ECONOMICS FOR HEALTH POLICY LECTURE 1: INTRODUCTION

1
ECONOMICS FOR HEALTH POLICYLECTURE 1
INTRODUCTION
2
Plan of class

• Introductions
• Outline of course (see syllabus)
• Why study health care policy?
• The Canadian health care system introduction
• Some facts about the U.S. health care system
• What is economics?
• The place of economics among approaches to
  thinking about health policy issues

3
Why study health care policy? -1

• Canadians consistently rank it as a major issue
  frequent subject of media reports
• About 10 of Canadas economy goes to health
  care. In 2000 the average household spent
  (out-of-pocket) 1,357 on health care, or 3 of
  after-tax spending - and these amounts are
  rising. Policy decisions likely to have direct
  impact on our economic well-being, as well as our
  health.

4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
Why study health care policy? -2

• How much we spend on health overall affects our
  ability to spend on other things
• private goods (through increases or reductions in
  taxes, health care premiums, and out-of-pocket
  medical expenses)
• competing public goods (education, etc.)
• Current financing arrangements are much more
  egalitarian than in the U.S., which many
  Canadians value in and of itself, and as a source
  of national pride and identity. These
  arrangements are now threatened.

8
(No Transcript)
9
Chronology (1)...

• 1947 Saskatchewan institutes a public
  hospital-insurance plan
• 1956 Federal government offers provinces to
  share in the cost of universal hospital plans
  meeting certain criteria
• 1961 All 10 provinces and 2 territories have now
  signed universal hospital insurance plan
  agreements

10
Chronology (2)...

• 1968 Following Saskatchewans lead again, the
  Federal government offers provinces a similar
  deal as for hospitals, this time for physician
  services
• 1972 All 10 provinces and 2 territories now have
  universal coverage for physician services
• At this point, most transfers from the federal to
  the provincial governments for health are in the
  form of cost-sharing of hospital, physician and
  higher education programs

11
Chronology (3)...

• 1977 Change in the formula used to determine how
  much each province gets from the federal
  government. Provincial plans must still adhere
  to certain criteria but money received no longer
  tied to hospital, physician, and higher education
  programs
• Complex formula (called EPF) yielding per capita
  amount intended to increase steadily and
  predictably with inflation and population growth
• Thus, in principle, provinces free to shift some
  of the money, from higher education to home care,
  for example

12
Chronology (4)...

• 1979 (Justice Emmett) Hall Commission report
  highlights extra-billing by physicians and
  hospitals
• 1984 Canada Health Act (see below). Largely
  stops extra-billing.
• 1990-91 Finance Minister Wilson slows rate of
  increase in cash transfers to provinces -
  reducing federal governments ability to enforce
  Canada Health Act

13
Principles in Canada Health Act

• Public administration Provincial plan must be
  managed by non-profit entity accountable to
  provincial government (e.g., RAMQ)
• Comprehensiveness All necessary care must be
  covered.
• Universality 100 of the population must be
  covered under uniform terms and conditions
• Accessibility No extra-billing, discrimination,
  or other barriers to specific individuals
  receiving care
• Portability Provinces must cover Canadians from
  out-of-province within 3 months, and must cover
  their residents when travelling

14
Chronology (5)...

• 1996 Canada Health and Social Transfer Move
  Canada Assistance Plan (which includes subsidies
  for welfare payments, among others) into EPF.
• Thus the cash transfer to the provinces is
  increased. Provinces gain more flexibility in
  how to spend monies previously cost-shared in
  CAP, but federal government gains flexibility in
  amount it can potentially subtract for violations
  of CHA.

15
(No Transcript)
16
Thinking about health care systems

• A useful way to think about a health care system
  is as consisting of three (inter-related)
  sub-systems
• FINANCING (where does the money come from?)
• ALLOCATION (how is the money distributed among
  service providers - both in terms of amounts, and
  of payment methods?)
• DELIVERY (how are health care providers
  organized, and what services do they provide?)

17
Sources of health care financing

• Looking across different countries, health care
  is mostly financed through a varying combination
  of the following public and private sources
• General taxation (public)
• Government-sponsored insurance (public)
• Private insurance (private)
• Out-of-pocket payments (private)

18
(No Transcript)
19
(No Transcript)
20
Ban on private insurance for publicly-insured
services

• Applies to insured (necessary) hospital and
  physician services only no such provision at all
  for drugs
• Canada is unique in having such a law
• A central aim is to prevent competition among
  private and public insurers, which many
  economists view as wasteful.
• However, there are more and more cases of private
  insurers covering rapid access to certain
  hospital and physician services (e.g., imaging),
  on the grounds that such rapid access is not
  covered by public plans

21
Insurance for out-of-hospital pharma-ceutical and
non-physician services

• Provincial governments typically cover
  out-of-hospital pharmaceutical and some
  non-physician services for the elderly and for
  welfare recipients
• These plans vary in extent of coverage from
  province to province most impose some form of
  cost sharing
• Since 1997 Québec guarantees coverage for
  pharmaceuticals a new public plan provides
  insurance for those who are neither elderly and
  on welfare, and who do not have access to private
  insurance

22
(No Transcript)
23
(No Transcript)
24
Allocation

• Provincial governments have devolved varying
  amounts of authority to regional boards
• Hospitals receive 90 or more of their funds from
  the government (provincial or via a regional
  board) in the form of a global budget
• the determination of the global budget amount is
  evolving
• Physicians are gradually moving from
  fee-for-service payment to other methods (salary,
  hourly rates, mixed remuneration), particularly
  in teaching hospitals
• A very small number of physicians opt out of the
  provincial plans. Virtually all their income
  must come from cash payments by patients
• Payment arrangements are negotiated between
  physician associations and the provincial
  governments

25
(No Transcript)
26
(No Transcript)
27
Delivery

• Hospitals are typically private, not-for-profit
  institutions, with their own boards
• their employees are thus not provincial
  government employees. Exceptions in Ontario,
  hospitals for the mentally ill and the
  intellectually handicapped.
• Physicians are also, for the most part,
  self-employed
• about one third are in solo practice nationally
• Provincial governments (or regional boards)
  typically also fund a variety of other community
  services
• in Québec, CLSCs are an important example but
  there are many other small organizations as well
• CLSCs have territorial responsibilities, but have
  given themselves varying mandates - this was one
  of the sources of criticism in the Clair
  Commission report

28
The U.S. health care system

• Two main government programs
• Medicare - for the elderly, the disabled, and a
  few other categories of patients (in particular,
  End-stage renal disease)
• Medicaid - for certain categories of poor people
• The rest of the population either purchases
  private insurance, in general through their
  employer, or is uninsured (about 40 - 45 million
  uninsured)
• Great variety of private insurance arrangements
• Indemnity (insurer pays hospitals, physicians,
  etc. according to their charges) - fewer and
  fewer people can afford this
• Preferred-provider organizations (PPOs) - insurer
  selects providers who tend to be less expensive
• Health Maintenance Organizations (HMOs) - several
  types, including staff-model and point of
  service.

29
What is economics? (1)

• Economics can be defined as the study of the
  allocation of resources among competing ends
• Economics can be divided into 3 branches
• Economic appraisal - the evaluation of the
  relative costs and benefits of different programs
  (in health, education, the environment, etc.)
• Positive economics - understanding and predicting
  the behavior of consumers, insurers, providers,
  etc.
• Normative economics (or welfare economics) -
  evaluating the efficiency (less often, equity)
  consequences of different arrangements.

30
What is economics? (2)

• A more common distinction is that between
  microeconomics and macroeconomics
• Microeconomics (from Greek micro, small) Study
  of individual markets.
• Macroeconomics. Study of the economy as a whole
  inflation, unemployment, productivity growth, and
  how fiscal and monetary policy affect these, etc
• Health economics, in its positive and normative
  aspects, is microeconomics (economic appraisal is
  not really part of either micro- or
  macroeconomics)

31
What is economics? (3)

• Economics is distinct from other social sciences
  in that it examines voluntary exchanges among
  individuals in markets (political science
  examines relationships based on power, sociology
  and psychology a great variety of other social
  factors and processes - for example, trust).
• Economics is also unusual in its assumption that
  economic agents engage in optimizing behavior -
  they trade-off goods to reach a maximum (or
  constrained maximum) value on a utility (for
  consumers) or profit (for firms) function
• For example, consumers are assumed to distribute
  a fixed budget among alternative goods in a way
  that makes them happiest (maximizes their
  utility) or, in other models, they are assumed
  to distribute their time between work and leisure
  in a way that maximizes their utility

32
Why use economics to study health policy?

• Many, if not most, highly visible issues in
  health care policy have economic aspects, and
  economics has much to contribute to evaluating
  the consequences of policy alternatives
• private insurance
• user fees and medical savings accounts
• physician and nursing supply
• Other issues that are less visible, such as
  physician and hospital payment mechanisms, also
  have important economic aspects.