHI) program would
provide universal coverage at no cost or at a low cost and would be financed out of tax
revenues. The basic arguments for NHI are its simplicity
the choice of physician
the
reduction in administrative costs
the improvement in labor market mobility
and increased
government bargaining power to contain costs. Arguments against NHI are the
ineffectiveness of price controls
increased waiting for doctors and tests
the
inefficiency of the Federal government
and income redistribution problems.
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- To contain health care costs
alternatives that
use incentives have been adopted.
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- Insurance companies have increased deductibles
and copayments to provide more incentives for consumers to reduce health expenditures.
- Managed care organizations are being more widely
used to control health care costs and are of two types. Preferred provider organizations
(PPOs) offer discounts to insurance companies and consumers who use them. Health
maintenance organizations (HMOs) are prepaid health plans that closely monitor health care
costs because they operate with a fixed budget.
- The diagnosis-related-group (DRG) system has been
used to classify treatments and fix fees in an effort to reduce the costs of Medicare payments
although the DRG
systems may also reduce the quality of care.
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- The status report on health care reform shows
several recent developments. In 1993
the Clinton administration submitted the Health
Security Act (HSA) to Congress. It would have provided universal insurance coverage for a
standard package of benefits that would have been financed by employer mandates. The
complexity of HSA and fears about the creation of a health bureaucracy contributed to its
defeat. Since then
Congress has passed more modest health legislation that allows workers
to maintain health insurance when changing jobs or becoming self-employed. Congress also
authorized the trial use of medical savings accounts as a tax-deductible way for selected
groups to pay for medical expenses.
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