The Economics of Healthcare: Crash Course Economics #29

Summary

Crash Course Economics explores the complexities of healthcare economics, contrasting various systems like Canada's single-payer, France's mixed model, and the UK's socialized system with the US's mixed private-public approach. It discusses the US's high healthcare costs, attributed to factors like high prices, quantity of care, and administrative expenses. The Affordable Care Act's impact on insurance coverage and cost management is also examined, highlighting the ongoing debate over government's role in healthcare.

Takeaways

• 🔍 Healthcare markets differ from other markets due to the unpredictability of health needs and the high costs involved.
• 💻 Health insurance mitigates the financial risk of unexpected healthcare costs, with premiums collected by private or public insurers.
• 💲 The Canadian healthcare system is a single-payer model funded by taxes, with private doctor's offices and public hospitals.
• 💵 France operates a mixed system where citizens are required to have health insurance, often through non-profit funds, with private healthcare providers.
• 💴 The UK has a socialized healthcare system funded and controlled by the government, with most healthcare providers as public employees.
• 💰 The US healthcare system is a mix of private insurance, single-payer programs like Medicare and Medicaid, and government-run facilities like the VA.
• 💶 Economists evaluate healthcare systems based on access, cost, and quality, with the US having a high rate of uninsured individuals prior to the Affordable Care Act.
• 💷 The US spends significantly more per person on healthcare than other developed countries, with high prices being a major cost driver.
• 💸 Administrative costs and the quantity of care are also factors in US healthcare spending, but prices are the primary differentiator.
• 💳 The Affordable Care Act aimed to increase coverage and control costs, though its impact on quality is still uncertain.
• 💹 The Iron Triangle of Congress, bureaucrats, and lobbyists can hinder healthcare reform, but also played a role in passing the Affordable Care Act.

Q & A

What makes healthcare different from other markets?

Healthcare is different because the need for it is unpredictable, and consumers often cannot shop around for the best prices, especially in emergency situations.

Why do we have health insurance?

Health insurance exists to help cover the unpredictable and often high costs of healthcare, either through private premiums or public tax collection.

How does Canada's healthcare system work?

Canada has a public insurance system funded by taxes, where the government pays for healthcare, doctors' offices are private businesses, and hospitals are public property with public employees.

What is unique about France's healthcare system?

France does not have a single payer system; instead, it has multiple non-profit insurance funds that pay healthcare providers, and most providers, including hospitals, are private businesses.

How does the UK's healthcare system differ from the US's?

The UK has a socialized healthcare system funded and controlled by the government through taxes, with most doctors, specialists, and hospitals being government-paid.

What is the composition of health insurance coverage in the US?

In the US, about two-thirds of Americans have private insurance, often through employers, a third have public insurance like Medicare or Medicaid, and a small percentage are uninsured.

Who tends to be uninsured in the US?

Uninsured people in the US are often younger, have lower incomes, and are more racially diverse. They might work part-time or low-wage jobs without insurance benefits.

Why does the US spend more on healthcare than other countries?

The US spends more due to a high quantity of care per person, higher prices for treatments and procedures, and higher administrative costs due to the complexity of the system with multiple insurers.

How does the Affordable Care Act (ObamaCare) aim to improve the US healthcare system?

The Affordable Care Act aims to increase coverage by requiring insurers to cover everyone and provide subsidies for those who can't afford insurance. It also includes provisions to control costs and improve quality.

What is the Iron Triangle in the context of US healthcare?

The Iron Triangle refers to the relationship between members of Congress, government bureaucrats, and lobbyists, which often works to maintain the status quo rather than reforming the healthcare system.

What are some challenges in measuring the quality of healthcare?

Measuring quality can be challenging as it involves various metrics such as hospital admissions for preventable conditions, rates of errors, and successful treatment of diseases, all of which need to be considered in context with the cost of care.

Outlines

00:00

🏥 Introduction to Healthcare Economics

Adriene and Jacob introduce the topic of healthcare economics, highlighting its unique characteristics compared to other markets. They explain that healthcare needs are unpredictable and often urgent, leading to the necessity of health insurance. Health insurance can be private or public, with premiums collected from individuals or taxpayers. They discuss different healthcare systems around the world, including Canada's single-payer system, France's mixed system, the UK's socialized system, and the diverse system in the US, which includes private insurance, Medicare, Medicaid, and a small government-run system for veterans (the VA). The US system is noted for its high costs and varying levels of coverage, with some individuals remaining uninsured.

05:02

💸 The Cost and Quality of Healthcare

The script delves into the high costs of healthcare in the US, comparing it to other countries. It discusses the role of quantity of care, pricing, and administrative costs in driving up expenses. The US is shown to have higher prices for medical procedures like MRIs and higher administrative costs due to the complexity of its system with multiple insurers. The paragraph also touches on the quality of healthcare, noting that while the US performs well in treating certain conditions, it also has high rates of preventable hospital admissions and medical errors. The Affordable Care Act (ObamaCare) is mentioned as an attempt to reform the system by increasing coverage and addressing costs, with mixed results.

10:04

📚 Conclusion and Future of Healthcare Economics

In the final paragraph, Adriene and Jacob conclude the series on textbook economics and announce their future plans. Jacob jokes about moving to Canada for subsidized healthcare, while Adriene will continue discussing other economic topics. They thank the viewers for watching and promote Patreon as a way to support Crash Course, ensuring it remains free for everyone.

Keywords

💡Healthcare Economics

Healthcare Economics refers to the study of how healthcare services are produced, distributed, and consumed. It is central to the video's theme as it discusses the unique challenges and dynamics of healthcare markets compared to other goods and services. The script uses examples such as the unpredictability of healthcare needs and the necessity of health insurance to illustrate its points.

💡Health Insurance

Health insurance is a type of risk management used to hedge against the high costs of unexpected healthcare needs. The video explains that health insurance, whether private or public, collects premiums to cover unexpected medical expenses, which is crucial for understanding the economic function of healthcare systems.

💡Single Payer System

A single payer system is a type of healthcare financing where one public entity is the primary source of health coverage. The video uses Canada's healthcare system as an example, where the government funds healthcare through taxes, illustrating how a single payer system operates and its implications for cost and access.

💡Private Insurance

Private insurance refers to health coverage provided by for-profit companies. The video contrasts private insurance with public systems, noting that in the U.S., most people under 65 receive coverage through private insurers, often through employer-sponsored plans.

💡Medicare

Medicare is a U.S. federal program that provides health coverage for individuals aged 65 and older. The script explains that Medicare is a form of single-payer system for seniors, funded by taxpayers, and is a key component of the U.S. healthcare system.

💡Medicaid

Medicaid is a joint federal and state program that helps with medical costs for some low-income people. The video mentions Medicaid as a taxpayer-funded program for low-income households, highlighting the role of government in providing healthcare to vulnerable populations.

💡Access

Access in healthcare refers to the ability of individuals to obtain appropriate and affordable care when needed. The video discusses the importance of access as one of the criteria for evaluating healthcare systems and notes that a significant portion of Americans were uninsured prior to the Affordable Care Act.

💡Cost

Cost in healthcare economics refers to the financial implications for individuals and the system as a whole. The video emphasizes the high cost of healthcare in the U.S., comparing it with other countries and discussing factors that contribute to these costs.

💡Quality

Quality in healthcare pertains to the standard of care provided. The script examines various metrics to assess healthcare quality, such as hospital admissions for preventable conditions and rates of medical errors, in the context of the U.S. healthcare system.

💡Administrative Costs

Administrative costs are the expenses associated with the management and operation of healthcare systems. The video points out that the U.S. has higher administrative costs due to the complexity of interactions between multiple insurers and providers, which contributes to the overall cost of healthcare.

💡Affordable Care Act (ObamaCare)

The Affordable Care Act, also known as ObamaCare, is a comprehensive healthcare reform law enacted in the United States. The video discusses the Act as an attempt to increase health coverage and control healthcare costs, while maintaining a mixed private-public insurance system.

💡Iron Triangle

The Iron Triangle in the context of the video refers to the relationship between members of Congress, government bureaucrats, and lobbyists, which can influence policy to maintain the status quo. This concept is used to explain the difficulty of healthcare reform and the vested interests that can hinder change.

Highlights

Healthcare is different from other markets due to its unpredictability and urgency.

Health insurance is necessary to cover the high costs of healthcare.

Healthcare funding can come from private insurance premiums or public taxes.

Canada has a public insurance system funded through taxation.

France has a mixed system with multiple non-profit insurance funds.

The UK has a socialized healthcare system funded and controlled by the government.

The US healthcare system is a mix of private and public insurance.

In 2014, 10.4% of Americans were uninsured, down from 13.3% in 2013.

Uninsured people in the US tend to be younger, earn less, and be more racially diverse.

Unpaid medical expenses of the uninsured drive up costs for everyone.

The US spends an average of $8,745 per person on healthcare, more than any other developed country.

High healthcare costs in the US are due to high prices and quantity of care.

The RAND Health Insurance experiment showed that cost-sharing deters overconsumption of healthcare.

Administrative costs contribute to the high healthcare costs in the US.

The US has higher rates of hospital admissions for preventable conditions.

The Affordable Care Act (ObamaCare) was passed to increase health coverage and control costs.

ObamaCare requires private health insurers to cover pre-existing conditions and charge the same premiums for the same age group.

The Affordable Care Act has reduced the number of uninsured Americans.

The economic debate over healthcare revolves around the role of government and capitalism.

Transcripts

Adriene: Welcome to Crash Course Economics I’m Adriene Hill

Jacob: and I’m Jacob Clifford. Today we are going to talk about the Economics of Healthcare.

Healthcare is different than some of the other markets we’ve talked about.

Adriene: If you’re having a heart attack, you’re not going to shop around for the

hospital with the best prices. And a hospital emergency room isn’t going to wait for your

credit card to go through before they treat you. But we’re getting ahead of ourselves.

Let’s get started.

[Theme Music]

For a lot of reasons, Health care is different than the other markets we’ve talked about.

First, you never know when you’re going to need it. It’s kind of hard to plan to

fall off your bike and break your arm. And after you break your arm, that visit to the

emergency room is going to be expensive.

That’s why we have health insurance, whether it’s private or public. Private insurers

periodically collect money, in the form of premiums, paid by individuals or their employers.

Public insurance programs collect money from taxpayers.

You’ll hear some countries have free healthcare, but it’s not “free.”

They’re paying for it: either directly, through insurers, or through taxes.

Let’s work out all the details in the Thought Bubble.

Jacob: So, Canada has a public insurance system where the government funds healthcare for everyone through taxation.

Doctor’s offices tend to be private businesses that get paid directly by the government.

But, hospitals and operating tables are public property.

And the hospital staff are public employees, sort of like public schools.

This is often called a single payer system since the government is doing most of the paying.

Canadians have to pay for prescription drugs, eyeglasses and dental care themselves

or get them through supplemental private insurance.

Now, France technically doesn’t have a single payer system because health care providers

are paid by several non-profit insurance funds.

All citizens are required to get health insurance and they’re free to choose their doctor.

Unlike Canada, most French providers, including hospitals, are private businesses.

The UK is different still. It has a socialized healthcare system which is funded and controlled

by the government through taxes. The majority of doctors, specialists, and hospitals are

all paid by the government, not insurance companies.

Today, the US has little of everything! Almost all providers – hospitals, clinics, doctor’s

practices – are private firms. Most households with adults under 65 are covered by private

insurance, either through their employer or through individual policies.

But the US has single payer system for those over 65 and those below the poverty line.

Medicare is a taxpayer-funded public insurer that pays providers to care for seniors and

Medicaid is a similar program for low-income households.

Oh, and the US also has a small UK-style system with government-run hospitals and government-employee doctors.

But it’s only for veterans and it’s called the VA.

Adriene: Thanks Thought Bubble. So let’s get down to some numbers.

Economists evaluate the effectiveness of a healthcare system on three criteria: Access, Cost, and Quality.

According to the Census Bureau in 2014 10.4% of Americans didn’t have health insurance coverage, down from 13.3% in 2013.

Two thirds of Americans had health insurance through a private Insurer. The vast majority

got coverage through their employer and the rest bought individual plans.

About a third of Americans had health insurance through a taxpayer-funded government insurance plan

like Medicare, Medicaid, the VA , and healthcare for active-duty military and their families.

So, two thirds, plus a third, plus 10% uninsured adds up to more than 100%. That’s because

somebody who switches from private Insurance to public Insurance gets counted in BOTH numbers.

That’s just the way the Census does it.

Let’s talk a little about the uninsured. Compared with the general population, people

without insurance tend to be somewhat younger, earn less, and be more racially diverse.

Because Medicaid covers people below or near the poverty line, the uninsured are usually not completely destitute.

They often work a part-time or low-wage job, which puts them above the Medicaid threshold,

but their employers may not offer insurance to part-time workers. If an uninsured person

gets sick or gets hit by a bus, they can easily get stuck with six figures in medical bills.

And those unpaid medical expenses drive up costs for everybody.

Jacob: This brings us to the cost of healthcare. Good news Americans – We’re Number One!!

Well, actually, it’s not that great. In 2012, the U.S. spent an average of $8,745 per person on healthcare.

Other rich countries like Switzerland and Norway spent a little over $6,000, and countries

like Germany, France, the UK, and Japan spent in the $3-5,000 range.

So the U.S. is spending twice as much, per person, as most other developed countries.

Put another way, the US spends the same share of GDP just on Medicare - as most countries

spend to cover their entire populations.

So why does the US spend so much more than other countries? Well, some argue that it's

due to high quantity of care per person. Since insurance companies, rather than patients

pay providers, patients might want more care, like tests, procedures and treatments than necessary.

It’s like an all-you-can-treat buffet. You know you shouldn’t go back for that fourth

General Tso’s X-Ray, but it’s just so delicious!

The RAND Health Insurance experiment a few decades ago found that requiring patients

to pay for a portion of their health care cost deters them from overconsuming of healthcare.

That’s one reason that in the US, many insurance plans have deductibles, a form of costs sharing

where the the patient is required to pay a part of the cost before the insurance kicks in.

Many economists say prices are also a problem. In most other countries, insurers pay between

$200 and $400 for an MRI. In the US, the price is around $1500. And it’s not like the US

MRIs are somehow “better.” They’re exactly the same machines.

And you can go down the list of treatments and procedures – in nearly every case, US

providers are being paid 3, 4, or 5 TIMES more.

This is because the US doesn’t have a unified system that can aggressively negotiate with

doctors, pharmaceutical companies, and other providers. They point out that Medicare and

Medicaid often get a significant discount compared to small insurers.

Another reason for the high costs is the blizzard of paperwork generated by the interaction

between dozens of insurers and thousands of providers. Both the insurer and the provider

have to employ a team of unhappy people in cubicles to haggle over the reimbursement

rate for an appendectomy. These teams add to the administrative costs of healthcare.

Adriene: So which problem is driving healthcare costs? Quantity? Price? Administrative costs?

When you dig into the numbers, the US consumes a pretty high quantity of tests and treatments per person.

But it’s not radically higher than most other countries, and several countries, like Germany, do even more.

Likewise, the US administrative costs are also higher, since a lot countries drastically

reduce their billing paperwork with a universal insurer. But that cost explains only about

10-20% of the cost difference. Most of the difference comes from the fact that US providers

are paid much higher prices than their counterparts in other countries.

Okay, let’s talk quickly about quality. There are a lot of ways to measure the quality

of a country’s healthcare system. Let’s look at a few different metrics.

According to the Kaiser Family Foundation, The US has higher rates of hospital admissions

for preventable conditions, and it has high rates of medical, medication and lab errors.

The US DOES stack up pretty well in terms of diagnosing and successfully treating conditions like heart disease and some types of cancer.

But remember, spending per capita is much higher in the US than the rest of world.

Reforming the health care system is difficult, thanks to something called the Iron Triangle.

The Iron Triangle is a section of the Western Atlantic ocean where ships and planes are

frequently spirited away by extra terrestrials.

Sorry, I’m terrible at triangles. That’s the Bermuda Triangle.

The Iron Triangle refers to the mutually beneficial relationship between members of Congress,

government bureaucrats, and lobbyists.

Bureaucrats want to protect their funding and jobs, Congressmen want to get re-elected,

and lobbyists want to advance the interests of their clients. And they all end up working

toward policies that maintain the status quo, and aren’t necessarily in the best interest of the people.

But they’re not worthless. The Iron Triangle got it together in 2010, and the US Government

passed the Affordable Care Act. Sometimes called ObamaCare.

This stab at reforming the American healthcare system has been controversial, to say the least.

Let’s take a look at what the law does and doesn’t do.

ObamaCare did not set up a UK-style system where hospitals are public property and doctors

are public employees. It also didn’t establish a Universal Public Insurance system,

like expanding Medicare to everyone.

Instead, the Affordable Care Act tries to increase health coverage by requiring private

health insurers to insure everyone who applies, charge the same premiums to people of the

same age, and cover pre-existing conditions.

To prevent otherwise healthy people from only buying health insurance when they get sick,

it requires that everyone obtain health insurance or pay a fee. The law also subsidizes health

insurance premiums for those who can’t afford to pay market rates.

So that’s what ObamaCare is supposed to do… is it working? Well, it has reduced

the number of Americans without insurance. So access seems to have improved.

The Affordable Care Act also has provisions meant to deal with costs.

And that’s a little more difficult to assess.

The act rewards doctors for cutting costs, and requires greater price transparency.

It also mandates a move to electronic record-keeping.

As far as improving quality goes, It’s probably to early to tell.

Jacob: In the end, the economic debate over healthcare is a lot like the debate over other

topics we’ve covered in Crash Course Economics, like price controls, climate change, inequality,

and education. The recurring question is: when, if ever, should the government get involved

to help markets achieve the most effective, efficient, and fair outcome.

Obamacare reflects the peoples' attitude towards government and capitalism: Americans don’t

fully trust either one of them. Healthcare reforms have left private insurers and providers

in place, but at the same time has increased regulation. Insurers are now required to do

things they wouldn’t normally do, like cover people with pre-existing conditions.

Adriene: So, that’s the American healthcare system, which is weird and expensive, and necessary.

That’s also the end of our textbook economics episodes.

Jacob: And so I’m moving to Canada to write a textbook and enjoy some of that sweet, sweet, subsidized health care.

Adriene: And I’m going to stick around and talk about the economics of things like immigration

and social security and happiness.

Jacob: Thanks for watching. She’ll see you next week.

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