Chapter 5: Introduction
Health Care Reform: How Much?

There was a health care chapter in the 2nd edition of this textbook. This chapter retains so little of that material, however, that users of the 2nd edition will have to prepare a new set of health care lecture notes.

There are two primary concerns about health care in the United States: (1) that we are spending too much on health care, and (2) that although we spend too much, a significant number of Americans still receive inadequate health care. We focus primarily on the first of these concerns because it seems t dominate the discussion of health care reform and because elementary economics is especially helpful in clarifying this issue.

There is "too much" health care whenever the Marginal Social Cost (MSC) exceeds the Marginal Social Benefit (MSB). Accordingly, too much health care is accompanied by net social losses - the are between the MSC and the MSB curves to the right of their intersection. The teacher who wants to develop this point can find some help by perusing chapter 7 where we develop this measure for the net social loss from pollution.

We do not discuss the health care reform proposals that were the subject of intense debate in Congress last year. Our objective is to analyze one of the basic tenets of health care reform; namely, that we are wasting an inordinate amount of scarce resources on the production an delivery of health care. We are somewhat skeptical of the validity of this premise. In any event, the focus we have allows for a discussion of many of the issues that will continue to figure prominently in the health care reform debate

Instructional Objectives
After completing this chapter, your students should know:

1. The marginal test for determining the appropriate level of an activity, such as the provision of health care.
2. The principle reasons why there may be too many resources devoted to health care.
3. The more, and less, important causes of "too much" health care.

Terms from Previous Chapters

You should review the terms in this section at the beginning of your discussion of the chapter.

law of demand (Chapter 1)
marginal social benefit (Chapter 2)
marginal social cost (Chapter 2)

Key Terms
These terms are introduced in this chapter:

third-party payment
partial-cost payment
marginal private benefit
marginal external benefit
physician-induced demand
experience-rated insurance
managed-care organizations

Additional References

In addition to the references in the text, instructors may wish to read or assign one or more of the following:

1. Davis, Karen "Access to Health Care in a Cost-Conscious Society" In Access to Social Care: Who Shall Decide What? edited by Helen Rehr, (Lexington, MA: Ginn Press, 1986).
2. Eberstadt, Nick "Economic and Material Poverty in the United States" The Public Interest (Wimer 1988).
3. Blendon, Robert J., Drew Altman and Saul Kilstein, "Health Insurance for the Unemployed and Uninsured" National Journal (May 28, 1983).
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