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The first thing to note is how Americans are currently receiving health insurance.

Source: https://aysps.gsu.edu/ghpc

As it stands, the majority of Americans are receiving health benefits from their employers. Even under the Patient Protection and Affordable Care Act (also warmly referred to as Obamacare), nearly two-thirds of Americans receive insurance in this way. Reasons why employers offer health insurance They can offer you lower wages (20% lower than if you purchased insurance on your own). They do not have to pay your Social Security and Medicare taxes on the amount that they contribute to your insurance. They can buy in bulk and get health insurance cheaper. American employers would rather provide benefits than pay out higher wages to employees because it is cheaper for them to offer benefits. Reasons why employees accept health insurance The employer typically pays the majority of the premium due to tax benefits. The larger size of the risk pool (your fellow employees) means that your premiums will be lower than if you were purchasing insurance as an individual consumer. A large pool spreads the risk out across more people. Your employers insurance plan must cover you and all of your conditions. Your income tax liability is reduced by paying with pre-taxed dollars. You do not have to pay your Social Security and Medicare taxes on the amount you contribute to your insurance. Which brings me to the first reason why healthcare costs are increasing an economic concept known as moral hazard. When consumers utilize employer-based health insurance, the marginal cost of health insurance is relatively cheap because most insurance plans require you to pay up-front for services through premiums, deductibles, and copayments. After all, what is the incentive NOT to use health care if you have already paid for it through health insurance? The overarching issue here is overconsumption of unneeded (and occasionally unnecessary) services. Patients may order expensive services from physicians even if they dont need them. Its like writing a blank check to both physicians and consumers. This problem may inefficiently discourage insurance companies from protecting their clients as much as the clients would like to be protected.

Over the past decade, the percentage of employer-sponsored insurance has decreased among adults

Source: Urban Institute, 2011. Based on data from the 2001 2011 ASEC Supplement to the CPS

At the same time, average premium coverage costs that are passed off to employers have increased

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010

This poses the question have insurance cost controls been effective? Health insurance premium growth rates are almost always higher than the growth rates of earnings and inflation. There are three outcomes due to this: Individuals may choose not to have insurance as a result. Employers may choose not to provide insurance as a result. Wages may be lower as a result. As you can see, a large chunk of the economic burden of health care costs is passed off to not only employers, but also to insurance companies, physicians, and eventually consumers.

The second problem with healthcare costs: the cost of being uninsured. Currently, 17% of Americans (about 50 million who are eligible) are uninsured. When a person is uninsured, he/she has no usual source of care, which drives up the cost of emergency care. Lack of insurance usually means less health literacy and poorer quality of care. The uninsured pay more for comparable services than those who have health care. Additionally, having health insurance doesnt mean that he/she can afford the copayment.

Source: Kaiser Family Foundations Health Tracking Poll: June 2010

The uninsured also: Are more likely to forgo care due to cost concerns. Are less likely to receive preventative care and appropriate routine care for chronic illness and consequently have a higher mortality rate overall.

Source: Summary Health Statistics for the U.S. Population: National Health Interview Survey, 2010.

In terms of family work status, income, and age, 49.1 million people were left uninsured in 2010.

The most uninsured groups (out of these 3 parameters) are families with 1+ full-time works who are 100 to 250% below the poverty line, and are between the ages 35 54. TL;DR: Without health insurance, individuals have the choice to either forego care altogether or to pay outof-pocket for healthcare. In either case, the costs of services are still passed off to Americans. Many uninsured Americans may choose to simply go to the emergency room to receive what would otherwise be the responsibility of a primary care physician. Under EMTALA, hospitals that receive federal assistance, maintain charitable nonprofit tax status, or participate in Medicare are prevented from denying emergency treatment based solely on an individual's inability to pay. This no patient dumping clause results in the medical costs incurred by the uninsured being passed off to hospitals and, ultimately, to other patients who have the ability to pay for services.

When judging a health care system, there are five analytic criteria to keep in mind Effectiveness Equity Cost Efficiency Feasibility (includes political, administrative, economic, and legal components) 1. Effectiveness Does it work and how would you know? Outcome indicators include life expectancy, access to care, and healthy years of life measures. 2. Equity Is it fair, and who are the winners and losers in the system? The USs system is viewed as unfair because large groups of people lack care.

Source: OECD Health Data 2011

Composition of who pays for health care Half of healthcare in the US is paid for by the federal government ($0.50 on each $1). One-third of expenditures are paid to private insurance. 12% goes to copayments and deductibles ($0.12 on each $1). The central government is involved in the majority of health care costs in all rich countries, even ours.

A high percentage of people lacking health insurance and a dependence on private, for-profit healthcare are major reasons the United States has poor financial and health outcomes.

Many health disparities are seen in race or work structure.

Source: KCMU/Urban Institute Analysis of 2011 ASEC Supplement to the CPS

Less than 50% of minorities have insurance because they are more likely to work blue collar jobs.

3. Cost There are two ways to compare cost: Unmet need GDP Americans are more likely to forego medical care because of cost (the unmet need criterion)

Source: Commonwealth Fund, 2010

The health disparity in the US is twice as high if the individual is from a lower income home. This is both a cost AND an equity issue. In the UK, for example, there is no health disparity between above average and below average income levels. Health expenditure as a function of GDP Since 1960, we have developed better ways to treat and manage disease. Prices are increasing at the time, but were getting more bang for our buck. In 1975, the US diverges from the rest of the world; one-fifth of the economy is now built around health care.

Source: OECD Health Data, 2011 http://dx.doi.org/10.1787/888932523215

International comparison of spending on health from 1980 to 2007


Average spending on health per capita ($US PPP)
8000 7000 6000 5000 4000 3000 2000 1000 0

United States Canada Netherlands Germany Australia United Kingdom New Zealand

$7,290

1980 1984 1988 1992 1996 2000 2004

Source: Organization for Economic Cooperation and Development, OECD Health Data, 2009

In terms of total health expenditure per capita, the US ranks highest (almost $8000 PPP).

4. Efficiency (bang for your buck) Includes waiting times, administrative costs, and increase in expenditure versus its positive effects. The good news: theres not a long waiting time problem in the US.

In Canada, 60% of people had to wait more than 1 month to see a specialist for the first time. America has the lowest wait time. However, we are less efficient in terms of administrative costs (how you run the system). In the US, a typical primary care physician has to work with 20 to 30 insurance providers, including government systems. This level of administrative complexity and the employees needed to make it possible is what makes administrative costs so expensive. Its expensive to run a practice, and the ACA makes it even more complex (however, health insurance exchanges will reduce the number of players in the market).

Source: OECD Health Data, 2011

As health spending increases, health and life expectancy typically increase. This association is not exponential, however. After $4000/person, life expectancy tapers off.

Source: OECD Health Data, 2011; World Banks and National Sources for non-OECD Countries

We are spending twice as much money just to get the same life expectancy as other countries.

Another problem that drives up healthcare costs is the fact that Americans pay more for prescription medications than many other countries. Part of the reason why prescription costs are so high is based on culture. Americans generally use more pharmaceuticals than other countries. In other countries, large pharmacy companies cant market and persuade consumers. Some European countries have pharmacies that prescribe medicine. Supply and demand alters regulation. Direct consumer marketing is relatively new; commercials and the associated cost of advertising drives up cost. This may be positive because it pushes people to the doctor. The evidence about whether or not this is good is mixed. What is NOT debatable is the fact that it drives up healthcare costs. The U.S. also has a strict policy of no drug reimportation. It is against the law to reimport drugs because you cannot monitor quality in other countries. Other countries can also negotiate the cost of drugs with pharmaceutical companies.

5. Feasibility Is the policy politically, administratively, economically, and legally sound?

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