[Music] Many firms buy health insurance for their workers, but the amounts paid for insurance might otherwise be paid in salary In addition, companies withhold from employees' paychecks funds that pay to support two federal programs, Medicaid and Medicare, that provides health insurance to people 65 and older and to low-income or disabled people

In 2011, the average cost for an employee's share of family plan premiums rose 74% from its 2003 level: from $2,250 to $4,000 Health insurance premiums extract approximately 20% of the annual median family income in 35 states Employees are frequently unaware of how much is taken from their paychecks to cover health care costs, which rose from 52% of gross domestic product (GDP) in 1960 to 179% in 2013

The US Congressional Budget Office projects that Medicare and Medicaid spending will increase from 6% of GDP in 2013 to nearly 12% in 2050 at its current pace In 2010, then President Obama and Congress passed the Patient Protection and Affordable Care Act, the ACA, which made major changes to the US

health care system The act included a provision that businesses with 50 or more full-time employees must provide health insurance to all full-time employees or pay a fine States were to set up exchanges to make health insurance less expensive for small businesses and individuals by allowing them to enter an insurance pool where healthy and sick people pay the same premiums With the election of President Donald Trump taking office in 2017, Repeal and Replace of the Affordable Care Act was implemented Restructuring this entire sector of the US economy may take months, even years to achieve

In this chapter, we will explore the most pressing health care topics to consider and look around the world to find possible solutions Americans spend more of their tax dollars on public health care than people in Canada, the UK, or Australia Who's at fault? Insurance companies? Drug companies? Malpractice lawyers? Hospitals? Or is it more complicated than a simple blame game? Hey Let's find out! [Music] In the late 1700s, England had the highest level of income per person of any large country, but the average life expectancy at birth was only 38 years, and 30% of the population died before reaching the age of 30 In 2014, the average life expectancy at birth in the United Kingdom and other high-income countries was around 80 years

Life expectancy at birth in the United States increased from 473 years in 1900 to 787 years in 2013 The overall mortality rate decreased by more than 25% between 1981 and 2011 The decline in death rates after 1981 was due to changes in lifestyle and advances in new diagnostic equipment, new prescription drugs, and new surgical techniques

Improving health shifts out a country's production possibilities frontier and higher incomes allow the country to devote more resources to research and development, including medical research Since 1981, there have been significant decreases in rates of death due to cancer, cardiovascular diseases, and diseases of the liver Rates of death due to kidney disease and diabetes increased slightly because of an increase in obesity The increase in mortality and decrease in life expectancy in 1918 were due to the severe influenza epidemic of that year: Spanish Flu The health of the average person in the United States improved significantly during the nineteenth and twentieth centuries

Individuals in the United States today are taller, they live much longer, and they are much less likely to die in the first months of life than was true 150 years ago Over time, people in high-income countries have, on average, become taller, indicating that their nutritional status has improved [Music] In 2012, about 64% of people received health insurance through their employer and about 10% directly purchased an individual or family health insurance policy from an insurance company About 36% of people received health insurance through a government program including Medicaid, Medicare, and the program run by the Department of Veteran Affairs About 16% of people were uninsured

Note: Because some people have more than one type of health insurance, the sum of the values shown here for each category is greater than 100% Health care in America has been through various cycles from patient paid fees directly to their doctor, to insurance company payer systems, to Health Maintenance Organizations – HMO Each had advantages, but in 2010 the Affordable Care Act solidified health insurance company dominance in the marketplace We still have Medicare, Medicaid, Military Health Insurance, and some state sponsored variants, but the employer mandate put in place by the ACA shifted this category of insurance to new levels In 2012, about 98% of firms employing at least 200 workers and about 61% of firms employing 3 to 199 workers offered health insurance as a fringe benefit

Some health insurance plans reimburse doctors and hospitals on a fee-for-service basis, a system under which doctors and hospitals receive a payment for each service they provide About 16% of people were not covered by health insurance in 2012 Some young people opt out of employer-provided health insurance because they do not believe the cost of premiums their employers charge is worth the benefit The uninsured must pay for their medical bills out-of-pocket Addressing the problems of the uninsured was one of the motivations for the health care legislation enacted in 2010

Canada has a single-payer health care system, a system in which the government provides health insurance to all of the country's residents As in the United States, most doctors and hospitals are private businesses, but they are required to accept fees that are set by the government As in the United States, doctors and hospitals are typically reimbursed on a fee-for-service basis But unlike in the United States, doctors and hospitals are required to accept the fees set by the government Japan has a system of universal health insurance under which every resident is required to enroll in one of many health insurance societies organized by industry or profession, or enroll in the health insurance program provided by the national government

The Japanese system requires substantial co-payments under which patients pay as much as 30% of their medical bills As in the United States, most doctors do not work for the government, and there are many privately owned hospitals In the United Kingdom, the health care system is referred to as socialized medicine, a health insurance system under which the government owns most of the hospitals and employs most of the doctors Apart from a small co-payment for prescriptions, the National Health Service (NHS) supplies health services without charge to patients Elective care is a low priority

To avoid waiting lists, more than 10% of the population has private health insurance to pay for elective procedures The United States is well above the line showing the average relationship between income per person and health care spending per person, which indicates that the United States spends more on health care per person than do other countries, even taking into account the relatively high levels of income in the United States Typically, the higher the level of income per person in a country, the higher the level of spending per person on health care Health care spending per person in the United States is higher than in other countries Comparing health care outcomes among members of the Organization for Economic Cooperation and Development (OECD), the United States does relatively poorly in terms of infant mortality

People in the United States are more likely to have complications from diabetes and more likely to be obese The United States rates well in the availability of medical equipment that can be used to diagnose and treat illness People in the United States have a lower rate of cancer deaths and a lower probability of dying from cancer before age 75 than in most OECD countries Difficulties in making cross-country comparisons in health care outcomes include: * Data problems * Problems with measuring health care delivery * Problems with distinguishing health care effectiveness from lifestyle choices * Problems with determining consumer preferences Each country has deployed a different solution, each particular to their specific culture and in response to their resources available [Music] Asymmetric information is the core of the healthcare challenge

A situation in which one party to an economic transaction has less information than the other party That is the core of the healthcare challenge You know your ailments better than anyone else If you, or anyone else in this situation, takes advantage of that insider information, you can use it for Adverse Selection advantage As sellers of lemons taking advantage of knowing more about the cars they are selling than buyers do, the used car market will fall victim to adverse selection, just as the health care market does: The situation in which one party to a transaction takes advantage of knowing more than the other party to the same transaction

Michael one day all this will be yours This?? this see this junker? I paid $100 for her She's got 120,000 miles on her transmission shot, bumpers have fallen off what do I do with her? hmm I sell her! We really should weld these bumpers on, but that takes time, equipment, and money so we use super glue instead Go ahead put it on! Won't it fall off? Definitely! Isn't that dangerous? NOT TO ME! Asymmetric information problems are severe in markets for all types of insurance

Insurance companies provide risk pooling when they sell policies to households An insurance company can pool the risk of your house burning down by selling fire insurance to thousands of other homeowners For the insurance company to cover its costs, the total amount it receives in premiums must be greater than the amount it pays out in claims to policyholders A company that charges premiums that are too high will lose customers to other companies and may be driven out of business One obstacle to health insurance companies accurately predicting the number of claims policyholders will make is that buyers always know more about the state of their health than do the companies

Therefore, insurance companies face an adverse selection problem If companies have trouble determining who is healthy and who is sick, they may end up setting premiums that are too low and will fail to cover their costs If companies raise their premiums, healthier people may drop their insurance This would lead to an adverse selection problem because policyholders will be less healthy on average than they were before the premium increase One way to deal with adverse selection is to require individuals to buy health insurance

The Patient Protection and Affordable Care Act (ACA), beginning in 2014, residents of the United States were required carry insurance or pay a fine leveled by the IRS This provision is known as the individual mandate The insurance market is also subject to moral hazard: The actions people take after they have entered into a transaction that make the other party to the transaction worse off Moral hazard in the insurance market occurs when people change their behavior after becoming insured Normally, there are two parties to a transaction: the buyer and the seller

The insurance company becomes a third party to the purchase of medical services because the company pays for some or all of the service Economists refer to traditional health insurance as a third-party payer system This means that consumers of health care do not pay a price that reflects the full cost of providing the service Third-party payer health insurance can lead to a principal-agent problem, a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them Doctors can pursue their own interests rather than the interests of their patients

Because health insurance pays most of the bill for medical procedures, patients are more willing to accept them The fee-for-service aspect of health insurance can make the principal-agent problem worse because doctors and hospitals are paid for each service performed, whether or not the service was effective Insurance companies can reduce, but not eliminate, adverse selection and moral hazard problems by using deductibles and coinsurance Someone applying for an individual health insurance policy is usually required to submit his or her medical records Insurance companies have frequently offered limited coverage of pre-existing conditions

Critics argue that by excluding or limiting coverage of pre-existing conditions, insurance companies force people with serious illnesses to pay the entire amount of large medical bills or to go without medical care The companies argue that if they do not exclude coverage of these pre-existing conditions, then adverse selection problems might make it difficult to offer any health insurance policies or force companies to charge premiums so high as to cause healthy people to not renew their policies Some goods or services involve an externality, which is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service There are several aspects of health care that economists believe involve externalities For example, anyone vaccinated against a communicable disease protects not just himself or herself but also reduces the chances that people who have not been vaccinated will contract the disease

People who do not get vaccinated still benefit from other people being vaccinated As a result, the marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated Because only the marginal private benefit is represented in the market demand curve D1, the quantity of vaccinations produced, QMarket, is too low If the market demand curve were D2 instead of D1, the level of vaccinations would be QEfficient, which is the efficient level At the market equilibrium of QMarket, there is a deadweight loss equal to the area of the yellow triangle

As we explore goods and services in the marketplace, consider ideas of rival and excludable goods or services A rival good means to consider consumption of the good: if you consume it and thereby no one else can consume it, then it is rival Excludable goods means that when you purchase the good, no one else can consume that particular good We take a closer look at healthcare through discussion of economics Using these considerations, goods and services can be divided into four categories on the basis of whether people can be excluded from consuming them and whether they are rival in consumption

A good or service is rival in consumption if one person consuming a unit of a good means that another person cannot consume that unit Put health care into this analysis – where does it belong? Studying this table, is health care a public good, like national defense or the legal system? Nonrival would mean one person receiving health care would not prevent another person from receiving it Hmmm, that is not really the case is it? While you are in a hospital bed, no one else can be there at the same time Non-Excludability? Are people really excluded from getting healthcare if they cannot pay for it? The ACA passed in 2010 made payment for healthcare mandatory If you do not pay, you do not receive it plus you are fined through your tax submission if you failed to pay

Really, healthcare fits into the category of a Private Good where it is both excludable and rival President Trump has introduced several changes to make healthcare more available across state lines, thereby increasing competition, making healthcare costs tax deductible, and allowing Health Saving Accounts that will further allow tax deductions across tax years Information asymmetries, externalities, and imperfect knowledge combine to create a challenging situation for any government to manage Consider for yourself, what is the most equitable solution for American Healthcare? Also ask yourself, is the Positive analysis or a Normative Analysis question? [Music] Here we see that health care spending has been rising in the United States since the 1960s, and before that Health care spending rose from less than 6% of GDP in 1965 to about 17% in 2013, and it is projected to rise to about 20% by 2019

When considered as health care spending alongside other personal consumption items, health care costs have risen at a slower rate than either our spending on goods in general or our spending on durable goods like appliances and automobiles Now consider how much people in other countries spend on healthcare Germany and Norway appear to rank at the top of this list at over $5,500 per person per year, but one is missing Oh ya, it is the United States There we are topping $8,500 a year per person

So, we are topping the world in per person costs, and not by a little, but by a lot – by 50% more than the next highest countries Out-of-pocket spending on health care has declined sharply as a fraction of all health care spending, while the fraction of spending accounted for by third-party payers, such as firms or the government, has increased This demonstrates the challenges presented by the third-party payer problem in America As consumers, we are not directly paying for the services we order from our health care providers At the same time, our medical service providers are not paid directly by the patients they serve

The third party is the insurance companies we and our employer pay, and who decides how much each procedure or service will cost Price negotiations are made within the guidelines of federal rules and health care service providers Notice that patients are not involved in the price negotiations at all Where is the incentive for the customer to shop around for the best price for an MRI, a knee surgery, or medications? Lots of pundits point to the extreme costs of paperwork brought on by regulations as a cause of increasing costs Providers are obligated to enter specific codes for each ailment and corresponding treatment

That costs money Others point to the heavy cost of litigation brought on because ailments are not always alleviated the way patients find reasonable Big picture – this happens but accounts for somewhere between 1% and 7% of total medical costs This percent of expenses have not changed much over the past 25 years Uninsured patients often seek medical attention in expensive emergency rooms, when they would have been better served, at lower costs, in doctor offices or in "ready care" clinics

But since they do not have health insurance, they are not granted appointments That causes expense creep to climb sharply Cost disease is not specifically unique to health care providers, but it carries a definite cost burden Think of how new technologies have changed how manufacturers make something like a computer Automated soldering devices, mechanical assembly, and lightweight materials lead to Moore's law that says that you double computer capacity every 18 months, at half the price

Healthcare has witnessed substantial advances in sickness discovery and for some treatments, but ultimately it is realized with one medical service provider visiting with one patient at a time Forty years ago, a visit with my doctor took 30 minutes, and today, it takes half an hour At the same time, providers have the expectation of salaries commensurate with their extremely long university training programs, tremendously high stress occupations of life and death, and substantial governmental regulations of their occupations A substantial effect of good health care and improved life choices has created a population that has people living into senior citizen status for decades When we age, we need more health care attention

Typically, expensive health care attention Although the aging of the US population will increase federal government spending on the Medicare and Medicaid programs, increases in the cost of providing health care will have a larger effect on government spending on these programs Considering this again as an economist, we can find an equilibrium price and quantity where supply meets demand

If consumers paid the full price of medical services, their demand would be D1 and the equilibrium quantity would be at the efficient level QEfficient Because consumers pay only a fraction of the true cost of medical services, their demand is D2, and the equilibrium quantity of medical services produced increases to QMarket, which is beyond the efficient level There is a deadweight loss equal to the yellow triangle Doctors and other suppliers of medical services receive a price, PMarket, that is well above the price, P, paid by consumers Making healthcare an issue of American national priority has gained attention for a hundred years, specifically putting the needs of everyone – rich and poor – into the national debate

These debates did not start over the ACA in 2010 President Truman proposed a National Health Insurance program in 1945 President Clinton proposed a universal health care package in 1993 In both cases, Congress did not agree with the President's plan and they were not implemented This debate changed in 2010 when President Obama, with majority in both House and Senate, passed the Affordable Care Act

Several key components of the ACA were promised to Americans that were immediately not realized, like the ability to keep doctors patients liked, and choices of levels of coverage Highly significant became the evacuation of insurance companies from some states because they could not operate profitably within ACA regulations That left single insurers in certain locations and the loss of market competition to hold costs low Healthcare premiums shot up 22% on average from 2016 to 2017 In 8 states costs went up over 30% and in Arizona, it went up 116%

now for more on this let's bring in Marco Soriano he's the managing partner of the Soriano group thank you for joining us happy new year thank you so much during the election Mr Trump was saying we're going to repeal Obamacare he walked back a little bit now he's saying we might try to save parts of it what do you see happening repeal or modify definitely a modification of the current ACA would be more appropriate I think the rhetoric the political rhetoric that was happening was just part of the campaign we can all agree on that but it will be more beneficial to the average American to implement modifications to the plans to reform rather than what he was saying what would you like to see saved and what needs to go I think the biggest problem that we have with Obamacare is understanding it there's too many logistical problems there's five categories that will make you a good candidate for then you have four different types of plants that you can choose from where if you choose the lowest premium you manned up and higher deductible so these are in this information that should be disclosed clear to the to the people and make them understand what are the benefits and the pros and cons of this but beyond that though what about the fact that premiums have been going up on average they've been going up into double digits things like that how do you stop all that how do you stop it was very complicated to say first I don't think is going to happen right away Donald Trump and his team of advisors should take their time to understand the implications that any changes may cause down the line because he has so many other plans in place as well so it isn't as easy as its success right arm so i would suggest the same take a very close look at these implications rather than making big college like this well they are estimating that it will take two to four years to come up with the full replacement plan and if they repeal Obamacare early on but then it takes a full four years to replace it what happens in the interim a lot of Americans that are already enrolled would have issues wave if they're sick and seeing doctors on the will have to pay under their own pockets for these expenses and that's nothing that we want to do so they need to think about that a little bit more and what we're hearing about a death spiral that's the term that people are using where the premiums keep going up and then you know the coverage goes down and then you have less competition and the less competition is making the prices go up even further do you think concerns about a death spiral are real yes I mean possible on the possibility that could have occurred it depends on legislation at this point that's why i don't suggest i don't think that it would be immediate a change of reform right away into this besides the fact that most Americans that have enrolled for 2017 are already in the plan so you'll have to wait in 2018 to make any proposals that need to be adjusted or accepted in Congress yeah if it's gonna be a long process for sure and we just saw that President Obama is still hoping to stop it but as I Steve Moore said on our show earlier are you republicans are in control right now do they have any shot here and i can say everything you want so I think there's a lot of haters of the Obamacare plan therefore lack of information on the ACA which is really what it is ye paca and so common it also by cared meet leads people to understand where this information is in in the internet whether Donald Trump or Republicans are supporting this initiative by Obama that's a different story but they should study it carefully because it can implicate a lot into our economy and the plan that we have for the future right Marko Soriano thank you so much thank When you shop for a car or truck, new or used, you shop around That is just what we as consumers normally do Look for the vehicle we like, that serves our needs, and is affordable This basic feature of the economy is pushed aside in much of our healthcare system because of the third-party-payer system

Magnetic Resonance Imagining, an MRI may cost you $925 or $10,000 But as a consumer you really are not negotiating that, are you? You have insurance so it is not really your problem, especially if you already met your deductible for the year It seems ridiculous that the basic market structures to find equilibrium from supply and demand curves has eluded healthcare in America We take a look at one provider who recognizes the need to advertise their costs to consumers when they have not yet met their deductibles Let's take a look

it's a new year that means you start all over with your healthcare deductible be smart get your MRI on the lowest cost provider and save yourself money which give the art technology first MRI has the equipment any experienced staff to get your MRI done quickly and comfortably look how much you can save by going to first first best of all first of our I offers great pricing without sacrificing quality it's your money tell your doctor you want the lowest-cost MRI insist on going to first MRI Market-based reforms are changes in the market for health care that would make it more like the markets for other goods and services Economists who support market-based reforms to improve the health care system were disappointed that the ACA did not adopt this approach One goal of market-based reforms would be to ensure that US

firms continue their innovations in equipment, procedures, and drugs The ultimate bottom line of a modified US healthcare system must be focused on the improvements of how medical care is translated into the health of the American public That does not mean only the delivery of improved treatments It translates to how Americans improve the overall health of the population It is about eating healthier meals, living healthy lifestyles, enabling active involvement, while stopping destructive habits of alcohol, drugs, smoking, and high-risk activities

So much of our reduced enjoyment of healthy living is from self-induced destructive behaviors Only then, we can concentrate on our healthcare efforts squarely on prevention of catastrophic diseases like cancer, multiple sclerosis, leukemia, heart attacks and stroke Did everyone pay attention to what I just did? I converted my Positive Analysis discussion into a Normative Analysis opinion In reality, many people make a tradeoff between longer lives and drug use enjoyment, between healthier breathing of fresh air and smoking tobacco or marijuana to feel the high of it People enjoy the fatty foods at fast-food markets instead of taking the time to eat a meal from home with low calorie

Those are tradeoffs made with short-term benefits, ignoring longevity [Music]

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