Public Healthcare. Economics 325 Martin Farnham

Transcription

1 Public Healthcare Economics 325 Martin Farnham

2 Healthcare in Canada In recent years healthcare has been a hot topic in both Canada and US Debates in Canada over provincial vs. federal control (especially in Alberta) Debates in US over role of government in health system Is healthcare any different from any other good we consume (food, housing, etc.)? Why should government be involved? Information asymmetries lead to missing market Paternalism Positive externalities Redistribution

3 Rationale for Government Intervention in Healthcare Information asymmetries Adverse selection (example) When you buy a used car, it s difficult to know whether it s a lemon or a creampuff Every seller will tell you they re selling a creampuff; but why would they sell a perfectly good car? Explains why used-car ads often say things like Must sell! Leaving the country. These are probably lies, but are meant to make you think there s not a problem with the car In equilibrium, might expect that no creampuffs sell. Buyers don t trust sellers, so they re not willing to pay enough to get sellers to part with good used cars Hence, under certain assumptions, no good used cars will ever be sold

4 Rationale for Government Intervention in Healthcare Information asymmetries Adverse selection (insurance buyer vs. seller) Same applies to health insurance. People who are high risk (smokers, people with family history of disease, etc.) are first to want to buy insurance Insurance sellers don t know who is high risk and who is low risk. Tend to assume everyone who wants to buy insurance is high risk Therefore, only high-price insurance is available This compounds problem by driving low-risks out of the market even more Only insurance policies for high risk people are sold Missing market for low-risk insurance policies Govt could provide it

5 Rationale for Government Intervention in Healthcare Information asymmetries Moral hazard (doctor vs. patient) Another problem with healthcare is that you as a patient don t know which tests/procedures are worth doing and which aren t A hospital might run excessive tests or employ expensive treatments because they know you can t tell whether such expenses are worth incurring or not This can lead to problems controlling costs Regulation or govt. supervision could be warranted This problem occurs in other markets, such as car repair

6 Rationale for Government Intervention in Healthcare Information asymmetries Moral hazard: Once someone else is paying your medical bills (insurer) you and your doctor have little incentive to engage in cost-minimizing behavior Insurance causes accident rate to go up At the extreme, people may take less care with their health (smoke, drink heavily, etc. knowing their insurer will pick up the tab) I would never go mountain biking if I didn t have health insurance to cover potential broken bones. More commonly, people are likely to partake of medical care more often or more intensively than is socially optimal

7 Moral Hazard under Full Insurance Moral Hazard If people paid (at P=MC) for their own checkups they would take full social cost into account Would buy a level of service that sets P=MB If people pay nothing for their checkups, they are unlikely to take the true cost into account Insurers could not profit under such circumstances Note that this is still a problem if govt provides free checkups P Market for Checkups (with full insurance coverage) P s P 0 MB Qeff Qeq MC=P Q

8 Rationale for Government Intervention in Healthcare Paternalism If people lack the foresight or information to make well-informed decisions about healthcare, this might justify government involvement Externalities Health involves externalities (if you die young, your family and friends will be sad and your kids may suffer financially) Poor health reduces productivity; reduces tax revenues collected on labour income Contagious diseases involve clear externality My tuberculosis may not bother me enough to have it checked out but it could kill you and others.

9 Rationale for Government Intervention in Healthcare Income Redistribution Health and income are highly correlated. To some extent this is because better health causes higher productivity So to some extent promoting good health for all is like promoting education for all Giving free healthcare to poor people may not make them as happy as cash, but it deters those who don t need a handout from trying to get one. Some people view health as a basic human right If so, government may want to provide at least a basic minimum level (similar to justification for anti-poverty policy).

10 Health in Canada Compared to Rest of World Canada compares pretty favorably to other major industrial powers on health measures Relatively high life expectancy Ranks around the middle in infant mortality Spends a relatively large fraction of GDP on healthcare

11 Some Health Indicators Spending %GDP 2011 Quality ranking (WHO) 2000 Infant Mortality 2012 Canada 10.9% 10 5/ Australia 9.0% 32 4/ China 5.1% / France 11.6% 1 3/ Germany 11.3% 25 3/ Japan 10.0% 10 2/ Sweden 9.5% 23 2/ United Kingdom 9.4% 18 4/ United States 17.7% 38 6/ Life Expectancy 2012

12 US vs. Canada: Which System is Better? In US in 2011, health care expenditures were 17.7% of GDP; more than any other country Median for industrialized countries was around 10% Yet people in US have lower recorded health status than other countries that spend much less (Japan has higher life expectancy; spends just over half of what US does on healthcare) In in 6 in US were uninsured (~48 million people) One study claims underinsurance causes around 45,000 deaths per year in US

13 US vs. Canada: Which System is Better? The US is a better place to get sick if you re rich US has the best doctors and hospitals in the world Cutting edge research at medical schools means cutting edge procedures are available If you can pay, you can be seen by a doctor tomorrow for all kinds of obscure conditions Canada is a better place to get sick if you re poor or middle income. You may have to wait for some procedures; may have more limited treatment options than a rich person would in the US; but many more options than a poor person would have in the US

14 Recent US Reforms In February 2010, US Congress passed health care reform (mix of policy shifts) System remains mostly private Subsidies for low income indivs. Expanded Medicaid eligibility for low-income families (free coverage) Subsidies for low-middle income Tax penalties for people who don t buy insurance (unless low income) Rules for insurers regarding pre-existing conditions, dropping coverage

15 What Explains Discrepancy Between US Spending and Outcomes? Part of discrepancy explained by severe inequality Very high quality care available to those who can pay Low quality care (in some cases no care) for poor, indigent Lack of insurance reduces preventative (lower cost) interventions; leads to higher cost interventions later on Unpaid bills are cost-shifted to paying customers and to hospitals, especially ERs and government hospitals

16 History of Canadian Healthcare Healthcare privately provided until 1940s 1947 Saskatchewan offered health insurance Fed govt introduced grants to provinces in 1948 By 1961, all offered insurance with Fed government contributing 50% of cost Note that doctors worked privately (insurance was public, but health system was still private) Medicare systems introduced at provincial level starting with Sask. 1966; all provinces by 1971

17 History of Canadian Healthcare 1977, Federal healthcare support combined into Established Program Financing (EPF) (together with education funding) 1996 EPF grants ended; replaced with Canadian Health and Social Transfer grants to provinces (CHST) In 2006 CHST was split into CHT and CST (separate transfers from federal govt to provinces).

18 The Canada Health Act (1984) Places 5 conditions on provincial health plans in order to maintain eligibility for federal grants Universality. Health insurance for all residents Accessibility to necessary services; reasonable compensation for providers Comprehensiveness. Coverage of all medically necessary services Portability. Coverage extends outside province if resident travels Public Administration. Plans must be run by nonprofit public authority.

19 The Canada Health Act (1984) Provinces that don t comply with the conditions can be assessed penalties (grant reductions) Debate between (former) Health Minister Ujjal Dosanjh and (former) Alberta Premier Ralph Klein. Klein tried to break conditions of CHA Spend public money on private clinics by contracting services out Charge health insurance deductibles

20 Trends in Canadian Healthcare Expenditures have risen significantly as a percent of GDP (5.8% in 1961; 10.9% in 2011). Why? Expansion of services If income elasticity of demand for health services is greater than 1 would expect healthcare to rise as fraction of national income Also because government healthcare began providing services to people who would otherwise have consumed less

21 Trends in Canadian Healthcare Why rising expenditures? Increased spending on drugs Have many more treatment options today than we used to It s more expensive to treat someone effectively than to send them home with a couple aspirin Aging Older people require more medical attention Starting in about your 40s you begin to fall apart (ask your parents) Aging baby boom is contributing to currently rising costs, will continue to do so (until they re gone)

22 Trends in Canadian Healthcare Provincial budgets are increasingly dedicated to healthcare (around 50% now) Availability of hospital beds has been in decline over past 10 years or so Hospital stays have been reduced Health of Canadians has, for most part, held steady or improved through all this Aboriginal health remains a major problem

23 Opportunities for Improvement Can (and should) always debate what the right level of spending is Can also consider ways to improve effectiveness of system (how to squeeze more services out of existing spending levels) Cost reduction measures Improving incentives to make sure tests and treatments are only done to the point where MSB=MSC How do you convince doctors (who get paid more when they treat more) not to overtreat patients? Does a partially privatized system provide more or less cost-effective service? Allow consumers more choice?

24 Healthcare--Tradeoffs Remember, budget constraints slope down Any question of how much healthcare is a good amount requires considering what must be given up (or what could be gained by reducing health spending). Healthcare spending is spending that can t go toward education, environment, other programs (or household spending) One easy way to keep tuition costs down would be to substantially cut healthcare, and transfer revenues to higher ed. All very well to support public healthcare but must recognize implicit tradeoffs and judge them worthwhile