HSCI 305 Lecture Notes - Lecture 4: Moral Hazard, Aggregate Demand, Keynesian Economics

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HSCI 305 Lecture 4 – Health Care Financing and Payment for Providers
Definitions and basics; how we pay for health services (structure of finances); how we pay our health care
providers (professional vs workers, politics of designation, payment models)
Equality (everyone given a stool)
- “Canada’s publicly funded health care system is based on the concept of equality. It is designed to
ensure that everyone has the same access to health care providers and services regardless of their ability
to pay for care”
- Middle income inequality – mid range for infant deaths per 1000 live births (~5.2)
- Health and social problems are worse in more unequal countries
Equity (everyone given stools to be same height)
- “making sure that people have they need to achieve and maintain health and well-being”
Keynesianism
- In the short run, especially during recessions, economic output is strongly influenced by aggregate
demand (total spending in the economy)
Neoliberalism
- Dismantles the welfare state through privatization of public services and state-run corporations, the
liberalization of trade, and the deregulation of environmental and labor standards
Market principles applied to health care
- Is health care a commodity? Need vs. want
- Can “consumers” freely choose whether to participate, and between services and/or providers?
- Can we expect “consumers” to have the information necessary to make informed choices between
competing “suppliers”?
- What are the practical and ethical implications of “suppliers” (physicians and hospitals) fighting for
market share?
- What recourse mechanisms exist for unsatisfied customers?
In reality…
- Physicians have a degree of control over patient demand
- Physicians have a great deal of power of the patient: “in the expert’s hands” (Grignon)
- “there is simply no such thing as informed and independent demand for care on the part of the patient”
(Grignon)
- “the physicians latitude to persuade he patient that what he needs is precisely what will maximize the
physician’s income may increase with the patient’s degree of morbidity” (Grignon)
Single-payer Insurance (what we have)
Alternative?
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- Introduce cost-sharing mechanisms within public system
- Expand private for-profit insurance
- Expand not-for-profit insurance
^All three have inherent faults and weaknesses. Single payer insurance is sound.
Moral Hazard
- “the term economists use to describe the fact that insurance can change the behavior of the person being
insured”
oRisky behavior
oOveruse of services
- “if you think of insurance as wasteful consumption of medical services, than the fact that there are forty-
five million Americans without health insurance is no longer a cause for immediate alarm” (Gladwell)
Cost Sharing
- In health, cost-sharing occurs when patients pay for a portion of health care costs not covered by health
insurance
- Co-payments & deductibles designed to counteract moral hazard – attempt to make use of insured
services “more efficient”
What Does the Evidence Say?
- Cost sharing decreases utilization.. of all kinds; highly effective care and care to the same degree
- Reduces the use of preventive services
oAmong women 45-65 years of age, cost-sharing reduced the use of Pap smears from 65% to 52%
over a 3-year period
- Associated with negative health outcomes, especially in less healthy and lower SES populations
Stephen Lewis on tax-based, single-payer, universal insurance
- Social justice (need vs. ability to pay) - No need for businesses and individuals to
secure private insurance
- Administrative efficiency - Potential to keep prices down – volume discounts
- Public good vs. commodity - Ethical coherence – no assumption that people
- Access and quality affect all – wealthy choose their health states
and poor
- “Neither premiums, nor co-payments, nor surtaxes based on use, nor offloading programs will fix
health care. They will merely increase citizens’ and businesses’ costs and erode equity.”
Woolhandler et al. (2003) Physicians & hospitals
- Average US hospital devoted 24.3% of spending to administration vs. 12.9% in Canadian hospitals
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Document Summary

Hsci 305 lecture 4 health care financing and payment for providers. Definitions and basics; how we pay for health services (structure of finances); how we pay our health care providers (professional vs workers, politics of designation, payment models) Canada"s publicly funded health care system is based on the concept of equality. It is designed to ensure that everyone has the same access to health care providers and services regardless of their ability to pay for care . Middle income inequality mid range for infant deaths per 1000 live births (~5. 2) Health and social problems are worse in more unequal countries. Equity (everyone given stools to be same height) Making sure that people have they need to achieve and maintain health and well-being . In the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy)

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