Healthcare

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Healthcare
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Why do we care?

• Big national debate
• Important element of social welfare
• Important distribution impacts
• Important efficiency impacts

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Ends, means and allocation

• What are the desirable ends?
• A healthy population
• Worlds best healthcare system?
• Lots of debate over details, but as a society, we
  made the decision we dont want hospitals turning
  people away to die in the street.
• What are the scarce resources?
• Our national health care system Drs., hospitals,
  RD, technology, etc.
• How do we allocate?
• We want to achieve our desirable ends as cost
  effectively as possible.
• Is private sector or government sector most cost
  effective?

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Why should government be involved?

• If we have decided Drs. and hospitals cant turn
  people away, then who should pay?

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Market failures

• Public goods
• Contagious disease, tuberculosis, AIDS
• Societal attitudes towards health
• Technology and information
• Adverse selection
• Money spent denying care
• Costs of not providing care
• Moral Hazard

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Market failures

• Preventative vs. curative care
• People change insurers every 18 months
• Costa Rican miracle
• Economies of scale
• Competition, Market size and poor information
• What happens to price when of hospitals
  increases?
• Do people shop around for bargain prices?
• Franks neurosurgery The works--200

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Perverse incentives

• Traditional
• Maximize profits by over-treating
• Producer tells consumers what they need
• More they sell, the more they profit
• The sicker the patient, the more money they make
• Managed care
• Patients change providers, so preventative care
  not cost effective
• Maximize profits by denying treatment
• Market solution
• Health care system provides health. Providers
  only get paid when patient is healthy

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Competitive advantage

• Private sector covers large chunk of private
  health care costs
• Can GM and Ford compete with foreign companies if
  they pay 1000 in health insurance per car?
• NYT article, 7/27/04 G.M. and Ford have lagged
  behind Toyota and Honda in part because the
  American makers' research and development budgets
  have been crimped by high overhead costs, like
  health insurance premiums, which are a much
  smaller issue in countries like Japan.
• People with pre-existing conditions cant change
  jobs, even if they would be more productive doing
  something else

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The Current System
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Medicaid

• Means tested
• 40 million participants
• 220 billion
• Much larger than other aid programs for the poor
• Administered by states, funded by states and fed.
• Medicaid notch

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Medicare

• Not means tested, for elderly and disabled
• 39.6 million enrollees
• 254 billion/yr and rising
• Payroll tax like SS
• Supplemental medical insurance funded from
  general revenue, massively subsidized

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Other government expenditures

• Center for Disease Control
• National Institute for Health
• Tax subsidies for employer provided health
  insurance
• VA
• Hospital subsidies
• Govt employees
• Department of health and human services, etc.

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Who pays for uninsured?

• Hospitals
• Insured
• Uninsured

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Anything wrong with the current system?
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Issues with Medicare and Medicaid

• Very high share of government expenditures,
  growing more rapidly than SS
• Politically sensitive issue

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Unsustainable growth rate
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Lack of coverage

• 44 Million uninsured Americans for at least a
  year
• 80 million plus for some time during the year
• Numbers are rising

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Cost Effectiveness

• US healthcare costs highest in the world, 2X
  Germany and Canada per capita
• Double digit rates of increase (15 in 2003)
• Lies, damn lies and statistics
• US has some of lowest indicators among developed
  nations

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Costs in 2000

• Country of GDP
• Canada 9.1
• England (U.K.) 7.3
• France 9.5
• Italy 8.1
• Japan 7.8
• United States 13

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Health Outcomes

• In Study of 13 most developed nations, United
  States ranks an average of 12th (second from the
  bottom) for 16 available health indicators.
• 13th (last) for low-birth-weight percentages
• 13th for neonatal mortality and infant mortality
  overall 14
• 11th for post neonatal mortality
• 13th for years of potential life lost (excluding
  external causes)
• 11th for life expectancy at 1 year for females,
  12th for males
• 10th for life expectancy at 15 years for females,
  12th for males
• 10th for life expectancy at 40 years for females,
  9th for males
• 7th for life expectancy at 65 years for females,
  7th for males
• 3rd for life expectancy at 80 years for females,
  3rd for males
• 10th for age-adjusted mortality

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Why are costs so high and rising?
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Improved technologies

• Heart disease
• Pharmaceuticals
• Statins
• Viagra etc.

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Administrative costs

• US vs. Canada
• 1999
• 1059 per capita in US, or 31
• 307 per capita in Canada, or 16.7
• Overhead for Canadas national health insurance
  program 1.3
• Thousands of private insurers dramatically
  increase paperwork and bureaucracy

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Pharmaceuticals

• Americans pay 2 times as much as Canadians for
  identical drugs
• Pharmaceutical companies have the highest profit
  margins of any industry
• Companies recently busted for paying Drs. to
  prescribe their drugs
• Advertising

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Drug Companies spend more on advertising than RD

• - AstraZeneca (producer of Tamoxifen) In FY1999
  AstraZeneca reported spending only 16, (2.4
  billion) on research and development. In
  comparison, it reported pocketing more than 24
  (3.69 billion) in beforetax profits while
  spending more than 31 (4.8 billion) on
  marketing and administration.
• - Merck and Pfizer spent just 11.2 of its
  revenues on RD in 1997 on RD. At the same time,
  these companies pocketed 18.6 in pure profit and
  spent 28.9 on advertising (Sager/Socolar study,
  Boston University)

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Federal Government does substantial RD

• According to a May, 2000 congressional Joint
  Economic Committee report, The Federal government
  funds about 36 of all U.S. medical research
• Major drugs have been developed with
  taxpayer-funded research Of the 21 most
  important drugs introduced between 1965 and 1992,
  15 were developed using knowledge and techniques
  from federally funded research. Of these, NIH
  research led to the development of 7 drugs to
  treat patients with cancer, AIDS, hypertension,
  depression, herpes and anemia
• A study of 32 drugs introduced before 1990 found
  that without the contributions of government
  laboratories and non-commercial institutions,
  approximately 60 of the drugs would not have
  been discovered or would have been delayed. This
  suggests public sector research is becoming more
  important over time (Maxwell and Eckhart 1990)

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Profit motive

• 1 of patients incur 27 of costs
• Private sector spends lots of money making sure
  they do not insure these people
• End up on government tab or in emergency room
• Very high profits in sector
• Rent seeking activities and fraud

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Emergency rooms and curative medicine

• People denied care unless it is an emergency
• Preventative medicine does not maximize profits

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Potential Solutions

• HMOs/Managed care
• Mixed private/public (Clintons plan)
• Medical savings accounts
• Prescription drug benefit
• Government subsidized insurance
• Single payer, single risk pool