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Health Care Reform Part 1: Introduction. 4/19/11. Outline. I. Why reform ? II. How to reform. I. Why Reform?. Reason 1: Rising costs National health expenditures (NHE) grew from 5.7% of GDP in 1965 to 15.3% of GDP in 2003. NHE are projected to grow 1% faster each year than real GDP.

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  • I. Why reform?
  • II. How to reform
i why reform
I. Why Reform?
  • Reason 1: Rising costs
    • National health expenditures (NHE) grew from 5.7% of GDP in 1965 to 15.3% of GDP in 2003.
    • NHE are projected to grow 1% faster each year than real GDP.
    • This would mean real NHE would be 18.7% of real GDP by 2014 and 33% by 2078.
    • Expenditures on Medicare and Medicaid would grow from 25% of the budget to 50% of the budget by 2050.
i why reform1
I. Why Reform?
  • Reason 2: Uninsured
    • As a consequence of rising costs, the percent of the population without health insurance has risen from 12% in 1987 to 15.5% in 2004.
    • The U.S. is unique among developed countries in not providing some sort of universal coverage.
i why reform2
I. Why Reform?
  • Are rising costs bad?
    • Market forces
      • Better technology => greater demand?
      • Preference for health care relative to other goods can change over time
      • Could be supply-side changes as well (i.e. greater opportunities for women => lower supply of nurses)
    • Market failures
      • Expansions in coverage => greater moral hazard (perhaps mitigated by managed care)
      • Better technology => greater information asymmetry
    • Certainly unsustainable from a public finance standpoint
      • Doesn’t necessarily have to be fixed by curbing cost growth; could also be fixed by higher taxes or more cost-sharing
i why reform3
I. Why Reform?
  • Is it bad that some people are uninsured?
    • No: people have different risk preferences
    • Yes
      • Many of the uninsured can’t get affordable coverage because of pre-existing conditions.
      • Others tend to not get care until serious illness, then they get expensive emergency room care that is either financially devastating, defaulted on, or given as charity => social costs.
    • Is health care a right or a market good?
      • If right, we should provide coverage for everyone.
      • If market good, people should be allowed to not have insurance, but they must bear the downside of the gamble.
      • The U.S. seems to want it to be market good but then is reluctant to deny care to the uninsured when they can’t pay.
ii how to reform
II. How to Reform
  • Must balance economics and politics
    • Serious cost control (i.e. single-payer system) would require taking on doctors, hospitals, pharmaceutical companies, insurance companies, and patients, and is probably politically infeasible at this point.
    • Achieving universal coverage was seen as more politically feasible.
    • “This round of reforms thus involves a decision not to hold the attainable goal of universal coverage hostage to the (currently) unattainable goal of fundamental health care cost control.” -Jon Gruber
ii how to reform1
II. How to Reform
  • Tension between coverage and costs
    • Expanding coverage without doing anything to control costs would likely lead to higher medical expenditures.
    • The reform therefore aims to approach universal coverage while doing just enough on the cost control side to break about even.
    • We will still have to deal with more dramatic cost containment in the future.