Chapter 10- Social Insurance Health care Public economics
1 Chapter 10 – Social Insurance II: Health Care Public Economics
What's Special About Health Care? Health care costs are large and growing fast Number of reasons why First Welfare Theorem may be violated Poor information(physician induced demand Adverse selection and moral hazard Disease externalities
2 What’s Special About Health Care? • Health care costs are large and growing fast • Number of reasons why First Welfare Theorem may be violated – Poor information (physician induced demand) – Adverse selection and moral hazard – Disease externalities
What's Special About Health Care? In the context of health care moral hazard can be analyzed in a conventional supply-and-demand framework Health insurance changes the price of health care, and creates deadweight loss
3 What’s Special About Health Care? • In the context of health care, moral hazard can be analyzed in a conventional supply-and-demand framework. • Health insurance changes the price of health care, and creates deadweight loss
Figure 10.1 三 Original Insurance expenditures I Additional expenditures induced by Insurance .2P Medical services per year
Figure 10.1
What's Special About Health Care? Without insurance, consume Mo of health care services Insurance in this example lowers the price of services to 20% of actual price With insurance. consume M of health care services Deadweight loss equals abh
5 What’s Special About Health Care? • Without insurance, consume M0 of health care services. • Insurance in this example lowers the price of services to 20% of actual price. With insurance, consume M1 of health care services. • Deadweight loss equals abh