Economics of Health Tuesday 1 08 13 Health care DOES NOT health insurance HC or med care goods and services that maintain improve or restore individuals physical social or mental being 6 health inputs med care lifestyle SES technology environment profile gender etc lifestyle Health insurance protection against financial loss from illness or bodily injury o Unexpected prob is estimated It is between 0 and 1 but not 0 or 1 o Insurance in general promise of compensation for potential future loss in exchange for a periodic payment premium HC is the actual good or service by Dr s H Insurance is how people pay for it Moral hazard When individuals change behavior because they are protected from risk o Ex stossel building on beach The peltzman effect when the potential benefit of a safety regulation is offset by an increase in risky behavior Health Insurance in WWII Most US adults obtain health insurance through employer WWII wage freeze Companies gave benefits to hire new workers because could not offer higher wages Tax exempt if through employer wage freeze Thursday 1 10 13 Health Insurance through Employer Pro economies of scale employer can buy in bulk Risk pooling Discounted Con too much insurance Lack of choice Lose job means you lose insurance Job lock especially lower income single mothers 1 Economics of Health Productive Inefficiency 1 Failure to undertake an action where the benefits exceed the cost 2 Undertaking action when costs exceed benefits If either 1 or 2 happens we have inefficiency OR statements Two ways to organize Economic Activity Market Voluntary exchange Govt involuntary in action taxes regulation Shortcomings of the market aka market failures 1 Lack of competition 2 Externalities 3 Public Goods 4 Lack of Information Lack of competition When firms have market power aka monopoly power Tend to produce too little and charge too much Theory anti trust law Practice The monopolist could decrease the quality The monopolist could shut down Externalities When a third party is impacted by actions of buyer or seller How economics saved Christmas Ex Dog barking at cars both positive and negative externality Not always clear Negative Externality 2 Economics of Health When third parties harmed by actions of buyer or seller too much is produced The price is too low Positive Externality When third parties receive a benefit from the actions of buyer or seller too little is produced The price is too high How should Government enhance efficiency Negative Theory tax it Positive Theory Subsidize Practice Costs and benefits are unknown vaccine Public Goods Externality has diminishing effect with each additional aka first person 1 Non rival in consumption its availability to others Example YouTube video good Example Fireworks show 2 Non excludable it is impossible to exclude nonpaying customers from receiving the making a good available to one consumer does not reduce Examples Spraying to prevent mosquito everyone wins not just your yard National defense Too little is produced How could government enhance efficiency Theory Government taxes citizens and provides the good Practice What is the correct amount Too much or too little national defense Private Goods 1 Rival in Consumption 2 Excludable Just because it s publically provided doesn t make it a public good Examples of private goods Health care health insurance education mail delivery water parks Information Problems Imperfect Information both the buyer and the seller lack important information about the good or service Example Reaction to drug or treatment Both Doctor and patient do not know Asymmetric Information One party the buyer or the seller has more information than the other 3 Economics of Health Buyer knows more Insured knows more about their own habits than the insurance company For example lying about smoking Seller knows more Doctor knows more than patient about it Lack of information Theory Government can provide information of the drug FDA Licensing regulation Practice FDA imperfect at gathering the information delaying time to the market Also tends to increase the cost Info problems are more likely when Seldom buy and difficult to inspect Capable of serious harm to consumer Theory Vs Practice Private Sector Lowering costs selling more means more profit performing bad means out of business Public Sector Lowering costs means lower budget performing bad is often an argument for more funding OBJECTIVES CH 1 Health Care Resources Resources are scarce wants are unlimited Trade offs are a fact Normative Economics opinions Positive Economics Hypotheses about what will happen hypotheses can be tested Not enough Health care to go around Not if we should ration care but HOW and WHO should ration it All countries ration care UK about 50K per life year o UK has National Institute Clinical Excellence NICE Run Cost effectiveness studies to find cost per life year Based on findings approve or reject drugs procedures Things that won t solve scarcity emphasis on preventive care best practices electronic medical records Tuesday 1 15 13 Last class recap Health care V health insurance Positive efficiency o All B C 4 Economics of Health o No B C Market Shortcomings o Lack of competition o Externalities o Public Goods o Lack of information Production Possibility Curve Opportunity Cost Law of increasing opportunity cost value of the next best alternative that is given up o Society gives up ever increasing units of one good to receive more equal increments of another good o Resources are not perfect substitutes o Production Possibility Curve PPC We want to be on the PPC normative question is where on it Movement from A to B costs fewer goods than movement from C What should be Produced Normative question What combo of medical goods other goods What types of med goods Who will receive the output Normative question 5 Economics of Health Allocative efficiency Choosing the best point on the PPC How are resources distributed Pure market system Incentive to be productive Goods distributed on willingness and ability to pay Perfect egalitarian objective of distributing goods equally to all Can obtain good without as much regard to income How to get most output Positive topic Getting the max output from limited resources because the best mix of inputs has been chosen to produce each good ANY point on the PPC so even where one axis is 0 Assumes can accurately measure quantities of goods and services o We measure in dollars this may not be perfect