Vickie Nguyen
Assignment #4 Ch. 22
#4,6,8,15 (pp.510-511)

4.
a) The implications of rapidly rising health care costs have affected the growth of real wage rate greatly. Gains in workers’ total compensation generally match gains in productivity. When health care costs rise more rapidly than productivity, firms wanting to maintain the existing level of health care benefits for their workers must reduce the growth of the wage portion of the total compensation package. In the long run, workers bear the burden of rising health care costs in the form of slower-growing wages.

b) The implications of rapidly rising health care costs have also affected the government budget. It has affected the federal states, and local government budgets negatively because of unpredictable health care expenditures. In the past two decades, spending for health care through Medicare and Medicaid has been by far the fastest growing-growing segment of the federal budget. To cover those rising expenditures, the government must either raise taxes or reduce the portion of the budget used for national defense, education, environmental programs, scientific research, and other spending categories. The states are also finding it difficult to cover their share of the Medicaid bill. Most of them have been forced to raise their tax rates and search for new sources of revenue, and many of them have had to reduce spending on welfare, and education Local governments face similar budget strains in trying to finance public health services, hospitals, and clinics.

c) Lastly, the rapid growth of health care costs has also affected offshoring of US jobs. Burdened by rising insurance costs, some firms may find it profitable to shift part of their production to outside suppliers that may be either domestic or international. This outsourcing may lower labor costs in situations where the outside suppliers provide fewer medical benefits to their workers. Offshoring has shifted jobs to developing economies such as Mexico, India, and Canada. Although labor productivity in these countries is considerably lower than the US, lower wages and employer-provided medical benefits may be sufficient to make offshoring profitable. Rising domestic medical expense therefore may join a host of other factors, including shifts in comparative advantage, in encouraging this practice.

6.
The three peculiarities of the health care market are ethical and equity considerations, asymmetric information, positive externalities, and third-party payments.
Ethical and equity considerations inevitability intervene in markets when decisions involve the quality of life, or literally life or death. Although we might not consider it immoral or unfair if a person cannot buy a Mercedes or a personal computer, society regards it as unjust for people to be denied access to basic health care or even to the best available health care. In general, society regards health care as an “entitlement” or a “right” and is reluctant to ration it solely by price and income.
Asymmetric information is when health care buyers typically have little or no understanding of complex diagnostic and treatment procedures, while the physicians, who are the health care sellers of those procedures, possess detailed information. This creates the unusual situation in which the doctor as the agent of the patient tells the patient what health care services he or she should consume.
Positive externalities are when the medical care market often generates positive spillover benefits. For example, an immunization against polio, smallpox, or measles benefits the immediate purchaser, but it also benefits society because it reduces the risk that other members of society will be infected with a high contagious disease. Similarly, a healthy labor force is more productive, contributing to the general prosperity and well being of society.
Third party payments are due to 4/5 of all health care expenses are paid through public or private