The Economics of Healthcare: Crash Course Econ #29

Adriene: Welcome to Crash Course EconomicsI’m Adriene Hill Jacob: and I’m Jacob Clifford.

Today weare going to talk about the Economics of Healthcare.

Healthcare is different than some of the othermarkets we’ve talked about.

Adriene: If you’re having a heart attack, you’re not going to shop around for the hospital with the best prices.

And a hospitalemergency room isn’t going to wait for your credit card to go through before they treatyou.

But we’re getting ahead of ourselves.

Let’s get started.

[Theme Music] For a lot of reasons, Health care is differentthan the other markets we’ve talked about.

First, you never know when you’re goingto need it.

It’s kind of hard to plan to fall off your bike and break your arm.

Andafter you break your arm, that visit to the emergency room is going to be expensive.

That’s why we have health insurance, whetherit’s private or public.

Private insurers periodically collect money, in the form ofpremiums, paid by individuals or their employers.

Public insurance programs collect money fromtaxpayers.

You’ll hear some countries have freehealthcare, but it’s not “free.

” They’re paying for it: either directly, through insurers, or through taxes.

Let’s work out all the details in the ThoughtBubble.

Jacob: So, Canada has a public insurance system where the government funds healthcare for everyone through taxation.

Doctor’s offices tend to be private businessesthat get paid directly by the government.

But, hospitals and operating tablesare public property.

And the hospital staff are publicemployees, sort of like public schools.

This is often called a single payer systemsince the government is doing most of the paying.

Canadians have to pay for prescriptiondrugs, eyeglasses and dental care themselves or get them through supplemental private insurance.

Now, France technically doesn’t have a singlepayer system because health care providers are paid by several non-profit insurance funds.

All citizens are required to get health insuranceand they’re free to choose their doctor.

Unlike Canada, most French providers, including hospitals, are private businesses.

The UK is different still.

It has a socializedhealthcare system which is funded and controlled by the government through taxes.

The majorityof doctors, specialists, and hospitals are all paid by the government, not insurancecompanies.

Today, the US has little of everything! Almostall providers – hospitals, clinics, doctor’s practices – are private firms.

Most householdswith adults under 65 are covered by private insurance, either through their employer orthrough individual policies.

But the US has single payer system for thoseover 65 and those below the poverty line.

Medicare is a taxpayer-funded public insurerthat pays providers to care for seniors and Medicaid is a similar program for low-incomehouseholds.

Oh, and the US also has a small UK-style system with government-run hospitals and government-employee doctors.

But it’s only for veterans andit’s called the VA.

Adriene: Thanks Thought Bubble.

So let’sget down to some numbers.

Economists evaluate the effectiveness of a healthcare system on three criteria: Access, Cost, and Quality.

According to the Census Bureau in 2014 10.

4% of Americans didn’t have health insurance coverage, down from 13.

3% in 2013.

Two thirds of Americans had health insurancethrough a private Insurer.

The vast majority got coverage through their employer andthe rest bought individual plans.

About a third of Americans had health insurancethrough a taxpayer-funded government insurance plan like Medicare, Medicaid, the VA , and healthcarefor active-duty military and their families.

So, two thirds, plus a third, plus 10% uninsuredadds up to more than 100%.

That’s because somebody who switches from private Insuranceto public Insurance gets counted in BOTH numbers.

That’s just the way the Censusdoes it.

Let’s talk a little about the uninsured.

Compared with the general population, people without insurance tend to be somewhat younger, earn less, and be more racially diverse.

Because Medicaid covers people below or near the poverty line, the uninsured are usually not completely destitute.

They often work a part-time or low-wage job, which puts them above the Medicaid threshold, but their employers may not offer insuranceto part-time workers.

If an uninsured person gets sick or gets hit by a bus, they can easilyget stuck with six figures in medical bills.

And those unpaid medical expenses drive upcosts for everybody.

Jacob: This brings us to the cost of healthcare.

Good news Americans – We’re Number One!! Well, actually, it’s not that great.

In 2012, the U.


spent an average of $8, 745 per person on healthcare.

Other rich countries like Switzerland andNorway spent a little over $6, 000, and countries like Germany, France, the UK, and Japan spentin the $3-5, 000 range.

So the U.


is spending twice as much, perperson, as most other developed countries.

Put another way, the US spends the same shareof GDP just on Medicare – as most countries spend to cover their entire populations.

So why does the US spend so much more thanother countries? Well, some argue that it's due to high quantity of care per person.

Sinceinsurance companies, rather than patients pay providers, patients might want more care, like tests, procedures and treatments than necessary.

It’s like an all-you-can-treat buffet.

Youknow you shouldn’t go back for that fourth General Tso’s X-Ray, but it’s just sodelicious! The RAND Health Insurance experiment a fewdecades ago found that requiring patients to pay for a portion of their health carecost deters them from overconsuming of healthcare.

That’s one reason that in the US, many insuranceplans have deductibles, a form of costs sharing where the the patient is required to pay apart of the cost before the insurance kicks in.

Many economists say prices are also a problem.

In most other countries, insurers pay between $200 and $400 for an MRI.

In the US, the priceis around $1500.

And it’s not like the US MRIs are somehow “better.

” They’re exactlythe same machines.

And you can go down the list of treatmentsand procedures – in nearly every case, US providers are being paid 3, 4, or 5 TIMESmore.

This is because the US doesn’t have a unifiedsystem that can aggressively negotiate with doctors, pharmaceutical companies, and otherproviders.

They point out that Medicare and Medicaid often get a significant discountcompared to small insurers.

Another reason for the high costs is the blizzardof paperwork generated by the interaction between dozens of insurers and thousands ofproviders.

Both the insurer and the provider have to employ a team of unhappy people incubicles to haggle over the reimbursement rate for an appendectomy.

These teams addto the administrative costs of healthcare.

Adriene: So which problem is driving healthcarecosts? Quantity? Price? Administrative costs? When you dig into the numbers, the US consumes a pretty high quantity of tests and treatments per person.

But it’s not radically higher than most other countries, and several countries, like Germany, do even more.

Likewise, the US administrative costs arealso higher, since a lot countries drastically reduce their billing paperwork with a universalinsurer.

But that cost explains only about 10-20% of the cost difference.

Most of thedifference comes from the fact that US providers are paid much higher prices than their counterpartsin other countries.

Okay, let’s talk quickly about quality.

There are a lot of ways to measure the quality of a country’s healthcare system.

Let’slook at a few different metrics.

According to the Kaiser Family Foundation, The US has higher rates of hospital admissions for preventable conditions, and it has highrates of medical, medication and lab errors.

The US DOES stack up pretty well in terms of diagnosing and successfully treating conditions like heart disease and some types of cancer.

But remember, spending per capita is muchhigher in the US than the rest of world.

Reforming the health care system is difficult, thanks to something called the Iron Triangle.

The Iron Triangle is a section of the WesternAtlantic ocean where ships and planes are frequently spirited away by extra terrestrials.

Sorry, I’m terrible at triangles.

That’s the Bermuda Triangle.

The Iron Triangle refers to the mutually beneficialrelationship between members of Congress, government bureaucrats, and lobbyists.

Bureaucrats want to protect their fundingand jobs, Congressmen want to get re-elected, and lobbyists want to advance the interestsof their clients.

And they all end up working toward policies that maintain the status quo, and aren’t necessarily in the best interest of the people.

But they’re not worthless.

The Iron Trianglegot it together in 2010, and the US Government passed the Affordable Care Act.

Sometimescalled ObamaCare.

This stab at reforming the American healthcaresystem has been controversial, to say the least.

Let’s take a look at what the law does anddoesn’t do.

ObamaCare did not set up a UK-style systemwhere hospitals are public property and doctors are public employees.

It also didn’t establisha Universal Public Insurance system, like expanding Medicare to everyone.

Instead, the Affordable Care Act tries toincrease health coverage by requiring private health insurers to insure everyone who applies, charge the same premiums to people of the same age, and cover pre-existing conditions.

To prevent otherwise healthy people from onlybuying health insurance when they get sick, it requires that everyone obtain health insuranceor pay a fee.

The law also subsidizes health insurance premiums for those who can’t affordto pay market rates.

So that’s what ObamaCare is supposed todo… is it working? Well, it has reduced the number of Americans without insurance.

So access seems to have improved.

The Affordable Care Act also hasprovisions meant to deal with costs.

And that’s a little more difficult to assess.

The act rewards doctors for cutting costs, and requires greater price transparency.

It also mandates a move to electronic record-keeping.

As far as improving quality goes, It’s probablyto early to tell.

Jacob: In the end, the economic debate overhealthcare is a lot like the debate over other topics we’ve covered in Crash Course Economics, like price controls, climate change, inequality, and education.

The recurring question is:when, if ever, should the government get involved to help markets achieve the most effective, efficient, and fair outcome.

Obamacare reflects the peoples' attitude towardsgovernment and capitalism: Americans don’t fully trust either one of them.

Healthcarereforms have left private insurers and providers in place, but at the same time has increasedregulation.

Insurers are now required to do things they wouldn’t normally do, like coverpeople with pre-existing conditions.

Adriene: So, that’s the American healthcare system, which is weird and expensive, and necessary.

That’s also the end of our textbook economicsepisodes.

Jacob: And so I’m moving to Canada to write a textbook and enjoy some of that sweet, sweet, subsidized health care.

Adriene: And I’m going to stick around andtalk about the economics of things like immigration and social security and happiness.

Jacob: Thanks for watching.

She’ll see younext week.

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