Healthcare Econ

LO: Understand how much we spend as a nation on healthcare services

GDP (Gross Domestic Product): Total value of all goods produced and services provided in a country during one year. 

NHE (National Health Expenditure): Total value of health specific goods and services provided in a country during one year. 

• Includes things like medications/drugs, labs/scans, healthcare research and innovations, drug development, etc…

The amount that the U.S. has spent on healthcare has risen dramatically, especially as a function of the 2020 COVID-19 pandemic.  Nearly 1 in every 5 dollars is now spent on healthcare.

• In 1970, approx $1,875 was spent per person on healthcare.  It's now $12,531 per person.

Red indicates the amount of healthcare people were utilizing.

Blue indicates the cost of healthcare at the time. 

White bands indicate periods of recession

• 1990s had a significant drop off in healthcare usage as a result of the recession. 

  • Forgoing healthcare in times of economic strife, certain components of healthcare are deemed non essential and are dropped in times of instability.

• Mid-1990s started seeing managed care plans take hold to address constant increases in healthcare prices.  An attempt to limit unnecessary care by insurance companies and also to increase their bargaining power (for lower prices). 

  • Saw significant decreases in price and amount of healthcare delivered. 

    • Less likely to order unnecessary tests (labs/scans)

    • Increase in administrative hoops to receive certain healthcare elements.

• Early-to-mid 2000’s saw the rise of PPO plans.

  • More choice for the patient to receive certain scans/treatments. 

• The 2008 recession saw a significant decrease in both the price of healthcare and the amount of people seeking it out. 

• Significant drop-off in healthcare utilization due to COVID-19 due to significant shutdowns, stay at home orders, etc…  

A large portion of healthcare spending was on inpatient care within the hospital. 

- Physician and clinic expenditures (Outpatient) make up 20% of spending.  

- Prescription costs are around 8% of spending. 

- Nursing care facilities only make up around 4.8% of spending.  Due to an aging population, this number is expected to rise significantly.  Insurance usually does not cover this type of care…

Growth in healthcare spending from 2019 to 2020 was driven by an increase in public health spending.

• Federal and state/local public health spending campaigns

• Hospital expenditures and Administrative costs (lol)

• Physician and clinical expenditures. 

LO: Understand the relationship between spending on healthcare and life expectancy

Despite increasing healthcare costs, the US doesn’t appear to have any significant gains in lifespan expectancy (as compared to other countries).

- Insurance system and administrative costs

- Investments in healthcare innovation

Despite the fact that we spend a lot of money on healthcare…

• The US has had an alarming sustaining of the childhood mortality rate when compared to other parts of the world.

• The US has also sustained a higher maternal mortality rate since the 1990’s and even has shown a trend upwards in deaths.  

That’s all the lecturer talked about for this…?

LO: Appreciate trends in who uses healthcare

Important points

- High healthcare spending in the 1st year of life and later on in the elderly years. 

- Life expectancy of women is higher than men; Produces a higher average spending cost.

- Medicare accounts for much of the spending and insurance of those above the age of 65. 

Medicare Usage

• 10% of medicare beneficiaries use nearly 60% of the total cost allocated for medicare spending.

  • Higher spending due to inpatient hospital costs and increased treatment costs; Sicker people generally require more expensive care. 

    • Average per capita medicare spending: $10,584 

    • Average per capita medicare spending of top 10%: $61,722

    • Average per capita medicare spending of bottom 90%: $4,897

Healthcare Cost Overall

• Around 5% of the U.S. population uses 50% of the total U.S. expenditures of healthcare. 

  • Most people don’t end up utilizing healthcare (or don’t end up needing it)

  • But when someone in this 5% gets sick, they need a much higher utilization of healthcare.

LO: Understand how we pay for healthcare.

Payment avenues for healthcare.

- A large percentage of healthcare payment is coming from insurance.  (Private health insurance, medicare, medicaid, etc…)

- Out of pocket costs are around 9%.

Government accounts for approximately 2/3rds of our insurance coverage

Private health insurance is often through employers or schools (for people under the age of 65).

Healthcare payments are often done through intermediates, whether it be government systems or private employer networks.  

• Gov: Medicare/Medicaid/etc…

• Employers: Premiums and employee perks for healthcare plans. 

Overall trend of healthcare payment includes…

• People over 65 utilize public funding to pay for healthcare costs.

  • Medicare: Coverage for people over 65.

  • Medicaid: Coverage for people from low-income backgrounds.

• Those under 65 utilize more private insurance options accessible through their employer. 

LO: Understand how Medicare (for ages >65) is funded and future challenges

Medicare is primarily funded through taxes. 

•  Part A: Hospital.  Funded through payroll taxes or the contribution of working people through their employer. 

• Part B: Outpatient coverage. Funded through general taxes from a variety of different sources (will draw from the same large pool of taxes in the U.S.)

• Part D: Prescriptions.  Funded through general taxes just like outpatient coverage. 

Concerns for the Future…

• Older adults are projected to outnumber younger adults and children by the year 2034.

  • Increased prevalence of the aging population due to improvements in health.

  • Decreased birth rates in the U.S. 

• The ratio of worker to beneficiary continues to increase as people continue to live longer.

  • Solutions presented (at the current moment) are either to increase taxes or decrease the benefits that are given.  

• Federal spending of both medicare and medicaid is expected to continue rising.

• As of 2018, Medicare makes up 15% of the federal budget.  Medicaid makes up 11%.

Medicare advantage is a buy-in option in which people can choose that covers more options.  Involves the government making an approved plan with a private insurance company.  

• The frequency of people choosing this option is going up, further driving up the cost for medicare on government funds.