Chapter 31 (cont.)Income, Poverty, and Health Care

Slide 31-2

Poverty and Attempts to Eliminate It

Defining poverty

– Official poverty level in 2005 for an urban family of four was $19,000.• Adjusted annually for inflation• Does not include transfer payments

Slide 31-3

International Example: The U. S. Poverty Level Vs. Incomes Abroad

The World Bank publishes an annual report giving the per capita incomes of about 150 nations.

Of these, only 26 have per capita incomes higher than the poverty income threshold defined for the U.S.

Slide 31-4

Relative Poverty: Comparing Household Income and Household Spending

Source: Bureau of Labor Statistics; U.S. Bureau of the CensusFigure 31-7

Slide 31-5

Poverty and Attempts to Eliminate It

Attacks on poverty: major income maintenance programs

– Social Security• OASDI

– 90 percent of all employed persons covered– In 2005, 45 million people received OASDI

payments averaging $875/month

Slide 31-6

Poverty and Attempts to Eliminate It

Supplemental Security Income (SSI)

– Minimum income for the:• Aged• Blind• Disabled

Slide 31-7

Poverty and Attempts to Eliminate It

Temporary Assistance to Needy Families (TANF)

– 5-year limit for each person

– Must seek training and employment

Slide 31-8

Poverty and Attempts to Eliminate It

Food stamps

– Government-issued coupons that can be used to purchase food

– In 2005, one in nine citizens received food stamps

Slide 31-9

Policy Example:What are Food Stamps Worth?

Food stamps can only be used to purchase food items approved for the program.

When food stamp coupons are traded illegally on the underground market, they are traded at about 65 percent of their face value.

Slide 31-10

Poverty and Attempts to Eliminate It

Earned Income Tax Credit Program

– Families with low incomes receive a graduated benefit

Slide 31-11

Poverty and Attempts to Eliminate It

No apparent reduction in poverty– 1973—11 percent

– 1983—15 percent

– 1990—13.1 percent

Slide 31-12

Health Care

America’s health care situation

– 16 percent of U.S. real GDP is devoted to spending on health care.

– Per capita spending on health care is greater in the United States than anywhere else in the world.

Slide 31-13

Percentage of Total National IncomeSpent on Health Care in the United States

Figure 31-8Source: U.S. Department of Commerce; U.S. Department of Health

and Human Services; Deloitte and Touch LLP; VHA, Inc.

Slide 31-14

Health Care

Why have health care costs risen so much?

– The age-health care expenditure equation• Aging population increases the demand for

health care

– New technologies

– Third-party financing

Slide 31-15

Third Party versus Out-of-Pocket Health Care Payments

Figure 31-9Source: Health Care Financing Administration;

U.S. Department of Health and Human Services

Slide 31-16

Health Care

Price, quantity demanded– Large percent of medical services payments

made by third parties

– Price to the consumer drops and the quantity demanded increases

Moral hazard and consumers– An individual with a zero deductible for medical

care may engage in a less healthful lifestyle than one who must pay a $1,000 deductible

Slide 31-17

The Demand for Health Care Services

At P1 quantitydemanded is Q1.

If the price fallsto zero, quantitydemanded increasesto Q2.

Figure 31-10

DP1

Q1 Q2

Quantity of Health Care Services per Year

Pric

e

Slide 31-18

Health Care

Moral hazard as it affects physicians and hospitals– Due to third-party payments, patients do not

have to worry about the cost of operations and medical procedures.

– Physicians and hospitals order more of them since they are reimbursed on the basis of medical procedures.

Slide 31-19

Health Care

Fully 30 percent of Medicare expenditures are for patients in their last year of life.

Slide 31-20

Health Care

Is national health insurance the answer?

• 40 million Americans are uninsured at some point during the year

• National health insurance would increase the amount of national income devoted to medical services

Slide 31-21

Federal Medicare Spending

Figure 31-11Source: Economic Report of the President;

U.S. Bureau of Labor Statistics

Slide 31-22

Health Care

Countering the moral hazard problem: a Health Savings Account (HSAs)

– A tax-exempt health care account to which individuals would pay into on a regular basis and from which medical care expenses could be paid

Slide 31-23

Issues and Applications: Should U.S. Health Care Copy Other Nation’s Programs?

Is the rise in health care costs evidence of a crisis?

To a certain extent, residents of the U.S. choose to spend more on health care.

In other countries, waiting lists for certain procedures serve to dampen the amount of health care people receive.

Slide 31-24

Summary Discussion of Learning Objectives

Using a Lorenz curve to represent a nation’s income distribution– The more bowed a Lorenz curve, the more unequally

income is distributed

Key determinants of income differences across individuals– Age

– Marginal productivity differences

– Discrimination

Slide 31-25

Summary Discussion of Learning Objectives

Theories of desired income distribution– Productivity standard

– Egalitarian principle

Alternative approaches to measuring and addressing poverty– Absolute poverty standard

– Relative poverty standard

Slide 31-26

Summary Discussion of Learning Objectives

Major reasons for rising health care costs– Aging U.S. population

– Higher priced medical technologies

– Third-party financing of health care expenditures

– Moral hazard

Slide 31-27

Summary Discussion of Learning Objectives

Alternative approaches to paying for health care– Rationing by price

– Rationing by queues

End of Chapter 31Income, Poverty, and Health Care