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Chapter 7 notes: Health Care

by: Moriah Gerber

Chapter 7 notes: Health Care ECON 142

Marketplace > Kansas > Micro Economics > ECON 142 > Chapter 7 notes Health Care
Moriah Gerber
GPA 3.5

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About this Document

These notes have all you need to know about health care systems and how it plays into economics
Dr. Brian Staihr
Class Notes
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This 5 page Class Notes was uploaded by Moriah Gerber on Wednesday September 28, 2016. The Class Notes belongs to ECON 142 at Kansas taught by Dr. Brian Staihr in Fall 2016. Since its upload, it has received 12 views. For similar materials see Microeconomics in Micro Economics at Kansas.

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Date Created: 09/28/16
Monday, September 26, 2016 Chapter 7 - the economics of healthcare Comparing Systems - In the U.S. today most people don’t pay for health care, most people buy health insurance —> then the insurance company pays for the health care (whole or part) - Some people get health insurance through where they work (about 55%) - Some people get health insurance through the government [health insurance provided by the government, not health care] (36% of people) • MEDICAID — lower income • MEDICARE — elderly - Some people buy health insurance through the market (15%) - Some people just go without health insurance (10%) - Comparing systems through an example: United States: Bob breaks his arm, he has insurance and pays a premium every • month —> his insurance pays the doctor • Canada: Bob breaks his arm, he has health insurance through government, bob does not have to pay a premium but pays his taxes every month —> government pays the doctor when Bob breaks his arm - single payer system • United Kingdom: Bob breaks his arm, Bob does not have insurance but instead the doctor is a government employee, Bob does not pay a premium but pays his taxes every month —> Bobs taxes pay the doctor’s salary - Socialized Medicine READ ABOUT JAPAN IN BOOK • Going without health insurance vs. going without health care - “in the U.S. no one goes without health care because people can always go to the emergency room” • Very misleading!! 1 Monday, September 26, 2016 • Emergency rooms required to treat ACUTE cases but are NOT required to treat CHRONIC cases - Ex: coughing up blood, they determine you have lung cancer —> they stop you from coughing up blood but will not treat your cancer - Emergency medical treatment and active labor act (EMTALA) United States Third Party Payer System: - Party “consuming” the product isn’t the party “paying” for the product - Principal-agent problems (page 228) The Principal-Agent Problem - One party acting on behalf of another party, but there is asymmetric or incomplete information • Ex: you buy a coffee at Starbucks, you know its cold and that you want another. You buy a coffee at Starbucks for another person and you can’t tell if it is cold and that they want another • Ex: Professor acting on behalf of the school - professors boss doesn’t actually know what they are doing or teaching during class each day • Ex: Doctor’s acting on behalf of who? - The principal-agent problem: agent pursues his/her own interests instead of the interests of the principal who hired him/her • Ex: doctor says to patient “Here’s this test we can do on you, it costs $1000 but your insurance will cover it. Theres a 85% chance it won’t tell us anything, and a 15% chance it will give us important information about your health.” - Question 1: Is it in the patients best interest to go ahead and have the test done? - Question 2: Is it in the insurance company’s best interest to go and have the test done? - Question 3: Who is the doctor acting on behalf of? 2 Monday, September 26, 2016 Asymmetric information - One party has more information than another party does entering a transaction - With insurance the buyer knows more than the seller - The market for lemons example: • Creator: George Akerlof - He won nobel prize in 2001 because of this example • What he said: because the seller has more info than the buyer, the market can “break down” • Example: assume two types of cars : good cars and the “lemons” • assume market is split 1/2 and 1/2: 1/2 good cars and 1/2 lemons • good cars sell for $15000 and lemons sell for $5000 • seller knows if car is a good one of a lemon, buyer doesn't • 50/50 chance of buying lemon, most buyers would pay .5 times 15000 + .5 times 5000 or 10000 • 100000 is acceptable for a lemon for the seller - Punchline in three parts: markets function badly when info is incomplete - markets function better when info is more complete - a role for government? encourage/require more complete information Adverse Selection - Means hidden information - When one party takes advantage of another party’s lack of information - Result: bad products or bad customers are more likely to be selected Risk Pooling - A way to reduce adverse selection in insurance 3 Monday, September 26, 2016 Moral Hazard - Hidden action or behavior - An action one party takes after entering into transaction that takes advantage of other party’s lack of information • Ex. you lock your apartment door all the time until you buy insurance, then you aren’t as careful to lock it Health care - It is rival, excludable, and does not technically qualify as a public good Rising cost of health care: - health care accounts for a huge part of our overall economy - What makes the cost rise? • 4 things that are NOT the reason: 1. Excess paperwork, bureaucracy, duplication, and waste 2. Everyone can sue doctors for malpractice ; doctors have to pay malpractice insurance 3. Everyone can sue doctors for malpractice; doctors order unnecessary tests to cover themselves 4. Uninsured people go to the emergency room; this is expensive and inefficient • 3 things that are the reason for the cost rising: 1. “Cost Disease” - The service industries do not see productivity gains like manufacturing industries do. - Low productivity in service industries causes higher costs, that is called cost disease 2. The population is aging: health care spending on people over age 65 is 6x greater than the health care spending on people between 18 and 24 4 Monday, September 26, 2016 3. Distorted economic incentives The patient protection and affordable care act “Obamacare” - Singed into law into 2010 - It is NOT a “socialized” medicine, or a single payer system - It is a set of adjustments to our current third party payer system - Individual mandate: • Requires all individuals to have insurance or pay a fine (Risk Pooling) • Low income people are offered a tax credit to offset the cost of buying insurance - Pre-existing conditions: Stops insurance companies from denying coverage to people because of pre- • existing conditions • Stops insurance companies from charging a much higher premium to people with pre-existing conditions - Employer mandate: • Requires all firms who are employing more than 200 employees to offer insurance to employees • Requires all firms who are employing 50 or more employees must offer health care or pay a fee • Small firms do not have to offer insurance - How we pay for Obamacare: people with incomes > $200,000 will see some tax increases - Young people can stay on parents insurance until age 26 5


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