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Chapter 31 (cont.)Income, Poverty, and Health Care
Slide 31-2
Poverty and Attempts to Eliminate It
Defining poverty
– Official poverty level in 2005 for an urban family of four was $19,000.• Adjusted annually for inflation• Does not include transfer payments
Slide 31-3
International Example: The U. S. Poverty Level Vs. Incomes Abroad
The World Bank publishes an annual report giving the per capita incomes of about 150 nations.
Of these, only 26 have per capita incomes higher than the poverty income threshold defined for the U.S.
Slide 31-4
Relative Poverty: Comparing Household Income and Household Spending
Source: Bureau of Labor Statistics; U.S. Bureau of the CensusFigure 31-7
Slide 31-5
Poverty and Attempts to Eliminate It
Attacks on poverty: major income maintenance programs
– Social Security• OASDI
– 90 percent of all employed persons covered– In 2005, 45 million people received OASDI
payments averaging $875/month
Slide 31-6
Poverty and Attempts to Eliminate It
Supplemental Security Income (SSI)
– Minimum income for the:• Aged• Blind• Disabled
Slide 31-7
Poverty and Attempts to Eliminate It
Temporary Assistance to Needy Families (TANF)
– 5-year limit for each person
– Must seek training and employment
Slide 31-8
Poverty and Attempts to Eliminate It
Food stamps
– Government-issued coupons that can be used to purchase food
– In 2005, one in nine citizens received food stamps
Slide 31-9
Policy Example:What are Food Stamps Worth?
Food stamps can only be used to purchase food items approved for the program.
When food stamp coupons are traded illegally on the underground market, they are traded at about 65 percent of their face value.
Slide 31-10
Poverty and Attempts to Eliminate It
Earned Income Tax Credit Program
– Families with low incomes receive a graduated benefit
Slide 31-11
Poverty and Attempts to Eliminate It
No apparent reduction in poverty– 1973—11 percent
– 1983—15 percent
– 1990—13.1 percent
Slide 31-12
Health Care
America’s health care situation
– 16 percent of U.S. real GDP is devoted to spending on health care.
– Per capita spending on health care is greater in the United States than anywhere else in the world.
Slide 31-13
Percentage of Total National IncomeSpent on Health Care in the United States
Figure 31-8Source: U.S. Department of Commerce; U.S. Department of Health
and Human Services; Deloitte and Touch LLP; VHA, Inc.
Slide 31-14
Health Care
Why have health care costs risen so much?
– The age-health care expenditure equation• Aging population increases the demand for
health care
– New technologies
– Third-party financing
Slide 31-15
Third Party versus Out-of-Pocket Health Care Payments
Figure 31-9Source: Health Care Financing Administration;
U.S. Department of Health and Human Services
Slide 31-16
Health Care
Price, quantity demanded– Large percent of medical services payments
made by third parties
– Price to the consumer drops and the quantity demanded increases
Moral hazard and consumers– An individual with a zero deductible for medical
care may engage in a less healthful lifestyle than one who must pay a $1,000 deductible
Slide 31-17
The Demand for Health Care Services
At P1 quantitydemanded is Q1.
If the price fallsto zero, quantitydemanded increasesto Q2.
Figure 31-10
DP1
Q1 Q2
Quantity of Health Care Services per Year
Pric
e
Slide 31-18
Health Care
Moral hazard as it affects physicians and hospitals– Due to third-party payments, patients do not
have to worry about the cost of operations and medical procedures.
– Physicians and hospitals order more of them since they are reimbursed on the basis of medical procedures.
Slide 31-19
Health Care
Fully 30 percent of Medicare expenditures are for patients in their last year of life.
Slide 31-20
Health Care
Is national health insurance the answer?
• 40 million Americans are uninsured at some point during the year
• National health insurance would increase the amount of national income devoted to medical services
Slide 31-21
Federal Medicare Spending
Figure 31-11Source: Economic Report of the President;
U.S. Bureau of Labor Statistics
Slide 31-22
Health Care
Countering the moral hazard problem: a Health Savings Account (HSAs)
– A tax-exempt health care account to which individuals would pay into on a regular basis and from which medical care expenses could be paid
Slide 31-23
Issues and Applications: Should U.S. Health Care Copy Other Nation’s Programs?
Is the rise in health care costs evidence of a crisis?
To a certain extent, residents of the U.S. choose to spend more on health care.
In other countries, waiting lists for certain procedures serve to dampen the amount of health care people receive.
Slide 31-24
Summary Discussion of Learning Objectives
Using a Lorenz curve to represent a nation’s income distribution– The more bowed a Lorenz curve, the more unequally
income is distributed
Key determinants of income differences across individuals– Age
– Marginal productivity differences
– Discrimination
Slide 31-25
Summary Discussion of Learning Objectives
Theories of desired income distribution– Productivity standard
– Egalitarian principle
Alternative approaches to measuring and addressing poverty– Absolute poverty standard
– Relative poverty standard
Slide 31-26
Summary Discussion of Learning Objectives
Major reasons for rising health care costs– Aging U.S. population
– Higher priced medical technologies
– Third-party financing of health care expenditures
– Moral hazard
Slide 31-27
Summary Discussion of Learning Objectives
Alternative approaches to paying for health care– Rationing by price
– Rationing by queues
End of Chapter 31Income, Poverty, and Health Care