Chapter 31 (cont.)

1. Chapter 31 (cont.) Income, Poverty, and Health Care

2. Poverty and Attempts to Eliminate It • Defining poverty • Official poverty level in 2005 for an urban family of four was $19,000. • Adjusted annually for inflation • Does not include transfer payments

3. International Example: The U. S. Poverty Level Vs. Incomes Abroad • The World Bank publishes an annual report giving the per capita incomes of about 150 nations. • Of these, only 26 have per capita incomes higher than the poverty income threshold defined for the U.S.

4. Relative Poverty: Comparing Household Income and Household Spending Figure 31-7 Source: Bureau of Labor Statistics; U.S. Bureau of the Census

5. Poverty and Attempts to Eliminate It • Attacks on poverty: major income maintenance programs • Social Security • OASDI • 90 percent of all employed persons covered • In 2005, 45 million people received OASDI payments averaging $875/month

6. Poverty and Attempts to Eliminate It • Supplemental Security Income (SSI) • Minimum income for the: • Aged • Blind • Disabled

7. Poverty and Attempts to Eliminate It • Temporary Assistance to Needy Families (TANF) • 5-year limit for each person • Must seek training and employment

8. Poverty and Attempts to Eliminate It • Food stamps • Government-issued coupons that can be used to purchase food • In 2005, one in nine citizens received food stamps

9. Policy Example:What are Food Stamps Worth? • Food stamps can only be used to purchase food items approved for the program. • When food stamp coupons are traded illegally on the underground market, they are traded at about 65 percent of their face value.

10. Poverty and Attempts to Eliminate It • Earned Income Tax Credit Program • Families with low incomes receive a graduated benefit

11. Poverty and Attempts to Eliminate It • No apparent reduction in poverty • 1973—11 percent • 1983—15 percent • 1990—13.1 percent

12. Health Care • America’s health care situation • 16 percent of U.S. real GDP is devoted to spending on health care. • Per capita spending on health care is greater in the United States than anywhere else in the world.

13. Percentage of Total National IncomeSpent on Health Care in the United States Source: U.S. Department of Commerce; U.S. Department of Health and Human Services; Deloitte and Touch LLP; VHA, Inc. Figure 31-8

14. Health Care • Why have health care costs risen so much? • The age-health care expenditure equation • Aging population increases the demand for health care • New technologies • Third-party financing

15. Third Party versus Out-of-Pocket Health Care Payments Source: Health Care Financing Administration; U.S. Department of Health and Human Services Figure 31-9

16. Health Care • Price, quantity demanded • Large percent of medical services payments made by third parties • Price to the consumer drops and the quantity demanded increases • Moral hazard and consumers • An individual with a zero deductible for medical care may engage in a less healthful lifestyle than one who must pay a $1,000 deductible

17. P 1 D Q Q 1 2 The Demand for Health Care Services At P1 quantity demanded is Q1. Price If the price falls to zero, quantity demanded increases to Q2. Quantity of Health Care Services per Year Figure 31-10

18. Health Care • Moral hazard as it affects physicians and hospitals • Due to third-party payments, patients do not have to worry about the cost of operations and medical procedures. • Physicians and hospitals order more of them since they are reimbursed on the basis of medical procedures.

19. Health Care • Fully 30 percent of Medicare expenditures are for patients in their last year of life.

20. Health Care • Is national health insurance the answer? • 40 million Americans are uninsured at some point during the year • National health insurance would increase the amount of national income devoted to medical services

21. Federal Medicare Spending Source: Economic Report of the President; U.S. Bureau of Labor Statistics Figure 31-11

22. Health Care • Countering the moral hazard problem: a Health Savings Account (HSAs) • A tax-exempt health care account to which individuals would pay into on a regular basis and from which medical care expenses could be paid

23. Issues and Applications: Should U.S. Health Care Copy Other Nation’s Programs? • Is the rise in health care costs evidence of a crisis? • To a certain extent, residents of the U.S. choose to spend more on health care. • In other countries, waiting lists for certain procedures serve to dampen the amount of health care people receive.

24. Summary Discussion of Learning Objectives • Using a Lorenz curve to represent a nation’s income distribution • The more bowed a Lorenz curve, the more unequally income is distributed • Key determinants of income differences across individuals • Age • Marginal productivity differences • Discrimination

25. Summary Discussion of Learning Objectives • Theories of desired income distribution • Productivity standard • Egalitarian principle • Alternative approaches to measuring and addressing poverty • Absolute poverty standard • Relative poverty standard

26. Summary Discussion of Learning Objectives • Major reasons for rising health care costs • Aging U.S. population • Higher priced medical technologies • Third-party financing of health care expenditures • Moral hazard

27. Summary Discussion of Learning Objectives • Alternative approaches to paying for health care • Rationing by price • Rationing by queues

28. End of Chapter 31 Income, Poverty, and Health Care