ECP4530 ECP55306 Economics of Health Midterm 1 Outline and Practice Problems Objectives Introduction to Health Economics and health insurance health care Define the terms and explain the difference Health Care also called Medical Care o Goods and services that maintain improve or restore and individual s physical social or mental well being Health Insurance Protection against financial loss from illness or bodily injury Distinguish between positive and normative concepts Positive what is Normative what should be Examples of positive issues vaccine Examples of normative issues What is price elasticity of demand for medical care Will a tax credit for R D stimulate investment of pharmaceutical firms in a new Should copayments for physicians services be raised more for persons in the top 10 of the country s income distribution Analyze and discuss responses to incentives in health care and health insurance contexts Copayments Increase in copayments lead to a decrease in demand Coinsurance Coinsurance rotates demand curve around x intercept each demand curve s origin on the x axis same x intercept for consumer without insurance and with consumers with 0 coinsurance Demand becomes less elastic Steeper as insurance pays a higher and consumer pays less of actual bill Deductibles Small deductible will lead to an increase in the demand Indemnity Spend more since insurance pays up to that amount For example paying for a 20 flu shot Shift demand up by 20 Consumer behaves as if good is 20 cheaper Discuss the magnitude of uncompensated care in the U S 88 billion NHE 3 Trillion 34 7 Billion Truly Uncompensated Uninsured 2 443 vs Insured 4 876 Decline to 27 3 Billion in 2014 Not an issue in Canada and UK Uncompensated care totals 1 to 3 Insured consume more healthcare 79 88 Billion in 2013 Uncompensated 60 in Hospitals o Leads to higher prices raised by hospitals and higher taxes from the govt Cost goes on higher income insured people Most of the uncompensated care is paid by the Federal Govt Explain patterns and sources of gains in life expectancy within and across countries 1820 1920 Medical Care improvements were not a big contribution Nutrition and Health played a big factor sanitation water treatment sewage After 1920 Income per Capita Increased Positive relationship between population health in country and its per capita GDP Factors underlying this relationship role of provision of personal health care services versus other factors Per capita GDP causes population health and population health causes per capita GDP Discuss features of the health care market that distinguish it from other markets Share of GDP allocated to health care is positively associated with income Health care is a normal good Efficiency and equity concerns Health care is not a public good is rival in consumption Moral Hazard Reduction in moral hazard includes Non zero deductibles copayments coinsurance lower premiums for high deductibles referrals Preventative care is cheaper wait times network Adverse Selection Consumers know more about their health than insurers Externalities Impacts of a 3rd party Pure Health vaccines Cost Shifting Financial externality Uncompensated care Moral hazard changes health insurance premiums Insurance causes over consumption MC MB Govt Intervention Medicare public clinics U S About 50 of health service expenditures from public funds Medicaid Medicare VA Demand for Health Care Services Compute and interpret elasticity of demand cross price elasticity and income elasticity Price Elasticity The percent change in quantity demanded divided by the percent change in the price Must be negative i d xi d pi pi xi Elasticity 1 Inelastic Urgent care Elasticity 1 Elastic Doctor visits and Rx drugs Cross Price Elasticity The percent change in quantity demanded of good i divided by the percent change in the price of good j ij d xi d pj p j xi Can be positive or negative Substitutes o ij 0 o A decrease increase in price of good j leads to a decrease increase in the quantity demanded of good i Complements o ij 0 o A decrease increase in price of good j leads to an increase decrease in the quantity demanded of good i Calculate illustrate and explain how various types of insurance impact demand curves Fixed Dollar subsidy or indemnity Insurance will pay a fixed dollar amount per service Not much protection from risk Not much demand distortion D1 Demand without insurance Ad Valorem Subsidy Fixed Percentage Increase D0 is no coinsurance D1 is middle coinsurance There would be a vertical line where D0 and D1 hit the x axis this would if coinsurance is 0 Deductible Dollar amount consumer must pay before insurance pays for care D is the demand for a medium healthy person consumer is a price taker D1 is the Demand for healthy individuals Deductible may or may not impact quantity of care consumed depends on size of deductible and health of consumer Disregard supply Interpret the time price equation pf the full price of anoffice visit c coinsurance rate p the physician s fee Time Price pf cp wt w value of patien t stime wage t total patient time consumed bya visit How does cost sharing affect demand for health services List the research questions of the RAND HIE Total Increased cost sharing caused families to use less care Outpatient and inpatient care are complements deductible plan had lower admissions Does consumption of services improve health How does payment to provider s impact expenditures Specific Fee for service Capitation Interpret the findings of the RAND HIE than free plan Cost sharing and ER visits Deters less urgent visits No real impact on urgent visits Cost sharing did not reduce health outcomes if Not low income Not initially of poor health Exceptions glasses and oral health Initial hypothesis low income more sensitive to cost sharing Findings little income elasticity variation by income Explanation time cost Rx drugs For acute conditions demand more elastic For chronic conditions demand less elastic Overall 0 44 to 0 08 Drug formulary Results of Higher Income and lower income people didn t change their spending US Health System Public Financing Discuss government provision of health insurance in the U S ACA Medicaid expansion all 138 Federal Poverty Level Exchanges State run tax credits toward premiums Supreme court ruling 2012 States don t have to expand Medicaid Most Provisions implemented in 2014 Some States expand Medicaid Federally Individual mandate upheld facilitated Tax Credits for market