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WHY HEALTH ECONOMICS?
What makes health care different from other goods?
• Health is a major source of uncertainty and risk.
• Governments around the world are deeply involved in financing health systems.
• The U.S. health care economy is massive and expensive.
• The fact that other people’s health decisions affect you creates externalities– Examples:
• Vaccinations and other preventative measures create positive externalities
• Going out in public with Ebola virus creates negative externalities
• Externalities undermine the efficient function of markets and often require government intervention.
What makes health care different from other goods?
National Health Expenditures
Table 1. Expenditures, GDP, and US Population, 1960-20101960 1970 1980 1990 2000 2010
Nat'l. health exp. $28 $75 $256 $724 $1,377 $2,594 Private 21 47 147 488 889 1,429 Public 7 28 106 236 489 1,164
Amounts in Billions
Nat'l. health exp. $147 $356 $1,100 $2,854 $4,878 $8,402 Private 111 223 638 1,684 2,678 Public 36 134 462 1,130 2,111
Per Capita Amounts
GDP $526 $1,038 $2,788 $5,801 $9,952 $14,527Amounts in Billions
U.S. Population 186 210 230 254 282 309Amounts in Millions
Average AnnualPercent Increase 7.1 10.4 7.6 5.6 4.8%
Average AnnualPercent Increase 10.6 13.1 11.0 6.6 7.1%
National Health Exp. Share of GDP 5.2 7.2 9.1 12.3 13.6 16.2
National Health Expenditures per Capita, 1960-2010
Notes: According to CMS, population is the U.S. Bureau of the Census resident-based population, less armed forces overseas.
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2010; file nhegdp10.zip).
5.2% 7.2% 9.2% 12.5% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9%
NHE as a Share of GDP
National Health Expenditures as a % of GDP
Average Annual Growth Rates for NHE and GDP, Per Capita, for Selected Time Periods
Source: Historical data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, January 2012, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2010; file nhegdp10.zip). Projections from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, July 2011, “National Health Expenditures 2010-2020,” Table 1, https://www.cms.gov/NationalHealthExpendData/downloads/proj2010.pdf.
Projected
P ersonal C onsum ption E xpenditures, percent of total
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1950 1960 1970 1980 1990 2000 2010
T im e
Per
cen
t of T
ota
l
Food
C lothing
Gas and Oil
Housing
Medica l C are
International Comparisons
Year = 2006Total expenditure on
health, % GDPTotal expenditure on
health, Per capita US$ PPP
Australia 8.7 3141
Austria 10.1 3606
Belgium 10.3 3462
Canada 10 3678
Czech Republic 6.8 1509
Denmark 9.5 3362
Finland 8.2 2668
France 11 3449
Germany 10.6 3371
Greece 9.1 2483
Hungary 8.3 1504
Iceland 9.1 3340
Ireland 7.5 3082
Italy 9 2614
Japan 8.1 2578
Korea 6.4 1464
Mexico 6.6 794
Norway 8.7 4520
Poland 6.2 910
Portugal 10.2 2120
Slovak Republic 7.4 1308
Spain 8.4 2458
Sweden 9.2 3202
Switzerland 11.3 4311
United Kingdom 8.4 2760
United States 15.3 6714
Public expenditure on health, % total
expenditure on health
67.7
76.2
..
70.4
88
84.1
76
79.7
76.9
61.6
70.9
82
78.3
77.2
81.3
55.7
44.2
83.6
69.9
70.6
68.3
71.2
81.7
60.3
87.3
45.8
Per Capita Total Current Health Care Expenditures, U.S. and Selected Countries, 2009
^OECD estimate.
*Break in series.
Notes: Amounts in U.S.$ Purchasing Power Parity, see http://www.oecd.org/std/ppp; includes only countries over $2,500. OECD defines Total Current Expenditures on Health as the sum of expenditures on personal health care, preventive and public health services, and health administration and health insurance; it excludes investment.
Source: Organisation for Economic Co-operation and Development. “OECD Health Data: Health Expenditures and Financing”, OECD Health Statistics Data from internet subscription database. http://www.oecd-ilibrary.org, data accessed on 01/10/12.
Table 25. Infant mortality rates and international rankings: Selected countries and territories
Country2 1960 1970 1980 1990 2000 2004 2004
Infant3 deaths per 1,000 live births International rankAustralia 20.2 17.9 10.7 8.2 5.2 4.7 20Austria 37.5 25.9 14.3 7.8 4.8 4.5 18Belgium 23.9 21.1 12.1 6.5 4.8 4.3 16Canada 27.3 18.8 10.4 6.8 5.3 5.3 24Cuba 37.3 38.7 19.6 10.7 7.2 5.8 27Czech Republic 20.0 20.2 16.9 10.8 4.1 3.7 8Denmark 21.5 14.2 8.4 7.5 5.3 4.4 17England and Wales 22.4 18.5 12.0 7.9 5.6 5.0 23Finland 21.0 13.2 7.6 5.6 3.8 3.3 6France 27.5 18.2 10.0 7.3 4.4 3.9 9Germany 35.0 22.5 12.4 7.0 4.4 4.1 11Greece 40.1 29.6 17.9 9.7 5.9 4.1 11Hong Kong 41.5 19.2 11.2 5.9 2.9 2.5 2Hungary 47.6 35.9 23.2 14.8 9.2 6.6 28Ireland 29.3 19.5 11.1 8.2 6.2 4.9 21Israel 31.0 18.9 15.6 9.9 5.4 4.5 18Italy 43.9 29.6 14.6 8.2 4.5 4.1 11Japan 30.7 13.1 7.5 4.6 3.2 2.8 3Netherlands 17.9 12.7 8.6 7.1 5.1 4.1 11New Zealand 22.6 16.7 13.0 8.4 6.3 5.7 26Northern Ireland 27.2 22.9 13.4 7.5 5.1 5.5 25Norway 18.9 12.7 8.1 6.9 3.8 3.2 5Poland 54.8 36.7 25.5 19.3 8.1 6.8 29Portugal 77.5 55.5 24.3 11.0 5.5 4.0 10Scotland 26.4 19.6 12.1 7.7 5.7 4.9 21Singapore 34.8 21.4 11.7 6.7 2.5 2.0 1Spain 43.7 28.1 12.3 7.6 3.9 3.5 7Sweden 16.6 11.0 6.9 6.0 3.4 3.1 4Switzerland 21.1 15.1 9.1 6.8 4.9 4.2 15United States 26.0 20.0 12.6 9.2 6.9 6.8 29
Table 26. Life expectancy at birth, by sex:
Country 1980 1990 2000 2003 2003 1980 1990 2000 2003 2003At birth Life expectancy in years Rank Life expectancy in years Rank
Australia 71.0 73.9 76.6 77.8 5 78.1 80.1 82.0 82.8 6Austria 69.0 72.2 75.1 75.9 18 76.1 78.8 81.1 81.6 15Belgium 70.0 72.7 75.1 75.9 18 76.8 79.4 81.4 81.7 13Canada 71.7 74.4 76.7 77.4 7 78.9 80.8 81.9 82.4 9Costa Rica 71.9 74.7 75.4 76.2 16 77.0 79.1 80.2 81.0 19Cuba 72.2 74.6 74.7 75.4 24 --- 76.9 79.0 79.8 28Denmark 71.2 72.0 74.5 76.5 13 77.3 77.7 79.3 79.9 27England and Wales 70.8 73.1 75.6 76.5 13 76.8 78.6 80.3 80.9 20Finland 69.2 70.9 74.2 75.1 25 77.6 78.9 81.0 81.8 11France 70.2 72.8 75.3 75.9 18 78.4 80.9 82.7 82.9 5Germany 69.6 72.0 75.0 75.7 23 76.1 78.4 81.0 81.4 16Greece 72.2 74.6 75.6 76.5 13 76.8 79.5 80.6 81.3 17Hong Kong 71.6 74.6 78.0 78.5 1 77.9 80.3 83.9 84.3 2Ireland 70.1 72.1 73.4 75.8 21 75.6 77.6 79.1 80.7 22Israel 72.2 75.1 76.7 77.5 6 75.8 78.5 81.1 81.7 13Italy 70.6 73.6 76.6 76.8 12 77.4 80.1 82.5 82.5 7Japan 73.4 75.9 77.7 78.4 2 78.8 81.9 84.6 85.3 1Netherlands 72.5 73.8 75.5 76.2 16 79.2 80.9 80.5 80.9 20New Zealand 70.0 72.4 76.3 77.0 10 76.3 78.3 81.1 81.3 17Northern Ireland 68.3 72.1 74.8 75.8 21 75.0 78.0 79.8 80.6 23Norway 72.3 73.4 76.0 77.1 9 79.2 79.8 81.4 82.0 10Portugal. 67.7 70.4 73.2 74.2 27 75.2 77.4 80.0 80.5 25Puerto Rico 70.8 69.1 71.1 71.8 31 76.9 77.2 80.1 80.6 23Singapore 69.8 73.1 76.1 77.4 7 74.7 77.6 80.1 81.8 11Spain 72.5 73.3 75.7 76.9 11 78.6 80.3 82.5 83.6 3Sweden 72.8 74.8 77.4 77.9 4 78.8 80.4 82.0 82.5 7Switzerland 72.8 74.0 76.9 78.0 3 79.6 80.7 82.6 83.1 4United States 70.0 71.8 74.1 74.8 26 77.4 78.8 79.5 80.1 26
Female Male
Year = 2004 Doctor consultations
per capitaHospital discharge
rates, all causes, per 100 000 population
Average length of stay for acute care, all conditions, days
Australia 6 15786 6.1
Austria 6.7 27852 6
Belgium 7.6 17410 7.4
Canada 6 8747 7.3
Czech Republic 13.1 .. 8.1
Denmark 7.5 17031 3.4
Finland 4.2 20484 4.7
France 6.6 27102 5.5
Germany 7 20149 8.7
Greece .. 18406 5.7
Hungary 12.6 23272 6.5
Iceland 6.3 16977 5.3
Ireland .. 13889 6.5
Italy .. 14471 6.7
Japan 13.8 .. 20.2
Mexico 2.5 5188 4
Norway .. 17345 5.2
Poland 6.2 17777 6.6
Portugal 3.8 9035 6.9
Slovak Republic 11.9 18893 7.4
Spain .. 10838 6.7
Sweden 2.8 16002 4.7
Switzerland .. 15722 8.8
Turkey 3.1 8451 ..
United Kingdom 5.3 12778 8
United States 3.8 12090 5.6
Austra lia Be lgium C anada Denm ark F inland France Germ anyGreece H ungary I ce land I re land J apan Korea Lux em bourg Netherlands New Zea land Norw ay Poland Slov ak RepublicSw eden Sw itzerland Turkey United Kingdom United States
16.5 18.9 17.719.7 28 23.7
.. .. .. 23 29 26
19.5 27.1 2319 28 23.. .. ..
31.3 46 38.6.. .. ..
18.9 21.5 20.2.. .. ..
13.2 46.9 29.4.. .. ..
23 30 2727 35 3121 23 2225 27 26
19.3 33.9 26.3.. .. ..
17.5 15 16.2.. .. .. .. .. ..
23 26 2515.1 19 17
9.8..
7.812.8
9.913
10.1..
13.26.7
13.68.28.3
..
.. 9.26.2
.. 9.46.5
10.71.4
11.58.4
.. .. .. 13.4 11.9 12.7
.. .. ..
.. .. .. 14 14 14
9.4 9.5 9.4.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3.1 2.8 3.. .. ..
17.1 19 18.212.1 9.6 10.9
.. .. ..
.. .. .. 12.5 12.6 12.516.2 17.1 16.5
9.9 9.8 9.8.. .. .. .. .. ..
23.2 22.7 2333.2 31.1 32.2
Country Females % Daily
Smokers
Males % Daily
Smokers
Population % Daily
Smokers
AlcoholLitres per
capita
Females % with
BMI>30
Males - % with
BMI > 30
Population - % with
BMI > 30
Why are Health Care Expenditures Increasing Rapidly in the United
States?
1. An Aging Population
Aging U.S. population
% 65 years+ 1950 8.1 1970 9.8 2008 12.8
The Coming Surge in the Population of Age 65 Years and Older
Source: IFTF; U.S. Census Bureau
Table 2a. Projections of the Population by Selected Age Groups for the United States: 2010 to 2050
Age(Resident population as of July 1. Numbers in thousands)
2010 2015 2020 2025 2030 2035 2040 2045 2050
BOTH SEXES 310,233 325,540 341,387 357,452 373,504 389,531 405,655 422,059 439,010
.Under 18 years 75,217 78,106 81,685 84,866 87,815 90,722 93,986 97,669 101,574
.Under 5 years 21,100 22,076 22,846 23,484 24,161 25,056 26,117 27,171 28,148
.5 to 13 years 37,123 39,011 40,792 42,490 43,858 45,170 46,743 48,664 50,697
.14 to 17 years 16,994 17,019 18,048 18,892 19,796 20,496 21,126 21,834 22,728
.18 to 64 years 194,787 200,597 204,897 208,678 213,597 221,266 230,431 239,933 248,890
.18 to 24 years 30,713 30,885 30,817 32,555 34,059 35,695 37,038 38,234 39,538
.25 to 44 years 83,095 85,801 89,724 92,612 95,242 97,962 101,392 106,366 110,862
.45 to 64 years 80,980 83,911 84,356 83,510 84,296 87,608 92,000 95,333 98,490
.65 years and over 40,229 46,837 54,804 63,907 72,092 77,543 81,238 84,456 88,547
.85 years and over 5,751 6,292 6,597 7,239 8,745 11,450 14,198 16,985 19,041
.100 years and over 79 105 135 175 208 239 298 409 601
Source: Population Division, U.S. Census Bureau
Median Incomes in the U.S. 1975-2008
0
10,000
20,000
30,000
40,000
50,000
60,000
Year
Do
llars
Current Dollars
Constant Dollars
2. Increasing Incomes
3. Technology: The Health Care Industry is Rapidly Evolving
• Advances in medical technology and drugs are dramatically improving patient care– But, these improvements are costly
Annual Percent Change in Medical Care and All Goods Price Indices
4. Growth of Third Party Insurance
Percent Distribution of National Health Expenditures, by Source of Funds, 1960-2010
4. Growth of Third Party Insurance
• There have been increased cost containment efforts– Changes in government reimbursement of health care
providers– Private insurers are exercising more control over
patient care
Two False Reasons for growth in National Health care Expenditures…
Active PhysiciansNumber of per 10,000
Year Active Physicians civilian Population1975 340,280 15.31985 497,140 20.71995 625,443 24.22000 692,368 25.42003 736,211 26.6
Facts don’s support…
Summary: Health care is only getting bigger and more expensive for governments and taxpayers
• Increasing life expectancies and graying populations throughout the developed world will place stress on public health insurance systems.
• Governments will have to cope with ongoing questions about whether to pay for expensive new medical technologies.
Given these trends we can confidently expect health care to be an ever-growing line item on government balance sheets.
Where are the Dollars$ Coming From and Where are They Going$?
Total Health Care Expenditures in 2010: $2,593,600,000,000
Table 127. National health expenditures, average annual percent change, and percent distribution, by type ofexpenditure: United States, selected years 1960-2007
Type of National Health Expenditure 1960 1970 1980 1990 2000 2005 2010
National health expenditures $27.4 $74.9 $255.8 $724.3 $1,377.2 $2,029.1 $2,593.6
Hospital care 9.0 27.2 100.5 250.4 415.5 609.4 814.0Physician and clinical services 5.6 14.3 47.7 158.9 290.9 416.9 515.5Dental services 2.0 4.7 13.4 31.7 62.3 87.0 104.8Nursing home and home health.0.9 4.2 17.7 57.5 117.5 161.2 213.3Prescription drugs 2.7 5.5 12.0 40.3 120.9 204.8 259.1
Amount in Billions
Hospital care 32.8 36.3 39.3 34.6 30.2 30.0 31.4Physician and clinical services 20.6 19.1 18.7 21.9 21.1 20.5 19.9Dental services 7.3 6.3 5.2 4.4 4.5 4.3 4.0Nursing home and home health.3.2 5.7 6.9 7.9 8.6 7.9 8.2Prescription drugs 9.8 7.3 4.7 5.6 8.8 10.1 10.0
Percent Distribution
Note: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals and families, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included.
Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), Household Component, 2009.
Concentration of Health Care Spending in the U.S. Population, 2009
(≥$51,951) (≥$17,402) (≥$9,570) (≥$6,343) (≥$4,586) (≥$851) (<$851)
Per
cen
t of
Tot
al H
ealt
h C
are
Sp
end
ing
Distribution of Average Spending Per Person, 2009
Average Spending Per Person
Age (in years)
<5 $2,468
5-17 1,695
18-24 1,834
25-44 2,739
45-64 5,511
65 or Older 9,744
Sex
Male $3,559
Female 4,635
Note: Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals and families, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included.
Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2009.
Total Health Care Expenditures in 2010: $2,593,600,000,000
Table 4. Expenditures for health services and supplies, and percent distribution, by type of payer: U.S., 2009Type of payer
Total.......................(amounts in billions) $2,486.30 100
Private................................... 1,403.10 56.4 Private business........................ 518.3 20.8 Employer contribution to private health insurance premiums………………. 397.5 16.0 Private employer contribution to Medicare hospital insurance trust fund…………. 77.7 3.1 Workers compensation and temporary disability insurance and worksite healthcare... 43.1 1.7
2009
Household............................... 708.4 28.5 Employee contribution to private health insurance premiums and individual policy premiums… 247.6 10.0 Employee and self-employment contributions and voluntary premiums paid to Medicare hospital insurance trust fund............... 108.5 4.4 Premiums paid by individuals to Medicare supplementary medical insurance trust fund…….. 53 2.1 Out-of-pocket health spending......... 299.3 12.0 Other private revenues.................. 176.4 7.1
Governments............................... $1,083.2 43.6 Federal Government 678.4 27.3 Employer contribution to Private HI Premiums…. 26.8 1.1 Employer contribution to Medicare HI Trust Fund… 3.9 0.2 Adjusted Medicare 233.1 9.4 Health Program Expenditures (Excluding Medicare) 414.6 16.7 Medicaid 254.3 10.2 Other Programs 160.3 6.4
State and local government 404.8 16.3 Employer contribution to Private HI Premiums…. 123.4 5.0 Employer contribution to Medicare HI Trust Fund… 11.6 0.5 Health Program Expenditures (Excluding Medicare) 269.8 10.9 Medicaid 130.5 5.2 Other Programs 139.3 5.6
Table 4. Expenditures for health services and supplies, and percent distribution, by type of payer: U.S., 2009continued…Type of payer
Total.......................(amounts in billions) $2,486.30 100
Private................................... 1,403.10 56.4 Private business........................ 518.3 20.8 Household........................ 708.4 28.5
2009
Percent Distribution of National Health Expenditures, by Type of Sponsor, 1987, 2000, 2010
Notes: Starting with the 2009 NHE data, CMS expanded their focus on spending by Type of Sponsor, which provides estimates of the individual, business, or tax source that is behind each Source of Funds category and is responsible for financing or sponsoring the payments. “Federal” and “State & Local” includes government contributions to private health insurance premiums and to the Medicare Hospital Insurance Trust Fund through payroll taxes, Medicaid program expenditures including buy-in premiums for Medicare, and other state & local government programs. “Private Business” includes employer contributions to private health insurance, the Medicare Hospital Insurance Trust Fund through payroll taxes, workers’ compensation insurance, temporary disability insurance, worksite health care. “Household” includes contributions to health insurance premiums for private health insurance, Medicare Part A or Part B, out-of-pocket costs. “Other Private Revenues” includes philanthropy, structure & equipment, non-patient revenues.
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group at https://www.cms.gov/NationalHealthExpendData/ (see Historical; NHE Web tables, Table 5).
Government Private1987 (Total = $519.1 billion)
Government Private
Government Private2000 (Total = $1,377.2 billion)
31.8%
68.2%
35.5%
64.5%
44.9%
55.1%
Federal Private Business State & Local Household Other Private Revenues
2011 (Total = $2,700.7 billion)
Percent Distribution of Source of Funds for Selected Personal Health Care Services, 1970 and 2010
Notes: Medicare and Medicaid were enacted in 1965; by January 1970, all states but two were participating in Medicaid. “Out-of-Pocket” includes direct spending by consumers for all health care goods and services not covered by insurance, except for health care premiums. “Priv. Health Ins.” includes premiums paid to health insurance plans and the net cost of private health insurance (administrative costs, reserves, taxes, and profits or losses). “Other” includes Other Public Health Insurance Programs (CHIP, Depts. of Defense and of Veterans Affairs) and Other Third Party Payers (e.g., worksite health care, other private revenues, workers’ compensation, maternal/child health, other state and local programs, etc.).
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group at https://www.cms.gov/NationalHealthExpendData/ (see Historical; NHE Web tables, Tables 7, 8, 11, 12).
1970 2010
1970 2010
1970 2010 1970 2010
Hospital Care
Physician & Clinical Services
Retail Prescription Drugs
Nursing Care Facilities & Continuing Care
Retirement Communities
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