healthcare.jpg Health Care Privately Owned

Our current health care system in the U.S. is privately owned (Australia also has a privately owned health care system). This means health care is provided by private businesses if you are willing and able to pay for it. Some exceptions include Medicare and Medicaid, which are government funded medical insurance programs for people over 65 years old and families in the lower income brackets. Many countries have universal health care (where the government provides heath care to their citizens), which can be beneficial, however these types of systems are often slow and decrease doctors incentive to do quality work. Although our system seems to provide adequate care for many people, it is not perfect. Since our system is privately owned, the companies aim to make a profit, and therefore may not offer the best insurance. Over the last century, our system has evolved, providing different types of care to help cope with the increase in costs, while trying to make a profit.

Rising Costs

In recent years, health care costs have skyrocketed. Joseph Newhouse, a professor from Harvard University, conducted a study in which he found a number of reasons for rising healthcare costs. These include but are not limited to: defensive medicine, increased costs of medical malpractice insurance, an increase in the number of people over 65 years old, income growth, an increase in the number of people with health insurance, and advancements in medical technology. A number of different tactics have been used to try and combat the increase including: retrospective reimbursement, prospective reimbursement, Health Maintenance Organizations, government subsidies for employer-provided health care, and Health Savings Accounts. healthcare-reform.jpg

One way healthcare is administered is through retrospective reimbursement. In simple terms, this means that you pay the insurance company and they pay for the services you choose. This strategy leads to unnecessary testing and furthermore, excessive care. On the other hand, prospective reimbursement pays a set amount of the bill depending on the average cost for said service or operation. Prospective seems to be the more common approach in this day and age. The problem with prospective reimbursement is it leads to insufficient care because people tend to look for less expensive care.

Health Maintenance Organizations, or HMO’s, were another popular approach beginning starting in the 1980’s. Essentially, an HMO is a combination of insurance and medical care. To cut costs, the HMO pays doctors to see people with insurance coverage. In addition, the HMO charges patients a flat amount and decides what medical services they need. The problem with HMO’s is they tend to attract healthier people, who know their risk is low. It seems an attractive option to these people because it is low cost, however it often leads to insufficient care.scales.Par.0001.Image.250.gif

The government also subsidizes employer-provided heath care. The subsidy allows employers to provide health care at no additional costs. Since wages are taxed and health care is not, the employee has a choice: health insurance that is tax-free or the equivalent cash amount (taxed). The rational, and most common choice is to accept the insurance. The insurance is often times excessive and an overall waste.

Another tool used to try and combat rising prices is a Health Savings Account. In 2003, President George W. Bush signed a Medicare bill that included the creation of Health Savings Accounts. Essentially, an HSA is a savings account in which tax-free income is placed incase of a medical emergency. The HSA pays a high deductible (in accordance with a High Deductable Health Plan) for your medical needs. This also tends to be more attractive to healthy people. Here is an example of HSA rates: Blue Cross HSA Rates

Adverse selection and moral hazard

There are two main problems associated with privately owned health care: Adverse Selection and Moral Hazard.

In simple terms, adverse selection is when people know more about their risk than the insurance company does. For example, high-risk people will want insurance more than lower risk people. In turn, low risk people will opt out of insurance (they will self insure), setting off a chain reaction. Due to opting out, expected medical costs will rise, causing insurance premiums to increase as well. Subsequently, the increase in the costs of insurance premiums forces more people to opt out, which in turn causes premiums to increase even more. The vicious cycle of adverse selection can eventually lead a complete health care market failure. One way to cope with adverse selection problem is to go to the employer. When an insurance company goes to the employer, fewer people opt out and the effect of the cycle is reduced. This strategy is frequently used today, and has come close to solving the problem.

The moral hazard problem also is a major issue in the health care industry. Once people have medical insurance, they tend to be more reckless (Drive faster, etc….). In turn, this causes their EMC costs to increase, leading to higher premiums, and more people opting out. To analyze the effect of the moral hazard problem economists estimate the price elasticity of demand for health insurance. Essentially, if price decreases by $20, and the elasticity of demand is .3, then quantity demanded increases by 6 (20 x .3 = 6). Arguably, the lower the PED, the lower the effect of the moral hazard problem. Both adverse selection and moral hazard pose a threat to the viability of the health care industry. In essence, privatized health care is the optimal choice for a capitalist system. Privately owned heath care does limit access, however, for the most part does a decent job.

The main issue related to health care is rising costs. Although no complete solution has been found, employer provided health care has helped immensely.

Overall, privately owned health care provides many Americans with sufficient coverage.

Government Sponsored Health Care Universal Health Care: A government-sponsored system that ensures health care coverage for all citizens of a nation, regardless of income level or employment status
How it works

Universal Health Care works several different ways. Legislation and regulations determine what kind of healthcare will be provided to the public, and on what basis the care will cover. Health care is usually not completely free. Some of the costs are charged to the patients at the time of their incident, but the majority of the costs will be covered by tax revenue and/or compulsory insurance. Although most universal healthcare systems are funded through tax revenue it is not uncommon to see that some universal health care systems are funded through private and public contributions.
Examples of government owned health care

Canada 800px-Flag_of_Canada_svg.png This universal health care system is mostly publicly funded. About 29% of healthcare in Canada is funded by private sectors which helps with costs not covered such as prescriptions and other services that are sometimes not covered in universal healthcare, such as the dentist and eye care. Although Canada has universal health care most people do have private health insurance, usually due to their employment, which does help pay for the services not covered by the universal health care.

Germany800px-Flag_of_Germany_svg.png This is the oldest universal healthcare system which started in 1883. it started off only insuring low income workers but as of today is extended to everyone. As of now, about 85% of Germany's population is covered by this universal healthcare which is a standard level of coverage. The other 15% has their own insurance which covers additional services on covered by the universal plan. Germany's healthcare is funded mostly through the government at 77% and private sectors at 23%.

JapanJapanflag.gif Japan has two types of insurance that each resident of Japan must enroll in. There is social health care and national healthcare. National healthcare is mainly for self-employed people and students, while social health care is mainly for corporate employees. The public health insurance usually covers about 70% of medical costs and drugs. The rest of the bills are to be covered by the resident but not to exceed a certain amount.

How Countries Measure Up

Life expectancy
Infant mortality rate
Physicians per 1000 people
Nurses per 1000 people
Per capita expenditure on health (USD)
Healthcare costs as a percent of GDP
% of government revenue spent on health
% of health costs paid by government

Hybrid Health Care system
Current problem
The U.S. spends an average of $6102 per person on health care expenses (as of 2004). Canada spends $3165, France spends $3159, Australia $3120 and Britain spends $2508. (Source: Organization for Economic Cooperation and Development).

What is it
A plan that combines elements of a government-run program and private sector insurance plans. The goal is still universal coverage, but a hybrid plan aims to cover individuals through the most efficient use of funds.

Why do we need it
Currently, a high percentage of medical spending in the US is concentrated among a relatively small percentage of the population. For instance, hospitalizations account for only 4% of people's interactions with the medical system but take up more than 1/3 of the spending. A hybrid system is one solution to the problem.

Elements of the plan

Universal risk pool
Guarantees coverage to people with catastrophic or chronic medical needs. This pool could be funded by taxes, or payments from employers that would otherwise be spent on high-priced policies.

Mandated coverage with income subsidies
For those who were unemployed or couldn’t afford the premium for the mandate, there would be an income subsidy provided (funded though economies-of-scale savings in re-channeling Medicare/Medicaid costs).

Preferred provider organizations
Would be used to cover minor ailments and patients could join the plan on a voluntary basis. However, if a person chose not to join the plan, they would still be required to pay for any minor treatments received.

Criticisms of the plan:
Some say that is simply consolidates all the high-risk individuals while doing very little to manage costs. Essentially, government would be responsible for administering the high-risk funding pool, but would continue to rely on market forces to shape healthcare decisions.

Luft,Harold. Universal Health Care Coverage: A Potential Hybrid Solution. JAMA 2007; 297

Lazarus, David. Health plan is a private, public hybrid. SF Gate. March 18, 2007

U.S. Treasury Department. Health Savings Accounts. Accessed: May 7th, 2009

National Public Radio. Health Care for All. Accessed: May 7th, 2009.