Chapter Review: Key Points

Date: 2015-10-07; view: 577.

Chapter Objectives

THE ECONOMICS OF HEALTH CARE

Chapter 3(35) Module 5

After you have studied this chapter you should be able to explain how health care differs from most other services and what problems this presents, why health care costs have risen rapidly over the past three decades, the role health insurance plays and how it affects peoples' actions, and the strength and weaknesses of centralized and decentralized health care plans.

1. The major issues driving the call for health care reform are high and rapidly rising costs for care and the nearly 35 million people uninsured.

2. The uncertain nature of individuals' needs for medical treatment has resulted in heavy reliance on comprehensive health insurance. Added to this is the massive restructuring taking place in corporate America. Jobs are less secure and more part-time workers have replaced full-time employees, making access to health care more acute.

3. Public health care externalities are widespread. Because people are often concerned with their neighbor's access to care, there is a growing consensus in America that all individuals have a right to quality medical care regardless of their ability to pay.

4. Significant asymmetries of information between patients and medical personnel makes it virtually impossible for patients to evaluate the efficacy of certain types of medical care. This problem is exacerbated by the incentives faced by doctors under the current fee-for-service system because doctors have an economic incentive to expand the level of services provided each patient. Capitation systems of payment (fixed annual fees per patient) embody incentives to hold health care costs down.

5. The health care industry is rife with market power on the parts of almost all players except individual patients. Licensing enhances the income of MDs.

6. Health care is only one input into the production of health. Health care services, like other inputs, is subject to the Law of Diminishing Returns -- the benefits from additional health carespending eventually declines.

7. Widespread reliance on medical insurance reduces elasticity of demand for medical treatment and increases the quantity of medical services consumed. Factors other than medical care enhance a persons overall state of health, but insurance reduces our incentives (creates a moral hazard) to maintain a healthier lifestyle.

S. Because insurance significantly reduces the cost of treatment to the patient, and the medical profession's Hippocratic oath mandates provision of all beneficial care, many analysts contend that this industry provides to much high-cost low-benefit care.

9. Private (non-group) medical insurance is prohibitively expensive for most individuals because the costs of administering individual plans are huge, and adverse selection problems abound. Adverse selection arises because individuals have better information than insurance companies about their general health. People in poor health gladly purchase insurance at average prices, while those in good health are more likely to self-insure (, if they won't accept insurance, join managed care). This raises the average risk of the pool or, causing prices to rise, further causing more healthy people to self-insure and so on.

10. The demand for medical care began a sharp climb when the government entered the market, with Medicare and Medicaid insuring the highest risk groups—the elderly and the destitute. Today, nearly half of all medical care spending is accounted for by these two programs. In addition, federal income tax rules heavily subsidize employer provided health insurance. To many observers, this has led to excess insurance coverage and overutilization of the health care system.

11. Widespread comprehensive health care coverage has encouraged the rapid development of high technology treatments. This rapid growth and ' proliferation of high-tech medical techniques has contributed to rising health care costs.

12. Relative to other industrialized nations, the United States spends 2 to 3 times more in absolute dollars and as a percent of GDP on health care. Unfortunately, our health careoutcomes (life expectancies and infant mortality rates) are lower than many other countries. This may be due to data that is not comparable and to differences in social, cultural, economic, and demographic conditions. These data also ignore the fact the United States is a world leader in medical research and development. (3750 digits)