Life_Worth_08 - How Much is a Year of Life Worth PAM 435...

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How Much is a Year of Life Worth? PAM 435 January 31, 2008
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Objectives From Tuesday’s Class How much does the U.S. spend on health care? Where does the money come from and where does it go? How are health costs trending over time? If the trend continues, can we afford it? Why is spending increasing so rapidly? Why does the U.S. spend so much more than other countries?
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Source: Blendon, 2006. 19 5 8 14 19 35 % of Survey Respondents Who Believe a Specific Factor is Causing Health Care Costs to Rise Malpractice lawsuits Profits from pharmaceutical & insurance firms Greed & waste Medical technology and drugs High physician fees Other Do Americans Know the Answer?
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Proportion of spending on each health sector in 2005 X Spending growth rate in each sector, 2005 - 2006 = Overall growth rate of health spending The Math Behind Cost Growth Rates, 2005-2006 X 0.37 0.25 0.12 0.10 0.16 Hospitals Physician services Rx drugs Other Nursing home 0.070 0.026 0.059 0.015 0.085 0.010 0.053 0.005 Source: analysis of data in Catlin, 2008. 0.069 0.011 0.067
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0% 2% 4% 6% 8% 10% 12% 14% 16% 1960- 1970 1970- 1980 1980- 1990 1990- 2000 2000- 2006 Hospitals Physicians Nursing home/home care Rx Drugs Overall Source: CMS and Catlin, 2008. Average Annual Real Spending Growth Rates by Health Sector by Decade
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Most Experts Believe Persistent Growth of U.S. Health Care Spending Due to Convergence of 4 Factors The Perfect Spending Storm 1) Innovation: development of new medical technologies 1) Expansion of public insurance programs to pay for them 3) Reimbursement incentives: physicians and hospitals are paid to “do stuff” rather than produce health 1) Consumers don’t face the full price of medical care at the point of care (e.g., the pharmacy or MD’s office)
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Although Medical Care is Expensive, Few People Face the Full Price When Deciding How to be Treated Other Public, 8% Private Insurance, 36% Out of Pocket, 16% Medicaid, 17% Other Private, 4% Medicare, 19%
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15% 12% 5-10% 63-68% New (Expensive) Technology Is the Engine Driving Increases in Medical Spending Causes of Growth in Medical Spending, 1950-1987 Aging of population Increase in personal income Technological change : new drugs, procedures, devices, increased “intensity” of care. Source: Newhouse, “Medical Care Costs: How Much Welfare Loss?”, Journal of Economic Perspectives , Summer 1992. More generous insurance coverage
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$2,235 $2,249 $2,467 $2,508 $2,825 $2,881 $3,041 $3,044 $3,120 $3,124 $3,159 $3,165 $3,966 $4,077 $6,102 Finland Japan Italy UK Sweden Denmark Netherlands Beligium Australia Austria France Canada Norway Switzerland US Source: OECD Health Data 2006.
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  • Spring '08
  • Nicholson
  • medical care, health spending

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